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Understanding Google’s Ad Rank Formula in PPC

Samuel Edwards
|
June 3, 2023

Everyone that has worked with pay-per-click (PPC) ads knows how competitive the landscape is. PPC is all about jockeying for ad position, and it’s an endless struggle against your fiercest competitors.

Needless to say, PPC is a cutthroat industry.

If only there was a way to gain some type of advantage…

Actually, Google ads uses an ad rank formula that’s responsible for advertisers fighting for online placement. Understanding how this ad formula works can provide you with a competitive advantage.

Google’s ad formula is broken up into three different parts:

  1. The maximum cost per click (CPC) of your bid
  2. Your auction time ad quality score/quality score
  3. The impact from ad configuration and ad extensions

Honing in on these areas and ensuring they are top quality will undoubtedly help your ad  rank at the top of any search page. Below, you’ll learn all about Google ad rank formula and begin putting in the work to outrank your top competitors.

Cost Per Click (CPC)

The first area of Google’s ad rank formula we’ll discuss is the CPC of your bids. When you think of an ad rank position, think of how popularity existed in high school. Everyone wants the top spot, but you’ll have to be willing to pay to get there.

By using Google’s keyword research tool and browsing your own dashboard, you can quickly learn where you ad ranking in relation to the top spot of your chosen keywords. In fact, Google does all of the hard work in telling you how much you’ll need to bid to reach the top spot for a keyword.

Though, sometimes this feature isn’t completely accurate. A general rule of thumb to follow is when you add a new keyword to your dashboard, view the estimate from Google’s dashboard, and round up to the nearest ten to determine your maximum CPC bid.

For example, if Google shows an estimate of $14.26, you should expect to spend at least $20. After a few days of running your campaign, you can start lowering your bid if your google ads are doing great and lowering it if they are performing poorly.

The status column will let you know if your bid is below the first page bid. Until you receive any information otherwise, you should place your maximum CPC bid at the amount Google requests for your ad rank on the first page.

Cost Per Click

Lastly, the average position column on the Google Ads dashboard is where your ads are showing up live. To recap, the first three positions are at the very top of Google search results page/Search Engine results page and are the most likely to be clicked on.

All other positions will fall to the other pages on Google and will likely never be clicked on. This column should help any advertiser let you know when to raise and lower your build. Your choice should be based on where you want your ad rank to be positioned on Google and the budget you have to spend.

When you are in a very low position, you should double your bid. On the other hand, if your ad is in a top position, you should slowly lower your bid to take advantage of a few extra clicks for your budget. Or, you can use automated bidding.

When you’re new to setting up a Google ads campaign, expect to raise your bid at first to optimize your placement and budget. When you begin to figure out the right budget to achieve your desired placement, you can scale back your spending.

In addition, you may want to visit our guide for methods on how to lower your cost-per-click.

The Quality Score

To use another analogy, your campaign’s quality score is similar to being a well-rounded student when it’s time to complete college applications. Your quality score is determined by:

  • Expected Click Through Rate — This is how many people will click on your ad and travel to your landing page.
  • Landing Page Relevance — This is a measurement of how relevant your landing pages is to your ad. For example, if you’re selling shoes through an ad, your landing pages can’t be focused on pants.
  • Ad Relevance — This is a measurement of how your ad relevance to the keywords you’re using.

With all of that said, here are some tips to follow to make sure that your campaign has an exceptionally high quality score:

  • Make sure that your ad matches your keywords. For example, if your ad group is focused on winter boots, your ad should mention winter boots. Include relevant keywords in the display URL and headline of your ad.
  • Your landing page experience should also include your focus keywords. If you don’t have a specific landing page, you should send people to the most relevant page on your website.
  • Improve your CTR by making sure that your bid is in a great position (1 or 2). You can do this by including a bunch of negative keywords, a compelling call-to-action (CTA), and captivating ad copy.

Ad Formatting and Ad Extensions

Google offers more than seven Ad extensions to provide your prospects more information or ad formats, make your ad take up more room, and improve your ad rank. Extensions can undoubtedly make your ads look better.

In fact, with ad extensions, your ads can look like this:

Ad Formatting and Ad Extensions

You’re free to use as many ad extensions as you want. This will make it possible for you to showcase multiple sitelinks and CTAs. You can also use extensions to display call and location icons.

Finally, make sure that your sitelink extensions are written in title case to achieve the best presentation, and write callout extensions in sentence case. You also won’t need to use all 25 characters for callout extensions.

Improve Your PPC Ads Today!

It takes a lot of work and tinkering to improve your PPC campaign and turn your budget into a revenue stream. If you don’t have the time or expertise, hiring a PPC agency is definitely in your best interest if you want to lead more people to your website.

At PPC.co, we specialize in running successful campaigns for all kinds of industries. If you want to take your campaign to the next level, contact us today to speak to a member of our team.

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Author
Recent Posts

Samuel Edwards

Chief Marketing Officer

Throughout his extensive 10+ year journey as a digital marketer, Sam has left an indelible mark on both small businesses and Fortune 500 enterprises alike. His portfolio boasts collaborations with esteemed entities such as NASDAQ OMX, eBay, Duncan Hines, Drew Barrymore, Price Benowitz LLP, a prominent law firm based in Washington, DC, and the esteemed human rights organization Amnesty International. In his role as a technical SEO and digital marketing strategist, Sam takes the helm of all paid and organic operations teams, steering client SEO services, link building initiatives, and white label digital marketing partnerships to unparalleled success. An esteemed thought leader in the industry, Sam is a recurring speaker at the esteemed Search Marketing Expo conference series and has graced the TEDx stage with his insights. Today, he channels his expertise into direct collaboration with high-end clients spanning diverse verticals, where he meticulously crafts strategies to optimize on and off-site SEO ROI through the seamless integration of content marketing and link building.

Latest posts by

Samuel Edwards

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-
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Author

Samuel Edwards

Chief Marketing Officer

Throughout his extensive 10+ year journey as a digital marketer, Sam has left an indelible mark on both small businesses and Fortune 500 enterprises alike. His portfolio boasts collaborations with esteemed entities such as NASDAQ OMX, eBay, Duncan Hines, Drew Barrymore, Price Benowitz LLP, a prominent law firm based in Washington, DC, and the esteemed human rights organization Amnesty International. In his role as a technical SEO and digital marketing strategist, Sam takes the helm of all paid and organic operations teams, steering client SEO services, link building initiatives, and white label digital marketing partnerships to unparalleled success. An esteemed thought leader in the industry, Sam is a recurring speaker at the esteemed Search Marketing Expo conference series and has graced the TEDx stage with his insights. Today, he channels his expertise into direct collaboration with high-end clients spanning diverse verticals, where he meticulously crafts strategies to optimize on and off-site SEO ROI through the seamless integration of content marketing and link building.

Related posts

Samuel Edwards
|
May 30, 2025
PPC Case Study: Tampa, Florida Apartment Complex

When this apartment complex client partnered with PPC.co, their goal was clear: generate more qualified leads through Google Ads. In just 60 days—from January to March 2025—we transformed their paid acquisition performance. Total conversions more than tripled, jumping from 10 to 32, while the overall conversion rate soared by over 300%. At the same time, we drove down the cost per conversion by 44%, delivering significantly more leads at a much lower cost. 

By strategically combining Performance Max and high-intent Search campaigns, we not only increased lead volume but improved overall efficiency and ROI. This rapid and measurable improvement underscores the value of data-driven optimization and expert campaign management.

January 2025

March 2025

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Campaign Analysis Summary

January 2025

  • Total Ad Spend: $498.63

  • Total Conversions: 10

  • Cost per Conversion: $49.86

  • Overall Conversion Rate: 1.12%

  • Campaigns Active:

    • Performance Max (PMax):

      • Conversions: 10

      • Conversion Rate: 1.12%

      • Cost per Conversion: $49.86

    • Search Campaign: No conversions or spend.

March 2025

  • Total Ad Spend: $898.54

  • Total Conversions: 32

  • Cost per Conversion: $28.08

  • Overall Conversion Rate: 4.64%

  • Campaigns Active:


    • Performance Max (PMax):


      • Conversions: 19

      • Conversion Rate: 3.74%

      • Cost per Conversion: $27.39

    • Search Campaign:


      • Conversions: 13

      • Conversion Rate: 7.14%

      • Cost per Conversion: $29.08

Strategic PPC Campaign Insights

  • Performance Max Improvements:

    • Conversions almost doubled (10 → 19) with just a 4.4% increase in spend ($498.63 → $520.45).

    • Cost per conversion was nearly cut in half ($49.86 → $27.39), showing better algorithmic targeting or improved creatives/landing page experience.

    • Conversion rate rose from 1.12% to 3.74%, indicating better audience alignment.

  • Search Campaign Activation:

    • Was inactive in January.

    • Delivered strong performance in March with a 7.14% conversion rate and 13 conversions at a very competitive $29.08 cost per conversion.

    • High interaction rate (7.65%) shows strong ad engagement and search intent alignment.

What’s the path going forward? 

  1. Continue Campaign Diversification:

    • The dual strategy of running both PMax and Search campaigns is proving effective. Continue scaling with both to diversify reach and conversion sources.

  2. Increase Budget Strategically:

    • Given the efficiency improvements (43.7% drop in cost per conversion), consider increasing the budget further to capitalize on momentum—particularly for the high-performing Search campaign.

  3. Refine PMax Targeting & Creative:

    • The Performance Max campaign is performing well but has room to improve conversion rate to match the Search campaign. A/B test creatives, refine audience signals, and check landing page relevance.

  4. Track Lead Quality:

    • Ensure that higher conversion volume aligns with high-quality leads or downstream metrics like closed deals or ROI.

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The client was thrilled with the performance. As they put it: 

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We’re super excited about the results! Can’t wait to see what’s to come!”

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Conclusion

This case study is a testament to what can happen when a well-structured campaign meets expert strategy and continuous optimization. Whether you're launching a new property or looking to boost occupancy in a competitive market, PPC.co delivers real results—fast.

Ready to grow your leads and lower your cost per conversion?
Contact us today to schedule a free audit and discover how we can help you achieve similar results.

Click on the following link if you would like to see more PPC case studies! 

‍

Timothy Carter
|
May 29, 2025
The E-Commerce & Retail Guide to Running Profitable Paid Ads

If you’re running an e-commerce or retail business, you already know that visibility is everything. The best product in the world won’t sell if no one sees it. That’s where paid ads for ecommerce comes in. 

Done right, they drive traffic, conversions, and repeat customers. 

Done wrong, they drain your budget and leave you wondering what went wrong.

Whether you’re spending $500 a month or $50,000, your goal is the same: profitability. Not just clicks, and certainly not just impressions. You want to turn ad dollars into real, predictable revenue.

So how do top-performing e-commerce and retail brands make their paid ads work? 

What are they doing that you’re not? 

This guide breaks it down step-by-step, so you can start running profitable ads with confidence.

Understand Your Business Goals Before You Spend a Dime

Before you launch a single campaign, you need clarity on your audience and goals. Are you trying to boost first-time sales? Increase average order value? Each objective requires a different strategy and metrics for success.

  • If your goal is new customer acquisition, your campaigns might be optimized for reach, clicks, or conversions. 
  • If your goal is profitability, you’ll focus more on return on ad spend (ROAS), customer lifetime value (CLTV), and cost per acquisition (CPA).

Don’t fall into the trap of launching ads just to “see what happens.” Paid media works best when it’s part of a bigger strategy. So before you log in to Google Ads or Meta Ads Manager, get specific about what success looks like.

Know Your Numbers

If you want to run profitable paid ads, knowing your numbers is the foundation of your entire strategy. Without a clear understanding of your margins, break-even points, and how much you can afford to spend to acquire a customer, you’re essentially gambling with your ad budget. 

And in e-commerce, that can get expensive fast.

Let’s start with the most critical numbers you need to know:

  • Cost of Goods Sold (COGS). This is what it costs you to produce or source the product you’re selling, including manufacturing, packaging, and shipping to your warehouse (or dropshipping fees). If you’re selling a T-shirt for $30 but it costs you $10 to manufacture and another $5 to ship, your total COGS is $15.
  • Average Order Value (AOV). AOV is the average dollar amount a customer spends when they place an order on your site. If your total revenue for a given period is $10,000 and you had 200 orders, your AOV is $50. This number helps you understand how much revenue you can expect per customer interaction – and it’s key to setting realistic ad spend limits.
  • Gross Profit Margin. This is the percentage of each sale that’s actual profit before marketing and operational costs. Using the example above, if your product sells for $30 and costs $15 to produce, your gross profit is $15, or 50 percent. If your AOV is $50 and your average product costs $25, you’re working with a 50 percent margin overall. Higher margins give you more breathing room with your ad spend.

Your break-even ROAS tells you the minimum return you need on your ad spend to not lose money. It’s calculated by dividing 1 by your gross profit margin. 

So if your margin is 50 percent, your break-even ROAS is 2.0. That means for every $1 you spend on ads, you need to make $2 in sales just to break even.

For example, let’s say you’re running Facebook Ads and spending $1,000 on a campaign. If your break-even ROAS is 2.0, you need to generate at least $2,000 in revenue to avoid losing money. Anything above that is profit. Anything below that eats into your cash.

Once you know your numbers, you can reverse-engineer your ad strategy instead of throwing money into the void and hoping for results. For instance, if your AOV is low (say $25), you might struggle to profit from ads unless you have a very low COGS or high conversion rates. In that case, you might want to:

  • Bundle products to increase AOV
  • Offer free shipping thresholds (e.g., “Free shipping over $50”)
  • Upsell or cross-sell related products during checkout

On the other hand, if your AOV is $150 and your margins are strong, you have more room to compete in ad auctions, bid more aggressively, and test multiple audiences and creatives without instantly wiping out your profit.

A lot of beginner advertisers focus entirely on immediate return from ads. That’s understandable – but short-sighted. If you’re breaking even or slightly losing on the first sale, that might still be a smart move if you’re building long-term customer relationships.

That’s where Customer Lifetime Value (LTV) comes in. If you know that your average customer places three orders a year, each worth $60, then their LTV is $180. If you spend $40 to acquire that customer with your first ad, but earn $140 more over the next 12 months, that ad was extremely profitable in the long run.

Top e-commerce brands build their paid strategies around LTV-to-CAC ratio – how much they earn over time compared to what they paid to acquire the customer. 

A healthy ratio is usually 3:1 or higher. So if you’re spending $50 to acquire a customer, you want to earn at least $150 from that customer over time.

Once you understand your numbers, you can plan your ad spend with precision. You’ll know exactly:

  • How much you can pay to acquire a customer
  • How much you need to make per order to be profitable
  • What kind of ROAS you should target in your campaigns
  • When it’s time to scale or pull back

Let’s say you want to make $5,000 in profit this month, and your product has a 50 percent gross margin. That means you need $10,000 in sales. If your target ROAS is 2.5, you can spend up to $4,000 in ad spend to hit that goal. With those numbers in hand, you now have a roadmap for campaign budgeting, not just a shot in the dark.

Choose the Right Platforms for Your Audience

Every ad platform has strengths. But if you try to use them all at once, you’ll burn through your budget without learning much. Instead, pick one or two that align best with your business model and customer behavior.

If you’re selling visually appealing products like apparel, skincare, or home goods, platforms like Instagram and TikTok can deliver strong returns – especially with the right creative. If you’re focused on high-intent buyers, Google Search and Shopping Ads are goldmines. And if you’re targeting professionals or B2B retail buyers, LinkedIn may offer surprising results.

Test channels strategically. Start with the one that matches where your customers spend their time and scale from there. The best platform for you is the one where your ideal customers are already shopping, scrolling, or searching.

Nail Your Targeting

One of the biggest mistakes retailers make is casting too wide a net. You don’t want everyone to see your ad – you want the right people to see it.

On Google, this means targeting high-intent keywords that signal buying behavior. Focus on terms like “buy,” “best,” “free shipping,” or product-specific searches. On Facebook, Instagram, or TikTok, you’ll want to dial in your custom audiences using demographic data, lookalikes, interests, and behavior.

Don’t forget retargeting. Most people won’t buy the first time they visit your site, but retargeting brings them back when they’re ready. Set up ads that follow people who viewed a product, added to cart, or engaged with your brand but didn’t check out.

The more relevant your targeting, the more efficient your spend and the higher your return.

Invest in Scroll-Stopping Creative

Creative is the make-or-break factor in most e-commerce ad campaigns. You can have perfect targeting and the right product, but if your ad doesn’t grab attention in the first two seconds, it won’t convert.

Your creative needs to do three things quickly:

  1. Stop the scroll
  2. Spark interest
  3. Show value

Use high-quality product photos or videos. Show your product in action. Highlight a clear benefit or solve a specific problem. Incorporate customer reviews or user-generated content to build trust.

For paid social, test multiple creatives at once – video vs. image, UGC vs. branded, short-form vs. long-form – and let performance data guide your iterations. On search platforms like Google, focus on copy that’s compelling and packed with relevant keywords. Test different headlines and descriptions to see what gets the best click-through rate.

Use Landing Pages That Convert

Sending paid traffic to your homepage is a rookie mistake. You want every click to land on a page that’s designed to convert. That means fast load times, mobile optimization, and a clear call-to-action.

If you’re promoting a specific product, send users to that product page and not your full catalog. If you’re offering a bundle or a seasonal deal, create a dedicated landing page with copy, visuals, and layout tailored to that offer.

Remove distractions. Reduce friction. Make it stupid-easy for people to buy. The less effort it takes, the more sales you’ll see. And don’t forget to A/B test. Sometimes a simple tweak to your headline or CTA can double your conversion rate overnight.

Monitor Performance

Once your ads are live, your job isn’t done. In fact, this is where it really begins. You need to monitor performance regularly, looking at more than just the surface-level metrics.

Click-through rate (CTR) tells you how well your ad is capturing attention. Conversion rate shows how well your landing page is sealing the deal. ROAS tells you how profitable your campaign is. And CPA helps you compare efficiency across different products or audiences.

Watch for early indicators of success – or failure. 

  • If your CTR is low, your creative probably needs work. 
  • If people click but don’t buy, your landing page or offer may be off. 
  • If your ROAS is negative, it’s time to adjust your targeting, bidding, or pricing.

Treat your campaigns like living systems. Tweak, test, and improve them continuously.

Scale What’s Working, Kill What’s Not

Once you find a winning combination – an ad, offer, and audience that works – it’s time to scale. Increase your budget gradually while keeping an eye on performance. Scaling too fast can tank your results, so go step by step.

Duplicate high-performing campaigns to test new audiences or creatives. Experiment with upsells, bundles, or time-limited offers to increase AOV. Layer in email or SMS marketing to retarget paid traffic and drive repeat sales.

And just as importantly, don’t be afraid to kill underperforming ads. If something isn’t working after a reasonable test period, cut it. Your budget should be flowing to what works – not what you hope will work.

Focus on Lifetime Value

One of the biggest mistakes in paid advertising is chasing one-off sales without thinking about the bigger picture. Winning e-commerce brands think in terms of customer lifetime value.

If your first sale breaks even, that’s fine. (As long as you have a plan to turn that customer into a repeat buyer. ) You can use post-purchase emails, loyalty programs, and retargeting ads to bring people back.

At the end of the day, when you view paid ads as the beginning of a customer relationship – not the end – you unlock real long-term profitability. And at PPC.co, that’s where we want to help you! We offer industry-leading PPC management services for ecommerce and retail brands who want to stop wasting ad spend and start generating real ROI.

Contact us today to learn more!

‍

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