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How does the Google Ads auction work?

Google Ads uses an auction system to rank the ads that appear on the search results page, and to determine the cost for each ad click. The order in which ads appear on the page is based on a calculation we call Ad Rank. 

Google Ads calculates Ad Rank for every ad in the auction. Ad Rank determines your ad position and whether your ads are eligible to show at all. Generally speaking, the ad with the highest Ad Rank gets to show in the top position, and the ad with the second highest Ad Rank gets to show in the second position.

Ad Rank depend upon the five factors.
1. Bid: Bid is the amount you're telling Google Ads the maximum amount you're willing to pay for a click on your ad. 

2. Auction Time Ad Quality: It includes click through rate, ad relevance, and landing page experience. Quality Score is an aggregated estimate of our assessment of the quality of your ad.(Quality Score is the rating whcih Google use to determine the relevance of keywords and Google Ads. Formula for Quality Score = 1 + Landing Page Experience weight + Ad Relevance weight + CTR weight)

3. Ad Rank Threshold: To help ensure high-quality ads, we set minimum quality thresholds that an ad must achieve to show in a particular ad position.

4. Context of query: With the ad auction, context matters. When calculating Ad Rank, we look at the search terms the person has entered, the person’s location at the time of the search, the type of device they’re using, the time of the search, the nature of the search terms, other ads and search results that show on the page.

5. Ad Extensions and Formats impact: Google Ads estimates how extensions and other ad formats you use will impact your ad's performance.