How Google Adwords Actually Work (With Examples)

Imagine if the only way to advertise your business was physical billboards unless you big enough to afford tv or radio commercials. When you were trying to figure out where you wanted to advertise, you and your team would pretty quickly realise that the best place to put your billboard would be right next to the busiest road you could find, so that the most people would see your message.

Well, when it comes to the large, growing and increasingly confusing world of internet advertising, that simple example seems a little hard to relate to. Should you spend a truckload on SEO? Or maybe paid social media advertising is the place to be. Or perhaps a mix between the two above and ‘influencer marketing’.

Stop, Back to Basics

But despite all that apparent confusion, the lesson from the first simplified example still applies. You want to advertise on the ‘busiest road’ so that the most potential customers and clients see your messages.

And online, there is one road that has 259,000,000 unique visitors and 4.8 billion interactions on it. Daily. That’s Google.

Working With Google

Google started out as just a search engine, and it has remained free for its entire existence. So just how is it a company valued in the hundreds of billions of dollars? Ads. Google Adwords, now called just ‘Google Ads’ is the homegrown advertising platform of Google.

Google Ads works on a simple format: pay per click. It is exactly what it sounds like. An advertiser pays Google for every click that a person using Google makes on their ad. So when you search ‘Air Conditioning Installer in Adelaide’ and the first link that appears is an ad, that means that if you click it, that advertiser will pay Google for that click.

It’s a simple, efficient system that ensures that businesses get more leads by paying for ad placement, and that Google gets paid for having built and constantly improved the world’s dominant search engine and index for the internet.

Added Details

Of course, there’s extra detail to know about. First of all, the pricing of those ‘clicks’ varies widely. The cost per click on an ad for a small neighbourhood Thai restaurant in Northern New South Wales might be around $2. In comparison, the cost for an ad that appears when a searcher inputs ‘car insurance’ into the search bar might be hundreds of dollars if that user happens to be in the United States.

It’s all driven by the most basic business principle: supply and demand and the value of that customer. A customer for a Thai restaurant might not be that high, say $60 for a meal for a family of four. Compare that to the value of car insurance for one year (say $800) multiplied by a customer who might stick around for five years. That means that customer might be worth $4000 to the company that wins their attention.

Understanding how Google Ads work, and what drives prices of them up is the first step towards getting the best results if you choose to advertise on this particular online billboard.

How Google Adwords Actually Work (With Examples)