What Should You Bid on a Google AdWords Campaign?

February 18, 2024

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Google owns over 70% of market share when it comes to search engine networks. And, more than 90% of the world’s internet users will use the Google Display Network or GDN. The vast majority of your target customers are online, browsing and searching for products and services just like yours. The quickest and easiest way to get your unique offerings in front of qualified leads is through Google’s enterprising advertising system, Google AdWords. Today, we’ll discuss the basics of a Google AdWords campaign and give you some helpful pointers on how to bid for AdWords ads so you can stay within your budget, and get the maximum ROI for your digital marketing efforts.

How does Google AdWords work?

Before you can fully understand how bidding works in AdWords, you need to understand the basics of how AdWords operates. Once you’re able to grasp the fundamentals, you’ll have the insight necessary for setting the optimum bid amount for your campaigns.

So, Google AdWords starts with a query. Your potential customer logs into their desktop, tablet, or mobile device and enters a question, word, or a phrase into the Google search bar. Let’s say that the individual enters the word ‘plaid shirt’ into the search bar. As soon as the phrase is entered into the search bar, Google looks at their advertiser pool and decides if there is to be an auction for the keyword phrase, ‘plaid shirt.’ If one or more advertisers are currently bidding on keywords that are relevant to the terms ‘plaid shirt,’ an auction is triggered.

But keep in mind, keywords are not search queries. Specific keywords like ‘plaid shirt’ can be entered into auctions for a range of search queries, for example:

  • Is plaid popular this autumn?
  • Would I look good in a plaid shirt?
  • Who can wear a plaid shirt?
  • Autumn fashion choices

And so on. Small businesses who want to advertise on Google will have to identify what keywords are the most relevant to their product offerings or services they want to promote. From there, they would create keyword groups that pairs with specific ads. Google will enter the keyword from an advertiser’s account that is the most relevant to the search query into the auction with the maximum bid amount for the ad it is paired with.

Once you’re entered into the auction, Google determines which of your ads is displayed, and where it will be presented. To determine this, Google will take into account two factors:

  • Your maximum bid amount
  • Your quality score

The maximum bid amount is called the CPC or cost-per-click bid for the specific keyword. The quality score is a metric that is used to determine how relevant and useful your ad is to the person searching for your keyword. Whichever advertiser has the best quality score with the highest CPC bid will get the best position.

What is the average bid amount for Google AdWords?

The average CPC on the GDN is one dollar. Industries with high lifetime values, such as law and insurance, have some of the most expensive, highly competitive keywords. These keywords can be as high as 50 dollars. Many factors will determine your bid amount, including industry averages and how competitive a particular keyword is.

How does Google determine what you will pay for each ad?

If your ad is clicked on, you pay the minimum amount you can for the position you win. Your price is equal to the following equation:

  • The ad rank of the advertiser below you
  • Divided by your quality score
  • Plus one cent

For example, let’s say that you have set your max bid on a keyword to 2 dollars, and you have a quality score of ten, with an ad rank of 20. The ad rank of the advertiser below you is 16. So, your cost-per-click would be 16, divided by 10, plus .01 cents, for a total of $1.61. Since you would have a high-quality score in this scenario, you could potentially pay less for a higher position than an opposing advertiser.

Google AdWords auctions are run billions of times per month. 40,000 auctions take place every second, all over the world. In fact, Google’s revenue comes from running these Google AdWords campaigns for businesses. Google AdWords benefits businesses because it gives companies of all sizes and budgets the chance to get in front of thousands upon thousands of qualified, highly targeted leads. Plus, consumers get to find ads that are extremely relevant and useful for what they’re searching for. With Google AdWords, everyone wins.

What other factors can influence the way the bidding process works?

Google AdWords allows advertisers to use different bidding method:

  • Manual Cost-per-click

Manual cost-per-click allows you to set bids for either the keyword or the ad group level. You’ll get the most control if you set individual bids at the keyword level. At the ad group level, manual CPC gives you the same bid to all of your keywords or placements within your specific ad group. For small businesses who are just starting out with Google AdWords, manual CPC allows you to set your budget and monitor it closely.

  • Automatic CPC

With this strategy, Google has control over your bids and can adjust them up or down, so you get the most clicks for the daily budget you’ve preset. If you have to reduce your budget, but don’t want to lose your impression share, automatic CPC bidding might be a good choice for your goals.

  • Enhanced CPC

Here, Google can increase or decrease your bids by up to 30% in either direction. Google uses historical conversion data to predict which viewers are the most likely to convert when they see your ad. If Google thinks conversion is expected, they will increase your max CPC bid up to 30%. If a conversion is less likely, they will decrease the max bid as much as 30%.

  • CPM Bids

CPM bids are used when you want to pay for ads that are seen. With CPM bids, you’re paying for impressions, not clicks. CPM bidding can work if your primary goal is to increase your brand awareness.

  • CPA Bids

CPA stands for cost-per-acquisition and is part of several automated smart bidding strategies used in Google AdWords. In your ads manager account, you would use the Conversion Optimiser and bid to a CPA. Here, Google determines your maximum CPC bids for you based on historical conversion data. Google with automatically try to target the historical average or the max CPC you bid.

How does the ad auction work within the display network?

There are over 2 million display network sites. When it comes to placements on the GDN, placements or pages are triggered on Google AdSense. Determining the ranking of an ad is pretty similar to the auction, but placement, not a query determines relevance. Also, bids are set based on the ad group, not the keyword.

When it comes to optimising your Google AdWords campaigns and staying within your budget, you want to keep the conversion volume and the cost per conversion balanced. If you keep lowering your bids, that will negatively impact your conversion volume. But if you keep increasing bids, it will increase your costs, too, even if your conversion volume has grown. But it is possible to keep everything in check, increasing your sales, while still protecting your bottom line and your marketing budget.

How can you increase your conversions without breaking the bank?

The trick is never to let your ads run on autopilot. Remember, 40,000 auctions are happening every second on the Google AdWords network. That means that things are continually changing. AdWords campaigns, bidding strategies, and keywords are a fluid, continuously shifting enterprise. To get the most out of a Google AdWords campaign without busting your budget, you have to keep tabs on fluctuations and improve your conversion rates through landing page testing. It’s important to understand that your bidding goals and the strategies you’ll need to employ to reach them can change.


Here at Australian Internet Advertising, we understand Google AdWords and bidding strategies inside and out. When you partner with us, we’ll watch your conversions like a hawk, and continually tweak and test your ads to get you the maximum conversion rates, all while staying within your budget. Ready to increase your brand awareness and your sales? Contact us today and see how we can help you with an optimised Google AdWords campaign today.

Billy P.

About The Author

William Polson founded Australian Internet Advertising in 2013 and has over 12 years of experience immersed in Digital Marketing.

With an in-depth level of digital marketing knowledge, William has been sort after by and worked for, many large national brands including Subaru, Blooms The Chemist, and Nova 96.9.

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