Decoding AdWords Mechanism: A Beginner’s Guide to AdWords Bidding

Online advertising has grown exponentially since it was first introduced in 1999.

Coming into existence as a means to help advertisers to generate revenue through search engines, pay-per-click advertising became one of the biggest revolutions in the digital marketing world when Google launched its search engine advertising system – AdWords.

AdWords is an online advertising platform through which Google allows businesses (advertisers) to get their website to the top of the first page of search results. The system lets you define a specific budget for advertising, create relevant ads to appear online and only pay when people click your ads.

AdWords Bidding Australia

Sounds quite straightforward, doesn’t it?

Well, it is. However, if you are a first-timer, the bidding process can seem a bit overwhelming and confusing. To eliminate the confusion and help you leverage the real potential of AdWords, we have created a detailed guide that will help you familiarise yourself with the most effective bidding strategies to get the best value for your marketing efforts and advertising budget. But before getting to the bidding strategies, let’s first understand how AdWords and bidding mechanism works.

Get your Basics right

AdWords campaigns are primarily built around keywords, that play the most significant role in driving success in your Google advertising undertaking.

Here’s how AdWords works.

The process starts with a query. When someone conducts a Google search, the search engine browses its pool of advertisers to see if there’s keyword match. If one or more advertisers are bidding on keywords that Google finds relevant to the search query, an auction is conducted. Google enters the ads with the most relevant keywords and maximum bid, into this auction.

Now the auction determines which ads will show up on the search results page (in response to the query made) and at what positions. The auction considers two key factors to figure out the ads that will appear on SERP and and the order they would appear in:

  • CPC (Cost-per-click) Bid: The maximum amount an advertiser is willing to pay for a specific ad.
  • Quality Score: A metric used by Google to determine how useful and relevant an ad is to the user.

Though the highest ranked ads get the first positions on SERP, it is not that easy to secure the top position. Of course, you are not going to be the only one running online ads within your industry to target new customers. Your competitors might be bidding on the same keywords as you are, thus bringing you in the bidding war against your competitors.

And that is why it is important to do extensive research on your targeted audiences and competitors before you begin, and develop a strategic approach to Google advertising.

Also keep in mind that Google emphasises on relevance of adverts and user satisfaction and experience. Any well-established company can buy their way to the top position on search results page, but if their ad is not relevant to the information their audience seeks, it might not generate as many clicks. Even the users who end up clicking an ad will not convert if they don’t find what they are looking for, hence generating no profit for your business.

So, you have to be tactical about your keyword selection and budget that you want to spend on target keywords.

Now that you are aware of the AdWords basics, let’s look at some common AdWords strategies you can utilise to bid on your ads.

An Insight into Different Bidding Strategies

AdWords offers multiple strategies for bidding that are tailored to different types of campaigns and businesses. To decide which strategy will work best for your business, it is crucial to have a clear understanding of your campaign goals.

What do you aim to achieve through your online adverts?

Is it clicks you want or impressions? Conversions or just views?

Depending on your business type, you may expect different outcomes from your adverts. For example, if you run a clothing store, you would want more and more people to visit your store. But, if you just started a new trekking club, your primary goal could be to get people to subscribe to your newsletter rather than simply visit your online portal and leave.

Whatever your business type and marketing budget, having a clear advertising goal is necessary to choose the right bid strategy for your campaign.

AdWords mainly offers two types of bidding strategies:

Manual: Allows you to set your bids manually and alter any time based on your changing needs.

Automated: Lets Google to thoughtfully pick the most optimal bids for your campaign. Automated bid strategies include:

  • Target CPA
  • Target ROAS
  • Maximize clicks
  • Viewable CPM
  • Maximize conversions
  • Target search page location
  • Target outranking share
  • Enhanced CPC

Each of the automated bidding strategy is crafted to meet a specific advertising goal as their names suggest.


Manual bidding gives you the freedom and flexibility to adjust your ad bids. You can set your own maximum CPC either at the campaign/ad group level or for specific keywords.

Setting bids at the keyword level, however, offers the highest level of control. When you set a separate bid amount for each keyword, you can be a lot more strategic about which keywords you want to spend more of your advertising budget on.

For example, if you sell kitchen splashbacks, and you want to market your newly introduced bathroom splashback range this week, you can adjust your max. CPC to spend more on keywords related to “bathroom splashback” for the week.

Manual CPC bidding is particularly profitable for advertisers who want to retain control of their keyword bids and ad campaigns and have the ability to make swift changes so as to utilise their advertising budget thoughtfully.

To run a manual bidding CPC campaign, select “Manual CPC” and the daily budget you wish to allocate, as shown in Figure 1.

cost per click sydney

Enhanced Cost Per Click

Enhanced bidding is a way to get more conversions out of your manual bids.

With conversion tracking enabled as shown in Figure 2, AdWords automatically adjusts your manual CPC bids for clicks, based on how likely they are to lead to a sale. That said, Google can increase or decrease your max CPC bid based on their likelihood to convert.

The strategy is specially designed for conversion-focused advertisers. It helps to boost your conversion rates while maintaining (or reducing) your cost per conversion.

Enhanced Cost Per Click Australia


Target CPA (Cost Per Acquisition)

A more advanced bidding process with a focus on conversions, CPA allows Google to optimise bids to get the most conversions possible at a specific cost-per-acquisition set by the advertiser.

However, AdWords requires at least 15 conversions in the past 30 days for CPA bidding to be enabled.

Remember that conversions through CPA bidding may cost you less or more than your target cost-per-acquisition while Google tries to keep your CPC equal to the specified CPA.

Target ROAS

Return on ad spend (ROAS) is the average value generated for each dollar you spend on an ad campaign. Target ROAS helps you drive the highest conversion value or revenue by setting a target return on ad spend (ROAS).

AdWords uses your conversion history to predict future conversions and optimal values. Then to maximise your conversion value, AdWords set maximum CPC bids for your campaign while trying to achieve the target return on ad spend you have set.

Target ROAS strategy is helpful when you have a clear idea of how much you can afford to spend on each sale or lead but don’t have the time to put effort into the intricate optimisation process.

Maximize Clicks

Maximize clicks helps you drive as many clicks as possible within your budget. You can use this bidding strategy to increase clicks across your keywords, ad groups and campaigns while spending a target amount.

AdWords allows you to set ‘custom ad scheduling’ to show up your ads on particular days and during specific times while using maximize clicks strategy to drive maximum clicks during the specified period and time.

CPM (Cost Per Thousand Impressions)

An optimal bidding strategy for branding, CPM lets you pay for every one thousand views that you receive on your ads. This bidding option is only available for campaigns that run on Google Display Network.

Unlike other bidding methods, CPM charges you for impressions on your ads (rather than clicks) no matter where they appear on the page. This means you only pay when your ad is viewable to your potential customers, allowing you to use your daily budget efficiently.

Maximize Conversions

Maximize conversions bidding lets AdWords automatically optimise bids for your campaigns with the aim of driving maximum conversions. The strategy focuses on optimising bids for conversion volume rather than conversion revenue.

AdWords analyses your conversion history and uses contextual signals to set optimal bids for each auction to get most conversion for the specified daily budget.

Target search page location

Through target search page location, AdWords allows advertisers to automate the bidding process for their ads to appear on the top of the search page results or the first page alone.

However, keep in mind that this bidding strategy doesn’t guarantee placement of your ad on the top position of search results or on the first page. While AdWords use most optimal estimates to achieve your target search page location, final position of your ad is determined through your quality score.

Target outranking share

This bidding strategy is designed to help advertisers who primarily aim to outrank their competitors.

AdWords allows you to specify advertisers you wish to outrank and optimises bids of for your ad to show up above specified advertisers on Google search results pages. Moreover, it is important to know that this strategy works to help improve your rank in comparison to your competitors and might not necessarily be helpful in improving your overall ad rank.


While AdWords is an effective way to draw qualified traffic instantly to your business and improve your online visibility, a well-planned online advertising strategy is paramount to put AdWords into work and market your business online in the most lucrative ways.

Moreover, bidding might seem confusing and complicated when you’re first starting with AdWords. Being aware of your advertising goals can help you choose an optimal bidding strategy for your business. If you still don’t feel confident about your bidding knowledge and expertise, we recommend you hire an AdWords professional to manage your advertising campaigns and help you achieve your business goals.

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