How does Google advertising work?

This article is accompanied by our webinar — Market Logic: Performance marketing foundations. You can access the webinar here.

I tried Google but it didn’t “work”. I hear this a lot. Advertising is seen as a fundamental need for all businesses, yet at the same time, it progressively gets more nuanced, complex, and difficult.

The goal of this article is to build the solid foundation of terms, metrics, concepts, and philosophies necessary to have an informed conversation on performance marketing. We’ll be using Google Advertising products as our focus since it’s the largest advertising platform that exists for founders today. Although this article focuses on Google Advertising, most of the concepts covered are applicable to Facebook, Amazon, and many other major advertising channels.

Why does language matter?

We generally take language (and the understanding of words and concepts) for granted in our day-to-day lives. If I go to Starbucks and order a medium Americano, they’ll give me a “grande” without having to ask anything else.

In marketing, the similarities and differences between a “medium” and “grande” aren’t as clear. I see it time and time again-people think they’re speaking the same language, but aren’t on the same page. While this might not be an issue when ordering coffee, it has far greater impact in business, ultimately impacting team trust and effectiveness.

Not knowing which campaigns are running on which platforms-or how to set up and optimize campaigns by channel-leaves a lot of unknowns and opens the door for miscommunications. If you’re on a team where your marketing channels are either “working well” or “not working”, this is the article for you.

The rundown on Google Ads

Understanding what you can do with Google Ads gives you a leg up in understanding most ad platforms, like Facebook, Microsoft Advertising, Amazon, and Pinterest, to name a few. They’re all quite similar in how they function, so familiarizing yourself with Google Ads is more than half the battle.

Google is the largest and most predominant ad platform in the world today. It provides advertisers with a wealth of tools for achieving all kinds of business objectives and drives results.

Some of the key features available on Google Ads include:

Flexible budgeting and pricing

  • Set budgets as low as $5/day
  • Turn your spending on or off whenever you please

Pay per click advertising



  • Based on users explicitly searching for a product or service
  • Based on behaviours, like visiting a page or abandoning a cart
  • Based on demographics, like age, gender, and location
  • Based on interest, or search intent
  • Based on customer lists or lookalike audiences

How Google gets you in front of prospective customers:

There are 3 main ways that Google lets advertisers get in front of prospective customers.

1. Search

There’s a reason people say “Google it” and not “Bing it”. Google is the most popular search engine in history, and its dominance in search is mirrored by its dominance in performance marketing.

So most people search on Google. What’s the big deal?

The ability to target users searching for a specific product or service in a specific geography is extremely powerful. Beyond that, Google allows you to target them at the precise moment they’re looking for that product or service. This alone is not replicable by platforms like Facebook or Instagram.

Let’s say you’re selling laptops. In the US and Canada there are more than 1,000,000 searches for the word “laptops’’ per month. Comparatively, the term “Dell laptop” drives around 250,000 searches per month.

Another potential term of interest could be “3060 ti laptop”. This term has far fewer searches monthly at only 4,000 searches per month.

Any of these searches could drive a sale for your laptop business, and Google will let you bid on all of these terms. But, the more specific and relevant the search terms are, the more relevant the results will be. This increases the chances you will convert a shopper into a customer.

2. The Google Display Network (GDN)

As I mentioned, search gives you the ability to target the right user looking for the right product at the right time. While it’s easy to think of this as a silver bullet to advertising your product, there’s a lot that needs to be “right” before you pull the trigger on a campaign.

While search is a very powerful tool, people don’t spend the majority of their time online searching for things they’re ready to buy. People spend more time online browsing, reading, and consuming content. In fact, Google estimates that “browsing” represents over 90% of our online lives.

The Google Display Network is a vast network of websites with Google display advertising space available for businesses to advertise relevant products or services. It’s a great way to reach users when they’re browsing as opposed to searching.

This allows advertisers to introduce their brand and products to prospective customers in a particular context, location, or audience. Brands can also re-engage users who have shown interest and intent via their previous browsing and search patterns.

You can also specifically re-engage users who have visited your site (retargeting), or find and target users in your CRM or on a customer list.

3. YouTube Ads

While you could technically lump YouTube into the Google Display Network, I’m going to make the case that the opportunity for advertisers on YouTube is uniquely attractive and powerful. Not only is YouTube the second most visited website in the world, it’s the platform users spend the most time per visit.

We previously discussed how powerful search and user intent can be. As a search engine of sorts, YouTube would be the second largest in the world. But it’s also the place where we “browse” the most. It is a perfect intersection of these two concepts.

Now that we have an overview of Google’s major capabilities, let’s start to familiarize ourselves with the key terms that will come up time and time again when talking about performance marketing.

Paid advertising glossary

Performance marketing (sometimes called paid advertising) comes with a whole set of terms, concepts, and jargon-just like Google Ads. I’ve put together a list of the common performance marketing and Google Ads terms that will help you better understand paid advertising and Google’s ad platform.

Common paid advertising terms

  • Clicks: The number of times your ad was clicked on by a user taking that user to your website or a page of your choosing.
  • Impressions: The number of times an ad was viewed.
  • Click-through rate (CTR): The total number of clicks on an ad divided by the total number of times an ad is shown to a lead. If an ad is shown 100 times and generates 15 clicks, its click-through rate would be 15%.
  • Cost: The amount of money a campaign spends on paid advertising.
  • Cost-per-click (CPC): The ad buyer’s cost-per-click. CPC could be a few cents or a few hundred dollars, all depending on your industry, competition, and audience targeting.
  • Conversion: The specific goal you are tracking (e.g. a sale, a page view, an email sign up).
  • Cost-per-conversion: The ad buyer’s cost-per-conversion. A conversion could be defined as an order, new customer, or another conversion goal you’ve set.
  • Conversion rate: The number of conversions divided by the number of clicks, expressed as a percentage.
  • Revenue: The total value, in dollars, generated by an ad.
  • Return on ad spend (ROAS): Revenue generated from an ad divided by the money spent on that ad. For example, if you make $5 for every $1 spent on advertising, you have a ROAS of 5:1.
  • Average order value (AOV): The average dollar amount a customer spends on a site. AOV is calculated by dividing the total revenue by the number of orders.
  • Budget: The total amount of money that you set to be spent on an ad campaign. Usually set as a daily limit.
  • Cost-per-thousand impressions (CPM): The ad buyer’s average cost of 1,000 impressions, used for display advertising campaigns.
  • Profit: The total value, in dollars, generated by an ad after subtracting expenses, such as advertising costs and cost of goods.
  • View through conversions: Measured when a user registers a conversion after “seeing” an ad but doesn’t click through directly to the website. This measurement is meant to show a “lift” from display advertising that affects brand awareness.
  • Lifetime value (LTV): The predicted total value of a single customer throughout their relationship with a company, including projected future purchases.

Common Google Ads terms

  • Ad: The advertisement itself. The creative (text and design) that users see.
  • Ad group: A group of one or more of your ads targeted to one or more audiences. When done correctly, an ad group should contain several ads that speak to your target audience(s).
  • Campaign: A campaign contains a single advertising targeting objective for one or more ad groups, such as traffic (visitors to your site) or conversions (clicks or purchases).
  • Keyword: The phrase or word(s) a user enters into the search engine to trigger ads. Also referred to as a query.
  • Keyword match type: Keyword match type lets you control how broad or exact your chosen keywords must be to trigger an ad. For example, you can decide if you want synonyms or related searches to trigger your ad, or only more specific keywords that must be in the search query to trigger your ads.
  • Negative keywords: These allow you to prevent your ad being shown based on certain keywords or phrases. For example, Apple wouldn’t want customers searching “apple cider” and seeing one of their ads.
  • Quality score: The relevance of an ad to the search term or audience being targeted. Generally, the higher the quality score, the lower your CPC, leading to a better ad position.

A quick look at the Google Ads auction

Another key concept to understand when it comes to Google Ads and search marketing is that all ads are put into an auction system to determine which ads show to whom and how much advertisers pay.

This video from Google’s own Hal Varian is my go-to when giving someone an introduction to the Google Ads auction system.

What are the different types of Google Ads campaigns?

1. Branded search

Getting visitors to your site is a great first step to making them convert and become customers, but it’s not the only thing you should be focusing on. Just think-a company with a 5% website conversion rate would impress almost any marketer, but what about the other 95% of visitors who don’t convert?

This is where retargeting comes in-it’s a targeting strategy that lets you pool previous website visitors in a group and then advertise to them on different websites in the Google Display Network. It’s often cheaper than the other Google Ads campaigns available and allows you to speak directly to smaller groups of people to keep your brand top of mind.

Keep in mind that retargeting on Google works very similarly to campaigns on Facebook and Instagram.

Let’s look at a simple example of retargeting:

  • A woman browses your website and looks at three different shirts.
  • She leaves the website without making a purchase.
  • One day later, she opens YouTube only to see an advertisement featuring one (or all three) of the shirts she looked at.
  • She clicks on the ad, lands directly on the product page for your shirt, and makes a purchase.

As you might imagine, retargeting ads can be quite powerful when employed correctly. The customer has already seen your brand so they’re more likely to take notice when they see your ad.

But like with other campaigns there is a nuance to retargeting effectively. The more segmented an approach you take with who you retarget, the more likely you are to succeed. Will you be targeting previous site visitors? Or those who abandoned their shopping carts? What about those who’ve already made a purchase but haven’t recently returned to your site?

All of these factors are important in determining who to target and when to target them. A customer who abandoned their cart one day ago will probably have a better chance of converting than one who abandoned their cart one month ago.

Objective: Advertising to prospective customers who’ve already interacted with your website-whether it be searching for something, adding products to their cart, or making a purchase.

Targeting relevance: High-they already know your brand and have been on your website.

CPC estimate: ow (~$0.25 to $4.00).

ROAS: Medium to High (2:1 to 30:1).

Metrics: ROAS, profitability, order volume, impressions.

Scalability: This depends on the audience you’re retargeting and the size of that audience. For example, retargeting previous purchasers will yield a smaller audience than retargeting those who’ve just visited your site.

Best for: Any business-if you’re already driving traffic to your site, you should be retargeting visitors.

How easy is it to set up? I’d say this campaign is one of the easier campaigns to set up at a high level to start spending money.

The more nuanced your set up with positive and negative audiences, the more complicated it becomes. The complexity of your creative, like a text ad vs. a YouTube pre-roll Trueview campaign, also dictates the difficulty here.

8. Topic- and interest-based display ads

Display advertising allows you to target prospective customers outside of search engines on millions of publisher sites and apps. It allows you to advertise in three formats:

Topic- and interest-based display campaigns will be the first of three separate awareness driving categories we’ll lay out. Targeting display ads through topics or interests allows you to target topics like apparel, travel, and fitness, among many others.

Topic-based targeting results in your ads being shown on websites within that category whereas interest-based targeting results in your ads being shown to users who’ve shown an interest in that category.

This article gives a great overview of all the different types of audience targeting on the display network.

Objective: Creating awareness of your product or service by advertising on specific websites or to specific people who’ve shown an affinity for an interest/topic category.

Targeting relevance: It depends-if you’re targeting topics and interests very closely related to your product and brand, it should be medium to high.

CPC estimate: Low to medium (~$0.25 to $3.00).

ROAS range: Low (0:1 to 2:1).

Metrics: Impressions, clicks, email signups (or other micro conversions), page visits, number of orders.

Scalability: Typically high, but could be lower if you’re targeting niche topics that aren’t well represented on the sites within the Google Display Network.

Best for: Brands wanting to build brand awareness and get their product in front ofa specific segment.

How easy is it to set up? Setting up interest- or topic-based display creative is pretty easy and straightforward. Optimizing your ads is slightly more difficult as it requires time, attention, and knowing where to look for the right reporting.

9. Contextual display ads

With Google Smart Shopping campaigns, Google uses machine learning to take different items from your product feed to create a variety of ads across Google Search, the Google Display Network, YouTube, and Gmail.

More specifically, Google Smart Shopping combines four of the campaign types we’ve covered:

  • Branded shopping
  • Non-branded shopping
  • Retargeting
  • Prospecting on the display network

Because Google Smart Shopping campaigns include retargeting and branded search, your performance will depend on how many people have visited your site as well as the number of users who search for your brand, products, or branded keywords.

Objective: Driving orders through a data-driven approach to paid advertising.

Targeting relevance: This depends, because multiple advertising campaigns are involved.

CPC estimate: Low to medium (~$0.25 to $5.00).

ROAS range: Medium to High (0:1 to 12:1).

Campaign goal: ROAS, order volume, new customer acquisition, awareness, and traffic.

Scalability: High-non-branded search terms are rolled into your mix, making this scalable.

Best for: Businesses who aren’t currently retargeting or using Google Shopping campaigns, and aren’t experts at manually creating and optimizing Google Ads.

How easy is it to set up? Smart Shopping represents the easiest way to get involved with Google advertising. Granted you have a workable product feed, Smart Shopping campaigns are extremely quick to set up and manage, and they optimize themselves (with specific inputs for you to manage at a high level).

If you see success, there may be a greater opportunity to transition to a more segmented, manual campaign strategy in the future.

12. CRM (search, YouTube, Gmail)

Running a customer relationship management (CRM) campaign involves marketing to your existing email subscribers and/or customers. Because this group has already purchased from you or subscribed to email, you can expect this campaign type to be successful, assuming it’s executed properly.

One barrier to entry with a CRM campaign is that you’ll need to have thousands of emails in your email list, which prevents newer-or smaller-companies from running this campaign type. If you’ve got the subscribers for it, CRM campaigns are great for hyper-targeted messaging and they allow you to use the information you’ve collected from your subscribers in your CRM. You can then target your list on Gmail, YouTube, or Google Search.

Just be sure your company meets the following prerequisites, which have been added to run CRM campaigns on Google Ads.

To use Customer Match, your account must have:

  • A good history of policy compliance
  • A good payment history
  • At least 90 days history in Google Ads
  • More than $50K USD total lifetime spend

One important factor to note is that not every email in your CRM will match in Google’s database, so if you upload a list of 5,000 emails, you can expect that a couple thousand of those won’t match. That being said, Gmail accounts typically match better than non-Gmail ones.

It’s a good idea to load your customer-specific lists to Facebook as well to use on Facebook and Instagram for similar hyper-targeted campaigns.

Objective: Converting email subscribers into customers and driving repeat purchases from existing customers.

Target relevance: Very high-they’ve already expressed interest in your brand by making a purchase or subscribing to your email list.

CPC estimate: Typically low ($0.25 to $5.00).

ROAS range: Typically very high (5:1 to 60:1).

Campaign goal: ROAS, order volume, traffic.

Scalability: Typically low, but if you have a large email list with a high match rate within Google, it’ll be higher.

Best for: Any company with over 1,000 subscribers/customers in their email list that hits the Google prerequisites.

How easy is it to set up? CRM campaigns require access to an email database and to a customer list that can be targeted in Google Ads. I’d say identifying the lists you want and adding them to Google Ads is low to medium in difficulty.

13. Look-alike audiences

Ready to dive deeper into the world of Google Ads?

Watch our Google Ads webinar


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