One of the false understanding about search engine marketing (SEM) is that one who has the largest advertising budget wins. For the purpose of getting this clear, we'll be focusing on the ad auction in Google AdWords.
How the Ad Auction Works
The ad auction process takes place every time a user enters a search query into Google search bar. Before entering into the ad auction, advertisers have to first identify keywords they want to bid on, and then state how much they are willing to spend per click (Pay-per-click) to have their ads appear alongside SERPs relating to those keywords
Now, If Google determines that the keywords you have bid on are included in user's search query, then your ads will enter into the ad auction.
How Ads %u2018Win' the Ad Auction
The two main factors that Google evaluates as part of the ad auction process are your maximum bid and the Quality Score of your ads.
1.Maximum bid is the maximum amount you have specified you are willing to pay for a click.
2.Quality Score is a metric based on the overall quality of your advertisement and is the most important metric in search engine marketing.
Google calculates these metrics during the ad auction to determine placement of advertisements. The result of this calculation is known as ad rank.