How Google AdSense Works


I got asked this question this week, “I don’t understand how Google Adsense Works. I and another blogger have about the same traffic and have ads in the same places but she makes a lot more money. What am I doing wrong?”

Now this isn’t a bad question because Google Adsense isn’t the easiest thing to understand. But it was clear to me the way she asked the question, she just didn’t understand how Adsense worked.

So, let’s talk about it from the beginning. Google built a search engine that attracted lots of people. In fact, something like 70% of all searches go through Google.  With all those eyeballs, Google decided to sell advertising space in the right sidebar and at the top.

(Don’t worry we’re getting to the how Adsense works thing)

Companies started buying space, but they didn’t want their ads to just show up willy nilly. So they told Google that they only want their ads to show up when people are searching for their keywords. For instance, Nestle doesn’t want their Hot Chocolate with Marshmallows ad to show up unless someone searches for hot chocolate. They figure that if you’re searching for it, you’ll probably be interested in their ad.

With a little research Nestle probably started advertising on lots of other keywords like “What to drink when you’re sitting by the fireplace and it’s cold outside”.  The interface Nestly uses to buy those ads is called Google AdWords. It’s where companies go to advertise.

Now Google decided that they had a good thing going, but wanted to expand that. So they created a program called AdSense. AdSense is a tool web publishers can use to put advertisements on their websites. Google figured if the ads on do well, why not allow Google AdWords customers to advertise on websites all over the world – not just in the search results.

But they knew that it would still need to be keyword based or the advertisers would go away. For instance if Nestle’s ads showed up on a site about car parts, squirrels or scuba diving lessons – they wouldn’t make any money. People on those sites aren’t looking to buy hot chocolate.

So they built a web-bot into Adsense that goes out and scans all the webpages in the universe and figures out which ones are about hot chocolate, for example. The bots read the headline, the body copy, and scan the incoming links to determine what ads would be profitable to show on that page. So fishing sites get fishing ads, hot chocolate sites get hot chocolate ads and everyone gets Pepsi ads. In this image, you can see this article about tea returns an ad about tea in the right sidebar:

All the web publisher has to do is put the AdSense code on the page. That tells Google that you want an image ad, or you want a 300 x 250 ad, or you want one to show both text and images. You get to decide that and Google decides which advertisers get to go there.So here’s how the money works. The companies that are advertising are paying for leads. All they want is traffic. So if someone clicks the ad, they have to pay. Google collects the money from their AdWords account, splits in half and gives half to the web publisher. So you’re not getting paid by Google per se, you’re getting paid by the company that is advertising.

Now a little economics determines how much money you get every time someone clicks. Some keywords pay a lot and some don’t pay hardly anything. Suppose Nestle, Cadbury, Land-o-Lakes and Godiva wanted their hot chocolate ad to show up on your webpage about hot chocolate. Now, there’s only one or two spots on your page, right? So the advertiser has to fight to get that spot.

When the advertiser joins Google AdWords they indicate to Google how much they’ll pay to be seen. Nestle might say that they’re willing to pay $1.00 per click. Cadbury has higher priced hot chocolate so they may be willing to pay $2.00 per click.  So when someone visits your page Google has to decide which ad to show. There are some other rules governing this, but for this conversation the $2.00 bidder wins.

That means the web publishers get $1.00 (for this example).

Now some of the hot chocolate companies want their ads shown for pages that talk about hot drinks. Cadbury doesn’t care about that term. They’ve tried it and decided they made no sales from people looking for hot drinks. But Nestle and Godiva still want to be there. Since that is not as good a keywords as “hot chocolate” and they likely won’t sell as much advertising there, the advertiser decides that keyword is only worth $.50/click.  Godiva feels the same way but bids $.51/click for the spot. So guess what? If your page is about Hot Drinks, you’re only going to make half of that ($.26/click). Not nearly as good.

(Yes, AdSense superstars, I understand that the shape of the ad matters because the people at Nestle might only have designed a 300 x 250 and thus they’re not bidding on the 768 x 60. But this article is not for you if you get all the little nuances of it. Move along I say).

The big deciding factor here is “commercial-ness”. I know that’s not a word, but this is the main reason behind how Google Adsense works. If the keyword sounds like someone is searching for something to buy, advertisers are willing to pay more for it. If the word is like “weather” and it doesn’t sound like the person is going to buy something, there might not be any advertisers at all and then you get generic, cheap Google ads or Pepsi or something.

Keywords like “California Personal Injury Attorney San Francisco” pay a ton. Sometimes those keywords pay web publishers $50 – $60/click. That’s a far cry from the $.32 you get for pages about cheese.

There are three great tools for figuring out how much keywords pay. I talk about it all the time, but is a keyword tool that not only tells you supply and demand behind a keyword, but how much Google Adsense pays for it. is a service where you can just look up how much they pay. And the Google Keyword Tool does this too. In fact, that’s the only good thing about the Google Keyword Tool.

I hope that clears up how Google AdSense Works. The placement of the ad determines how well it is seen and clicked, but the content of the page is the one that dictates how much you get when the ad is clicked. (If you’d like to learn all the other little factors, come chat it up at and I’ll help you really optimize your page)




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