To estimate the economic impact of Google Search and Ads, we rely on two conservative assumptions. First, we assume that businesses generally make an average of $2 in revenue for every $1 they spend on Google Ads. Our chief economist, Hal Varian, developed this estimate based on observed cost-per-click activity across a large sample of our advertisers; his methodology was published in the American Economic Review in May 2009. Our second assumption is that businesses overall receive an average of five clicks on their search results for every one click on their ads. This estimate was developed by academic researchers Bernard Jansen and Amanda Spink based on sample search log data and published in the International Journal of Internet Marketing and Advertising in 2009.
If search clicks brought in as much revenue for businesses as ad clicks, these two assumptions would imply that businesses would receive $11 in profit for every $1 they spend on Google Ads. This is because if advertisers receive 2x as much value from Google Ads as they spend on Google Ads, and they receive 5x as much value from Google Search as they do from Google Ads, then the total profit they receive is 11x what they spend: 2(spend) + 5 x 2(spend) - (spend) = 11(spend).
However, clicks through search results may not be as commercially valuable as ad clicks, so we want to be conservative. We estimate that search clicks are about 70% as valuable as ad clicks. This means advertisers overall receive 8x the profit that they spend on Google Ads: 2(spend) + .7 x 5 x 2(spend) - (spend) = 8(spend).
Therefore, we conservatively estimate that for every $1 a business spends on Google Ads, they receive $8 in profit through Google Search and Ads. Thus, to derive the economic value received by advertisers, we multiply our Google Ads revenue on Google.com search results in 2020 — what advertisers spent — by 8.