Pay-Per-Click (PPC) Advertising Basics

Pay-per-click advertising (PPC) is a well-established form of online marketing that aims to drive targeted user traffic to a buyer's website. In short, an advertiser pays a website publisher a specific fee for each legitimate visitor click that redirects to the advertiser's predetermined destination.

Basically, anytime you are doing a search on a search engine or looking at the pages of another website you'll see advertisements on those search results or web pages. In many cases the advertiser isn't charged any fees unless the visitor actually clicks on the ad, hence the term "pay-per-click".

Google Adwords is the best known PPC program employing a “display” advertising formula today, but other search engine companies and affiliate networks also offer attractive PPC plans for merchants, entrepreneurs and start-ups looking to gain exposure or simply earn some money. 

PPC is a good way to measure the effectiveness of Internet marketing for your products and services, because clicks are an indisputable metric for performance evaluation. If the publisher produces valuable, relevant content, chances are that a reader will notice your link or banner and be motivated to click. Otherwise, it is probably time to try other publishers or a new advertising strategy.

Pay-Per-Click Advertising Basics

The basic PPC formula is:

Pay-per-click ($) = Total Advertising Cost ($) ÷ Number of Ads clicked.

There are two ways to think about how you want to handle your advertising strategy when it comes to cost.

In some cases you may pay a fixed amount to have an ad on a website for a fixed amount of time. As an example you may pay $100 to have your ad on a website for 30 days.

In this situation, no matter how many people click on your ads your cost will be $100. So if only one person clicks on your ad then your effective cost-per-click is $100. But if 1,000 people click on your ad then you only paid an average of 10 cents per click. With a fixed ad cost your goal is to maximize the amount of clicks, or the click through rate (see below).

In other cases you are actually charged for each click; the more clicks you get the more you pay. In this case you will want to be more conservative with your advertising to ensure that only highly qualified leads are clicking on your ads to minimize your costs and maximize your returns.

Click Through Rate

Another interesting metric for marketers is the click-through-rate (CTR), which is defined as the number of clicks made on your ad (click-throughs), divided by the total number of impressions (number of occasions that your ad is shown on a publisher's website):

Click-through rate (%) = (Number of Click-throughs/Total Number of Impressions) * 100%

As an example, if 100 people saw your ad and 10 people clicked on your ad, then your click-through-rate would be 10%.

Typical PPC campaigns achieve a click-through rate of between one and four percent, although actual performance varies depending on what niche market you are in, actual products/services sold, and many other factors. CTR merits more detailed discussion, as does the concept of revenue per click, which for most business people is the gold standard (bottom line) for online advertising effectiveness.

Measuring PPC Advertising Performance

How valuable is a click that comes to you from an indirect source? This all depends on the type of person your ads are attracting, and your PPC objectives, such as:

• What will you gain from each visit? A new opt-in for a newsletter, a 'Like' or 'share', a lead, or an actual sale?
• Are your short-term and long-term goals for this PPC ad campaign being met?

As for general prospects, your choice of keywords and/or the quality of ad placement by affiliate networks should follow from precise targeting criteria:

• What is my ideal “clicker” interested in?
• Are you more sales motivated, or do you want to grow a “fan” base?
• Do you want clicks from people from a specific region (geo-targeting)?
• When to you want clicks to come in (day, time)?

Common Pay-Per-Click Advertising Models

There are two (2) dominant models of PPC today. Flat rate pay-per click implies that the advertiser and the web publisher agree to a fixed amount that will be paid for each click. Publishers often have a rate card, which allows for different rates for different parts of the website based on content attractiveness or other criteria.

The second option, bid-based pay per click, is most closely associated with Google Adwords, Microsoft AdCenter (Bing), and other search engine companies. These networks run real-time auctions that determine the cost of ad clicks generated by keyword searches.

Pay-per-click advertising can help your company grow its customer base, increase your marketing reach to previously inaccessible audiences, and from a web publisher's perspective, be an important source of revenue. In order to exploit this opportunity, seek out and research the various PPC options currently available and test them out to see what works best.