Pay-Per-Click Advertising: What Is PPC and How Does It Work?

If you have ever noticed the advertisements that appear alongside search results on Google and other search engines, you are already familiar with pay-per-click, or PPC, advertising.

What Is Pay-Per-Click Advertising?

PPC is an online advertising model in which advertisers pay each time a user clicks on one of their online ads.

PPC advertising comes in a variety of forms, but one of the most frequent is the sponsored search ad. These adverts appear when individuals use a search engine like Google to look for items online, especially when they’re doing commercial searches, which means they’re looking for something to buy.

This could be anything from a mobile search (for example, someone looking for “pizza near me” on their phone) to a local service search (for example, someone looking for a dentist or a plumber in their area), to someone looking for a gift (“Mother’s Day flowers”) or a high-end item such as enterprise software. All of these queries result in pay-per-click advertisements.

Pay-per-click (PPC) is an online advertising technique in which an advertiser compensates a publisher for each “click” on an advertisement link. The cost-per-click (CPC) model is another name for PPC. Search engines (such as Google) and social media networks are the most common providers of the pay-per-click model (e.g., Facebook). The most prominent PPC advertising platforms are Google Ads, Facebook Ads, and Twitter Ads.

In pay-per-click advertising, businesses running ads are only charged when a user actually clicks on their ad, hence the name “pay-per-click.”

Other forms of PPC advertising include display advertising (typically serving banner ads) and remarketing.

How Does Pay-Per-Click Advertising Work?

Advertisers cannot simply spend more to ensure that their ads appear more prominently than their competitors’ ads alongside the results on a search engine (often referred to as a “Search Engine Results Page,” or SERP).

Instead, Google and other major search engines employ a fully automated method known as the Ad Auction to decide the relevancy and legitimacy of adverts that appear on their SERPs.

Keywords are at the heart of the pay-per-click model. Online advertising (also known as “sponsored links”) appears in search engines only when someone searches for a keyword relating to the product or service being marketed.

Companies that use pay-per-click advertising models must therefore research and analyse the keywords that are most relevant to their products or services. Investing in suitable keywords can result in more clicks and, ultimately, better revenues.

Both marketers and publications are said to benefit from the PPC approach. The strategy is beneficial to advertisers because it allows them to advertise products or services to a specific audience that is actively looking for similar content.

Furthermore, because the value of each visit (click) from a potential customer exceeds the cost of the click paid to a publisher, a well-designed PPC advertising campaign allows an advertiser to save a significant amount of money.

For publishers, the pay-per-click model provides a primary revenue stream. Think about Google and Facebook, which provide free services to their customers (free web searches and social networking). Online companies are able to monetize their free products using online advertising, particularly the PPC model.

Pay-Per-Click Models

Commonly, pay-per-click advertising rates are determined using the flat-rate model or the bid-based model.

1. Flat-rate model

In the flat rate pay-per-click model, an advertiser pays a publisher a fixed fee for each click. Publishers generally keep a list of different PPC rates that apply to different areas of their website.

Note that publishers are generally open to negotiations regarding the price. A publisher is very likely to lower the fixed price if an advertiser offers a long-term or a high-value contract.

2. Bid-based model

In the bid-based model, each advertiser makes a bid with a maximum amount of money they are willing to pay for an advertising spot. Then, a publisher undertakes an auction using automated tools. An auction is run whenever a visitor triggers the ad spot.

Note that the winner of an auction is generally determined by the rank, not the total amount, of money offered. The rank considers both the amount of money offered and the quality of the content offered by an advertiser. Thus, the relevance of the content is as important as the bid.

How Keywords Work in Pay-Per-Click Advertising

The Ad Auction is a bidding system, as its name implies. This means that marketers must bid on the terms for which they want their ads to “trigger,” or appear. Keywords are the terminology used to describe these terms.

For example, let’s say your company specialises in camping gear. A user looking for a new tent, sleeping bag, or portable stove might type “camping equipment” into a search engine to find stores that sell these products.

The search engine executes the sophisticated algorithmic computations that the Ad Auction is based on at the time the user enters their search query. This defines which adverts, in what order, and from which advertiser are shown.

Since you have to pay for each click on your ads, it’s imperative to only bid on keywords that are relevant to your business, so you can be sure to get ROI from your ad spend.

A keyword tool can help you find the right keywords to bid on that are both likely to drive sales or conversions, and are not prohibitively expensive.

How to Optimize Your Pay-Per-Click Ads

Pay-per-click marketing can be a very cost-effective way to drive traffic to your website and grow your business. But it takes time and effort to do it right. A number of factors can affect your PPC costs, including:

  • The relevance of the keywords you choose to bid on. Are those the search terms your best audience is really using to find products they want to buy or solutions to their problems?
  • The quality of your ads and landing pages matters. Google awards the best ad placements and the lowest costs to businesses that provide a good consumer experience. Your click-through rate, or CTR, is a good indication of whether or not your ad creative is resonating with people.
  • A solid account structure. Your PPC account is like a house. Everything needs to be built on a strong foundation.

There is a lot to think about when it comes to keeping your PPC ads and campaigns in top shape. Check out PPC University if you’re ready to learn more about how it all works.

Why Should You Use It?

Here are five reasons you might want to add it to your online strategy:

It’s extremely targeted.

You can choose precisely who to show your ads to based on location, keywords, interests, age, gender, language, and even the type of device used.

This allows you to advertise your goods and services directly to the people who are most likely to be interested in what you’re offering.

It allows you to retarget previous visitors.

On average, out of every 100 people that visit a website, only two will convert into customers. That means 98 percent of initial traffic goes to waste.

Retargeting allows advertisers to remind people who left the site without making a purchase to come back and see what they’re missing.

It’s cost effective.

That’s because you only pay a fee is when your ad is actually clicked. When you consider the fact that the top three advertising spots on a search results page get 46 percent of the clicks, the odds are in your favor. PPC allows your business to be at the top of the search results page, even above the organic results.

It’s trackable.

This means you can monitor how your ads are performing and adjust them if you’re not getting as many clicks as you’d like. And you always know which ads are actually driving sales and helping your business and which ones aren’t.

It’s fast.

While having a high ranking in organic search results is vital, getting there takes time. But what about PPC? In a matter of days, if not hours, you can post a new ad and get results.

So, if you’re wanting to drive more visitors to your site and increase revenue right away, consider PPC. Finally, the most significant advantage of PPC is that it assists in getting your website the attention it deserves from the people who will value it the most.

Get Help with Your Pay-Per-Click Advertising Campaigns

That’s pay-per-click marketing in a nutshell. But while the basics of pay-per-click advertising are simple, managing a successful paid search account can be anything but (especially if you’re a small business owner or you’re working with a small budget).

Growth can’t wait, so if you need a little help with your PPC ads, check out the free Google Ads Performance Grader. You’ll get an instant report card that evaluates your performance against competitors and makes clear suggestions to help you get better results.

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