Pay Per Click Marketing Explained
Updated December 10, 2018 with new examples and terminology.
What is PPC (pay-per-click) marketing?
Pay Per Click marketing (PPC for short) is a model of advertising that allows marketers to pay only when their ad is clicked by an online user. Search engines like Google and Bing make pay per click advertising available on an auction basis.
To show an ad on a search engine results page (SERP), marketers create ads and then bid on specific search phrases for which to show them. These pay per click ads will then appear above and below the non-paid organic search results and you’ll pay the search engine for every time a user clicks on your ad, regardless of the total number of times the ad was shown.
Again, all of these ad spots are sold in an auction. To show your own ad here, you would bid the maximum amount you’re willing to pay for a click on your ad. Bid the most in that auction and you have a chance of ranking number 1 in these sponsored or paid results. Note that we said a chance. There’s also something called quality score that can impact your ranking. More on that in a minute.
If someone clicks on your PPC listing, they arrive at your website on a page you’ve selected and you are charged an amount no more than what you bid. So, if you bid $1.50 maximum on the keyword ‘widgets’, and that’s the highest bid, you’ll probably show up first in line. If 100 people click on your PPC listing, then the search engine or PPC service will charge you a maximum of $150.00.
If you need some help thinking through how to set a PPC budget – click here.
Why PPC is Important to Digital Marketing
Pay per click advertising, or paid search advertising, can generate traffic right away. It’s simple: Spend enough, get top placement, and potential customers will see your business first. If folks are searching for the key phrases on which you bid and you’ve placed a well-written ad, you will get clicks the moment the ad is activated.
PPC advertising is fast
With some systems, such as Google Ads (formerly Google AdWords), you can generate targeted traffic within a few minutes of opening an account.
PPC advertising is also nimble
Where organic search engine marketing or other forms of advertising can lag weeks or months behind changing audience behavior, you can adjust most pay per click campaigns in hours or days. That provides unmatched ability to adjust to market conditions and changing customer interests.
PPC advertising can also be a bargain
Sometimes, you can find keyword ‘niches’ for which the top bid is a fantastic deal. These are longer, highly specific phrases that not everyone will have taken the time to pursue; “long-tail search terms”. In this case, PPC is a great option because you can generate highly targeted traffic to your site for a fraction of the cost of any other form of paid advertising.
So, balancing the good and the bad, where does PPC fit in? As a focused advertising tool.
Why PPC Advertising can be Challenging
PPC advertising can run up costs extremely quickly. It’s easy to get caught up in a bidding war over a particular keyword and end up spending far more than your potential return. ‘Ego-based’ bidding, where a CEO/marketer/someone else decides they Must Be Number One no matter what, can cost thousands upon thousands of dollars. Also, bid inflation consistently raises the per-click cost for highly-searched phrases.
This inflation is caused by ego-based bidding and by the search engines themselves, who impose quality restrictions on many keywords. These quality restrictions increase the cost per click even if no one else is bidding.
Junk traffic can also suck the life out of your campaign. Most, but not all pay per click services or providers distribute a segment of their budget to several search engines and other sites via their search partners and content networks. While you certainly want your ads displayed on Google and/or Bing, you may not want your ads showing up and generating clicks from some of the deeper, darker corners of the Internet. The resulting traffic may look fine in high-level statistics reports, but you have to separate out partner network campaigns and carefully manage them if you’re going to get your money’s worth.
Finally, pay per click advertising does not offer economies of scale. If you get more traffic, you pay more money in nearly direct proportion to that traffic – your cost per click stays constant, and your overall cost increases.
Compare that to search engine optimization, where you invest a fixed amount of effort and/or money to achieve a better rank, and your effective cost per click goes down as you draw more traffic.
The Role of Pay-Per-Click Advertising
Most businesses can’t afford to solely rely on PPC advertising. It’s too expensive, and bid amounts inevitably climb. But pay per click can fill a few important roles:
- Campaign- and issue-based efforts: If you have a short-term campaign for a new product, service, or special issue, pay per click can be a great way to quickly generate buzz. You can start a pay per click campaign within, at most, 24-48 hours, and you can generally change the text of your ad mid-campaign, so adjusting your message is easy. If you need to focus attention for a finite amount of time, PPC is perfect.
- Direct-response business: If you sell a product or offer a service that folks can purchase the moment they arrive at your web site, pay per click is a great tool. Online stores are a great example: You know that each click generated is a real potential customer, so spending money to increase the number of clicks makes sense. Staying as prominent as possible within a search result equates to immediate ROI, so you may never want to turn it off. You or your agency are simply testing and optimizing to keep those ongoing costs as low as possible day by day, and month by month.
- B2B Awareness: If you offer a service in which the sales cycle is measured in weeks and months instead of minutes, PPC can help with visibility and acquiring high-quality users. You can control the ad copy a new user sees and the content a new user is exposed to for a good first impression. You’re optimizing to pay for as many of the best clicks, and the best leads, at the lowest possible cost.
- Niche terms: If you are trying to generate traffic for a highly specific key phrase, PPC can often provide bargains. For example, you might not want to pay the top bid for ‘shoes’, but ‘mens running shoes red and white’ is a lot less expensive. (Think “long-tail search terms” from above.)
- Product Listings: If you sell a catalog of products, search engines like Google and Bing offer a specific ad type called shopping ads. These ads highlight your products, including a product image, and have become far more prominent in search results over the past year or two. These ads can do wonders to attract potential customers who are looking for what you’re selling.
- Remarketing: A platform like Google AdWords (Google Ads) often allows you the ability to create audiences of users who have already visited your website. You can create and target these audiences with tailored ads, including image and video ads. If you want to get users who have visited but haven’t bought from you to come back and make a purchase, remarketing can be a cost-effective tactic to increase bottom line. If you’re not running remarketing as part of your digital marketing and PPC, chances are you’re leaving money on the table.
The overall rule of thumb? Focus, focus, focus. Organic search engine optimization is a PR-based, long-term attempt to grow your brand and image. Pay per click advertising, however, should be handled like any other form of paid advertising: proactively, and with a clear, quantifiable short- or medium-term goal in mind. In other words: concentrate on conversions, not just clicks.
Making it Work: Conversions, Not Clicks
How do you engineer a successful pay per click advertising campaign? By paying more attention to conversions than to clicks. Keep five rules in mind:
1. Track Conversions
If you want to stay on budget, you have to track conversions. What’s a ‘conversion’? It’s any time a visitor to your website takes a desired action. Examples of conversions might be:
- Visitor makes a purchase
- Visitor completes a sales inquiry form
- Visitor downloads a white paper or registers for an event
A conversion doesn’t have to be a sale. But a conversion has to be worth something to you. If you can’t think of any measurable, useful outcome of a visit to your site, do not spend money on pay per click advertising – there’s no point.
Google and Bing provide basic conversion tracking within their ad platforms, but not for revenue. Take a look at Google Analytics for a free tracking system that will let you measure conversions from all PPC sources and let you track traffic, revenue, and conversions. If you’re a leads based business, you may also want to consider a scalable CRM or customer relationship management system which allows you to specify when and if a lead became a customer so that you can clearly identify which ads are turning into real revenue.
2. Manage Your PPC Dollars
When utilized correctly, paid search advertising is a tool which helps you grow your profit. When used incorrectly, PPC can cost you a good chunk of your marketing budget without returning much on your investment. You need to make sure you invest your budget wisely.
To plan accordingly, start with your business goals. If you’re an e-commerce business, how much revenue or profit are you looking to drive each month? If you’re a lead-based business, how many marketing qualified leads are you looking to acquire and what is their average value? Figure these goals out first before you decide to invest in PPC.
Here’s an example: Michelle owns an e-commerce business and wants to do $100k in sales per month from PPC and turn a profit. The average value per transaction is $75 and the profit margin on her products is 40% (meaning she makes $30 in profit per transaction). This means the maximum amount she can spend in PPC per month to drive $100k in revenue is $40,000; anything more than that means she’d be losing money.
Let’s say Michelle wants to drive $100k in revenue from PPC and make $10,000 in profit. This means her maximum budget is $30,000 and her minimum Return on Ad Spend (ROAS) is 333%.
Max. Budget = ($100k Revenue x 40% Profit Margin) – $10k Profit = $30,000
Min. ROAS = $100k Revenue / $30k Cost = 333%
Now that Michelle knows her target spend level per month, she can use an estimated conversion rate (let’s say 4%) to determine how many clicks it will take to generate that revenue and what the average cost per click (CPC) needs to be to hit her profit target:
Est. Transactions = $100k Revenue / $75 Avg. Value = 1,334 (rounded up)
Est. Conversion Rate (CVR) = 4%
Est. Clicks = 1,334 Transactions / 4% CVR = 33,350
Max. Avg. CPC = $30k Cost / 33,350 Clicks = $0.90
Michelle now knows that she’ll need to acquire more than 33,000 clicks at an average of $0.90 per click from a $30,000 PPC budget to acquire her desired revenue and profit levels. If her actual conversion rate ends up being better than 4%, she can bid more aggressively, increasing her average cost per click, to go after more traffic and more revenue and still meet her desired profit level. If it ends up being worse, she’ll need to decrease bids to save on click costs and evaluate if there’s enough potential traffic to generate the amount of clicks needed to meet her revenue and profit goals.
You can use this same type of exercise to estimate what your monthly budgets should be and what click costs you’ll need to see to turn a profit on your revenue goals. Plan accordingly and ensure what you want out of PPC is realistically attainable.
For more inspiration or guidance on how to set your PPC budget, this blog post goes through the exercise in more detail.
3. Find Niche Keywords: Long-tail Keyword Strategy
A lot of folks aim their ads at the broadest possible terms, such as “dresses,” or “bike parts,” or “search engine optimization.” Since the broader terms get far more searches, it’s a strong temptation – with a big disadvantage. Since everyone bids on the broad terms, the cost per click is generally quite high. And the chances of a conversion, even if someone clicks on your ad, are lower.
Focus instead on narrow, more specific keywords: ‘Bridesmaids dresses’, ‘road racing tires’ or ‘Seattle search engine optimization’. These terms will cost less, and searchers who use them will be far more likely to buy.
Google, Bing, and most other PPC platforms will show you estimated cost per click and total searches per day for keywords – use these tools to test for the best focus, cost, and click-through combination.
4. Good Writing: Don’t Ignore It
Most pay per click advertising requires that you write a couple of short, descriptive phrases about your service. Don’t underestimate the importance of this – make sure, at a minimum, that your grammar, spelling, and overall language is correct and appropriate for your audience. Also, verify that your language adheres to the rules enforced by the pay per click platform – Google, for example, won’t allow ads with superlatives (“the best,” “the greatest,” etc.), with repeated keywords, or with excessive capitalization.
As an example, this is not so good:
This is much better:
5. Go for quality – Quality Score that is
Remember what we said at the start of the article? Google and Bing have this nifty thing called a Quality Score. Elements of Quality Score include:
- Your ad
- Your keywords
- Your landing page copy
- Your click metrics
- Your on-site usage metrics
- And more
Based on how well you’re doing on all of these factors, each of which is a sliding scale, search engines will either increase or decrease the bid amount necessary for you to gain a specific position.
If you want a great quality score, you need to:
- Build your history. The longer you’ve run a specific campaign, ad group, and ad without changes, the better your history. If you move to a new account, your entire history goes POOF and you have to start over. So don’t move unless you absolutely have to.
- Never stop testing ad copy. Constantly test ad copy for the best click-through rate. A higher click-through rate will probably give you a better quality score. Doing this efficiently with hundreds or thousands of ads may warrant getting an agency’s help, or hiring an expert yourself, but it’s well worth it.
- Put keywords in your ads. If you’re buying the phrase “espresso machine,” make sure “espresso machine” shows up in the ad.
- Put keywords on your landing page. Make sure the page to which you’re pointing your PPC ad has those keywords, too.
- Split good keywords from bad ones. Put high-performing ads and keywords in their own campaign. Otherwise, the bad performers will drag down the good ones. Iterate on the high-performers, and keep testing.
- Focus!!! Focus your campaign by: time of day, geography, search network, et cetera. If you don’t know what this means, you need to hire someone who does. Like us, maybe. Just sayin’.
Quality score can easily reduce costs by 20-30%, if not more. A bad quality score can knock you right out of the rankings, too.
Adjust, Adjust, Adjust: A Corollary
This isn’t so much a rule as an overarching concern – do not set up your ads and then forget about them. That’s a surefire way to overpay and underperform. You need to continuously manage your PPC advertising campaign, or:
- Someone might outbid you.
- Someone might have dropped out of the top spot, meaning you can reduce your bid and keep a #3 rank.
- Search patterns may have changed.
If search patterns change and your keywords are searched less often, don’t immediately alter your campaign – wait at least a few days to make sure you aren’t seeing a statistical ‘blip.’ But keep an eye on things, always, or you might end up spending money unnecessarily. Even a well-designed campaign should be reviewed and adjusted weekly.
Bringing It All Together – A Quick Case Study
Good PPC advertising management is an art form. Here’s an example of one Google ad (modified to protect the innocent) that we edited for a client a number of years ago. Their original Google Ads (then AdWords) spot read:
Low Cost Bicycle Parts
Order online today
These ads didn’t perform well – their ranking, clickthrough and conversion rates were very, very poor. Why? Three reasons:
First, the ad is far too general – someone searching for a bicycle part on Google will most likely search for the specific part, not for sites that sell everything.
Second, the ad doesn’t make any strong value proposition – anyone advertising on Google can very likely take my order online, today.
Finally, the ad doesn’t optimize for the search terms used to find it.
The result? They were paying about $1 per click for a #1 rank, with 800 clicks per day and less than a 1% conversion rate and an average profit per order of $6. No chance of making any profits with that kind of performance:
1% clickthrough rate
1% conversion rate
800 clicks per day
800 clicks * $1.00 per click = $800 cost per day
.01 * 800 * $6 = $48 profit per day (106% return on ad spend)
Not good at all. Here’s how we changed it. We developed four ads, each focusing on a single keyword combination or group:
A Complete Selection, Delivered Overnight!
Shimano STI Component Sets
Overnight Delivery on Dura Ace.
Tubular Racing Tires
Continental, Michelin, Delivered Overnight!
Phil Wood Bearing Grease
32oz Jars and Cases Delivered Overnight.
Each ad targets a keyword combination (in the title) that we found is searched more than 50 times per day. A number 3 rank for each ad cost $.15 per click or less at the time. Within a few days, their performance looked like this:
12% clickthrough rate
8% conversion rate
200 clicks per day
Average profit per order: $6.00
200 clicks * $.11 per click = $22 cost per day
.08 * 200 * $6 = $96 profit per day
The bids we placed earned them a #3 rank, but their high clickthrough percentage bumped them up to the #2 or #1 spot for every keyword and phrase (see ‘Play to Come In Third’, on the previous page, for an explanation).
This was a solid turnaround built on basic principles: Good niche keywords, solid writing, a smart budget, and intelligent placement. By focusing on conversions, instead of clicks, our client got a better result.
PPC Tools You Need to Know About
When we first wrote this piece, PPC was pretty simple: Bid. Click. Measure. Adjust.
But there are a lot of offerings out there. Each is an opportunity to save money, grow sales, or target niche customers more accurately than ever:
Remarketing lists for search ads aren’t that new. But if you’re a beginner, you may not know about them. Use RLSAs to target special ads and bids to people who have previously visited your site.
AdWords Customer Match lets you target customers based on an initial list of e-mail addresses. Upload your list and you do things like serving different ads or bidding a different amount based on a shopper’s lifecycle stage. Serve one ad to an existing customer. Serve another to a subscriber. And so on. Facebook offers a similar tool, but AdWords was the first appearance of e-mail-driven customer matching in pay per click search.
Be sure to take a look at Bing Ad Extensions. We’re particularly happy with their “images extension”, which lets you attach up to six photos or other images to a single ad.
Both Google and Bing have call extensions that let users click-to-call from your ad. Again, not so new if you’re in the know, but if you’re new to PPC, have a look.
If you run a brick-and-mortar or appointment-driven business, look at Google Ads Call Only campaigns. They let you bid for phone calls instead of clicks.
And that’s just the tip of the iceberg.
Where to Go From Here
Pay per click is now a basic Internet marketing tool. Very few businesses can afford to ignore it. But you have to avoid the “more-clicks-is-better” mentality. Focus on conversions and return on investment, rather than clicks, and you can build a profitable campaign.
Also, check out our free digital marketing training and ebooks. PPC for Small Business is a great place to start. If you’d like something a little more advanced, check out some of our writing on the Digital Marketing Stack.
Or learn more about Portent’s PPC team and services.
Questions? Get in touch.