You heard about it and now you are wondering, “How does pay-per-click work?” In this article, Ignite Head of Paid Media, Eythor Westman, tells you everything you need to know. By the end, you’ll know more than most about pay-per-click marketing.
What Is Pay-Per-Click?
Pay-per-click is a form of advertising that allows the advertiser to only pay when a click occurs. The cost per click is determined generally by an auction that takes place, which looks at how much others are willing to pay for the click.
A Basic Overview Of Pay-Per-Click
Pay-per-click (PPC) might seem like a simple enough concept, but it’s really much more complicated than you might realize.
Sure, PPC lives up to its name. It’s an online advertising method in which you only pay when somebody clicks on your ad.
There’s quite a bit more to it than that, though. You’ll have to familiarize yourself with bidding, keywords, landing pages, budgets, ad copy, and much more if you want to run an effective campaign.
First, you might want to learn how PPC works with other digital marketing channels. If you are interested in this, watch this webinar we recently did.
If you don’t have the time right now, you can always skim this post and come back to the videos later.
Here’s what you need to know about how it works.
The Nitty Gritty Of How Pay-Per-Click Works
PPC exists because digital real estate is valuable.
Look at it this way: if you want to run an ad on a billboard, you’ll have to pay for that spot. Similarly, if you want to run a TV commercial during a popular program, you’ll have to pay for that, too.
The Internet works in much the same way. Some websites offer prime digital real estate. If you want to promote your brand on those sites, you’re going to have to pay somebody.
One of the ways that sites charge for advertising is by impression count. That’s usually measured in terms of per-thousand impressions (often abbreviated CPM, which stands for “cost per thousand impressions”).
If you opt for that advertising model and run your ad on a site like BuzzFeed, you could end up getting charged a fortune even if nobody clicks on your ad. That doesn’t seem right, does it?
In this method you have an advertiser-friendly model that gives marketers the option to pay only if somebody clicks on their ads. That’s often the preferred choice.
Watch a webinar with Google, or read more below.
Why Businesses Use PPC Maketing
Why do businesses use this advertising method? For the same reason that they advertise anywhere else: they view it as a great way to get the word out about what they’re offering.
PPC is just one part of a multi-pronged marketing strategy. It’s rare that a business will use online advertising as the only way to draw traffic to its website.
However, it is effective at doing just that. As a result, many brands rely on it to boost top-line sales.
There’s another reason that brands opt for it as well: it can land them a top spot on the search results pages.
Search engines like Google and Bing give businesses the opportunity to run an ad that appear at the very top of the results list when people search for a keyword. That’s why many brands view pay-per-click as an SEO shortcut.
What Are the Most Popular Types of PPC?
There are countless ad networks that off this system. However, some are more popular than others.
At the top of the list is Google AdWords. That is perhaps the biggest.
On the other side of AdWords is AdSense. That’s the program that webmasters use to run AdWords ads on their sites. They get paid when visitors click on the ads.
Google makes its money by taking a cut of the amount charged per click (the rest goes to the publisher of the website). Of course, if the advertiser is running on ads on the search engine results page, then Google takes it all.
Bing, the other search engine, has its own version. It gives you the option to advertise on Bing, Yahoo, and Microsoft’s other search partners.
Facebook, the most popular social network in the world, also offers PPC advertising. It’s often considered a “go to” option for advertisers who want to promote their products to consumers based on demographics and interests.
Display advertising is another option. You can run graphic ads on any website that opts in using this same bidding model.
You don’t have to, though. Some advertisers prefer just a headline and brief text as the advertising copy.
For advertisers that prefer rich media to promote their brand, they can hire a professional to create a custom image, animated GIF, or even video and run it as an ad on a network that supports that format.
Keep in mind: you can’t run graphic ads on the search results at this time. You’re stuck with text ads for now.
Native ads are also typically pay-per-click. Those are the ads that look like they’re a part of a blog but they’re really advertisements.
Finally, you can run a retargeting (or remarketing) campaign with this bidding model. If you’re unfamiliar with the term, retargeting is a way to reach people who have already visited your website.
How Much Does Pay-Per-Click Cost?
- You have to pay for each click
- Some clicks are less than $1 and others could be over $50
- You also need to pay someone to manage the ads and your website
Thus far, we’ve gone over PPC quite a bit but haven’t yet answered one of the most important questions: how much does it cost?
The answer: it depends.
It depends on several factors: the ad network you’re using, the keywords you’ve chosen, and your own budget.
Cost per click varies from ad network to ad network. As you can imagine, cost is dictated by supply and demand.
That’s why an ad with Google generally costs more than ad with Bing (on a per-click basis, anyway). Google is a much more popular search engine.
The cost per click will also depend on the keywords you’ve chosen for your ad. Fortunately, both Bing and Google tell you the cost up front.
To see what each click on an ad will cost you, just head over to Google AdWords and select “Keyword Planner” under the “Tools” menu at the top. Select “search for new keywords using a phrase, website or category” and plug in a keyword related to your brand.
For example, if you type in “blue jeans” into the top field (labeled “Your product or service”) and click the “Get Ideas” button at the bottom, Google will show you that the “suggested bid” for “blue jeans” is $1.96.
We’ll go over bidding a bit later, but for now just understand that’s about what you can expect to pay if you run an ad for blue jeans with Google AdWords.
Finally, the amount that it costs depends on you. All ad networks allow you to set a budget so that your advertising costs don’t get away from you.
On many networks, you can set the budget on a per-day basis. That means you can decide to spend a maximum amount of money in one day. Once you’ve spent that much, the ad network will turn off your ads until the next day.
How Long Does Pay-Per-Click Take?
Another question: how long does it take to work?
The good news is your ads can be up and running pretty quickly. It usually takes an account manager 1 to 2 weeks to build an account and launch it.
Building landing pages and funnels can make it take longer.
But once you turn on the ads, they are on within a day or so.
The Various Elements
There are several elements in PPC management. It’s important to understand each one of them if you want to be successful in online advertising.
- The Campaign – A campaign consists of a variety of ad groups related to a particular marketing strategy. For example, you might run a holiday-themed campaign in December to reel in consumers shopping for Christmas presents.
- The Ad Group – As the name implies, an ad group consists of a group of ads related to a particular campaign. If we stick with the holiday theme, you might run one ad group advertising food baskets as a Christmas present and another one advertising ornaments.
- Keywords – You’ll want to associate your ad group with specific keywords so the ad network knows where to run your advertisements. For our example, you might select “gift baskets” as a keyword for one ad group and “Christmas ornaments” as a keyword for the other ad group.
- Ad Text – It’s possible that ad text is the most overlooked component of a campaign. Marketers are under the impression that they can run any kind of “look here” text and people will come flocking to their site. The reality is that it’s best to get a professional copywriter involved when creating ad text. It’s also important to ensure that the ad text is related to the keywords.
- Landing Page – When people click on your ad, you want them to “land” somewhere, right? That’s your landing page. It should match your ad text in terms of keyword relevance. Once again, though, it’s important to get an effective copywriter involved so that you can close the deal on your landing page.
How Does the Google AdWords Auction Work?
As we’ve seen, Google markets keywords for an ad based on demand. Some keywords will cost more than others.
However, Google runs AdWords as an auction. That means you have the opportunity to bid on a keyword.
As a rule of thumb, though, it’s best not to bid too much below the Google suggested bid. Otherwise, your ad might never show up at all.
For example, we’ve seen that the suggested bid for “blue jeans” is $1.96. You can try to bid $1.80 or $1.70, but with the level of competition that exists for that keyword, don’t expect anybody shopping for blue jeans to ever see your ad.
That’s why it’s a good idea to follow the suggested bid when you’re getting started with AdWords. Once you’ve learned from experience, feel free to adjust the bid to see if you can save some money.
Along the lines of bidding, it’s important to understand what determines ad placement. That’s a function of both your bid and the quality of your ad.
Google uses a scoring system to determine the quality of your ad. That score is based on the ad’s relevance to the keywords, landing page relevance, and the click-through rate (the percentage of people who clicked your ad after viewing it).
Basically, you can calculate your “ad rank” by multiplying your bid by your quality score. For example, if you have a quality score of 10 and you bid $1.96 for “blue jeans,” then your ad rank is 19.6 (10 x 1.96).
If that ad rank is higher than the ad rank of other marketers running ads for blue jeans, then your ad is placed at the top of the list. It’s that simple.
The good news is that you might not spend the $1.96 that you bid for the ad. That’s because Google determines payment based on the ad rank of the advertiser below you.
Here’s how it works: your cost per click is calculated by dividing the ad rank of the next-highest advertiser by your own quality score. So if the advertiser below you has a quality score of 16, then the calculation is 16/10 or $1.60.
Finally, Google adds a penny to that value for the final calculation. So your cost in this situation is really $1.61.
How Much Do People Usually Spend?
How much, overall, do marketers usually spend? That depends on the size of the business and the percentage of their budget that they want to invest in online advertising.
Smaller businesses might spend as little as $5,000 per month on PPC. Larger businesses, on the other hand, invest as much as $10,000,000 per month.
In case you’re wondering how Google became a multi-billion dollar company, that’s how.
Why You Should Hire a Pro
There’s both an art and a science to running an effective campaign. If you want to maximize conversions and generate a healthy ROI, it’s important to seek professional guidance.
A qualified PPC company can help you craft exactly the right campaign by assisting you with keyword research, bidding strategies, ad copy, and graphics. Beyond that, many PPC professionals have learned “tricks of the trade” that will help you maximize your bottom line over time.
The investment is worth it.
What Kinds of Targeting Abilities do PPC Ads Have?
It comes with powerful targeting abilities. But here’s the catch: not all networks offer the same ones.
For example, if you’re primarily concerned with targeting specific keywords, Google AdWords and Bing are by far your best bet.
But if you’re very familiar with your target market and demographic, Facebook may be the way to go.
Let’s take a look at some common objectives, and which networks can best meet them:
- If you want to target a specific age range, gender, income or education level – Display and Social channels have the best option for including (or excluding) specific demographics
- If you want to target people who are searching for the products or services you offer – use keyword match types through Google and Bing
- If you’re targeting specific job titles or roles within a company – LinkedIn (and to a lesser extent, Facebook) to target
- Target by specific interests, sites they visit, or past behavior – Display and Facebook
- If you want to target by a specific location or region – any channel; almost all options have advanced location settings
- If you want to retarget past visitors or those like them, you can build custom and lookalike audiences through both Google AdWords and Facebook PPC
Of course, that’s just the tip of the iceberg when it comes to targeting, and each network continues to expand an add new abilities.
Take Google AdWords new Life Event targeting. Life Event targeting allows advertisers to reach people who are going through a significant change in their lives and are likely in the market for certain products and services.
Bottom line? PPC advertisements allow you incredible opportunities to connect with and target your specific audience.
Difference Between Google PPC and Bing PPC?
Google isn’t the only search engine in town, and Bing now has 34% of the desktop search engine market share worldwide.
When it comes to advertising, both platforms operate in much the same way. They both have a variety of bidding options and offer search and display as well as advanced targeting and placement options.
That said, the networks do come with their difference. Some of the most notable are:
- Budget flexibility – With Google, you set your budget based on a daily basis, while Bing allows advertisers to choose a daily or monthly budget
- Location targeting – In Google AdWords, location is set at the campaign level, while Bing allows you to set a location at the campaign level as well as well as at the group level
- Scheduling – In AdWords, ad schedules are based on the advertiser’s time zone, whereas on Bing targeting times are selected based on the location of the person searching for the ad
- Demographics – Bing tends to reach an older, higher educated audience; nearly three-quarters of Bing users are over the age of 35 and about one-third of the Bing Network has a household income of over $100,000
Of course, some of the most important differences lie in the reach and effectiveness of each network.
While Google’s reach is undeniably bigger, that often means more competition and higher budgets.
For Bing, that means better ad positions and cheaper costs per click. In fact, the average cost-per-click on Bing Ads can be up to 70% lower compared to AdWords. Not only that, but Bing ads often generate a higher return.
The truth is, one isn’t necessarily any better than the other, and most marketers will find that using both platforms proves most beneficial.
More Important Information
How do I select the best keywords for my pay per click campaign?
First, user a tool like SEMRush, SpyFu or SimilarWeb to do some competitive analysis.
- Next, go to the Google Keyword Planner and select the terms that are the best for you.
- Think about your budget and start running ads the best terms.
- Measure performance overtime.
How many keywords should I have in an ad group?
This one will also depend on your product and who’s managing your campaign. Some prefer to use less, but keep in mind they most important aspect of keywords is relevancy. The more keywords you have, the less likely it is each that each one is relevant. It’s generally recommended to use less than 20 per ad group.
How long does it take to see results?
This will vary from campaign to campaign, so don’t lose hope if you don’t see immediate results. It usually takes a few weeks to build an account. Then you need to gather data. In most cases, after 2 to 4 months you will know if pay per click marketing is right for your business (or if your pay per click manager is terrible or not).
What are some common mistakes to watch out for?
Some common mistakes include:
- Not using keyword match correctly – you can choose between three options, broad match, phrase match, or exact match. The match type you choose can have a big impact on your campaign, as each is suited to different ad goals.
- Not using negative keywords. Opposite of your chosen keywords, negative keywords are words or phrases you don’t want your ad to show for. They can be chosen in much the same way as your positive keywords.
- Not testing your ads. A/B tests are particularly handy for testing different ad elements like CTAs, creatives, messaging, and match type to see which is most effective for your goals.
5. What is CPC?
CPC stands for “cost per click.” It’s an important concept to understand if you’re running pay per click campaigns.
Remember: you only pay for PPC ads when people click on them. The amount you pay for each click is your CPC.
You need to understand the CPC before you launch your PPC campaign. That’s how you’ll know if your ad spend leads to a positive or negative return on investment (ROI).
6. How Can I Reduce My Google AdWords CPC?
You can lower your CPC for your Google AdWords PPC campaign by improving your Quality Score. Here are some ways to do that:
- Improve your click-through rate (CTR) – Your CTR measures the percentage of people who click on your ad after seeing it. The higher the CTR, the better your Quality Score. That’s why you need to create compelling ad copy that tempts users to click.
- Optimize your ad and landing page for your keyword – The relevance of your ad and your landing page to your keyword will also influence your Quality Score. Make sure your ad titles and descriptions use your keywords. Also, make sure your landing pages are optimized for your keywords as well.
- Create a landing page with a positive user experience – Finally, create a landing page that offers a positive user experience. Make sure it’s easy to navigate and presents a professional display on desktops, laptops, smartphones, tablets, and phablets.
7. What Are Some Best Practices?
There are several basic principles you should follow to ensure that you generate a positive return with your PPC campaign:
- Split test your ads. Never assume that your ad is going to be successful. Try multiple ad versions with different headlines and descriptions. If you see that one version of your ad is getting way more clicks than the other one, use that version to reach your audience.
- Don’t use multiple keywords in the same ad. As a rule of thumb, it’s best to keep a 1:1 ratio between PPC ads and keywords.
- Track conversions as well as clicks. You might think that your ad is fabulous because it has a high click-through rate. But if people aren’t becoming paying customers once they get to your landing page, something is wrong.
- Don’t use your home page as your landing page. Use a landing page that’s optimized specifically for your keyword and is designed to land sales.
- Don’t use broad match keywords. You might be under the impression that broad match keywords will get you the most clicks. That might be the case, but they aren’t necessarily clicks from people in your target market. With broad match, you’ll likely waste money on clicks that will never convert.
8. What Is A Bidding Strategy?
Many pay per click platforms operate on an auction system. That means people are bidding for digital real estate on a website or a keyword.
Of course, the more popular the website or keyword, the more money people will bid for their ads. That’s the nature of supply and demand.
Some platforms also let you bid on position, or where your ad will show up on the screen.
Your bidding strategy will dictate the amount of money you’re willing to spend per click or per acquisition for a specific ad spot or keyword.
Here are some of the more popular pay per click bidding strategies:
- Maximize conversions – This is where you throw caution to the wind and bid high so that you can get as many clicks on your ad as possible.
- Cost per acquisition – You set a budget per acquisition instead of per click. The ad platform will optimize your bidding so that you hit your target.
- Return on ad spend – You specify how much revenue you expect to gain above your costs. The ad platform adjusts your bid so that you earn the expected return.
11. What Is Pay Per Click Management?
It’s quite possible that you have better things to do than manage your PPC campaigns. If that’s the case, then you should outsource your pay per click advertising to a qualified digital marketing team.
That will cost you, of course. But it’s an investment.
Also, you’ll have more time to devote to growing your business.
Get started with pay per click today! If you need help, we are here to run your campaigns for you.
12. What’s a good click-through rate (CTR)?
A good CTR will vary largely by industry.
According to a Wordstream study, the average CTR for PPC ads across all industries is 1.91%.
Dating and personal services see the highest with a 3.4% CTR, followed closely by B2B, Consumer Services, and technology.
Legal services, e-commerce, and industrial services tend to see the lowest CTRs.
In general, anything between 3%-5% is considered “good.”