An Overview of Pay-Per-Click Advertising

Pay Per ClickWith the arrival of pay-per-click (PPC) advertising, anyone can buy the #1 position for any keyword phrase on today’s most popular search engines. But hold on to your credit card! Depending on the phrase you’re bidding for, you could pay upwards of $50 per click!

With millions of people searching the web each day, and the most popular keyword phrases fetching the highest price, it’s easy to see how some have let the romantic notion of being #1 destroy their marketing budgets. What’s worse is they typically received little to no return on their investment.

Don’t let the same be said for your business. Your pay-per-click experience can be a positive one, but only if you take the time and gets the facts.

Part three (3) of my five (5) part series on, “Things to Consider, When Considering a Marketing Methodology Consultant” will bring you up to date on this new form of search engine marketing. It details how it works, its benefits and drawbacks, and what to ask a marketing consultant to make sure they don’t use your marketing budget to make their mistakes.

How It Works

Google, Yahoo, MSN, and others offer the chance to be #1 on their search engine by bidding for keyword phrases with their Adwords, Overture, and adCenter programs. These ads are referred to as “sponsored results” and look like this:

Google Adwords
Yahoo! Overture
MSN adCenter

To include a website in these results you simply:

  1. Choose the keyword phrases you want to bid on
  2. Write ads to display each time these phrases are searched
  3. Set a maximum dollar amount you are willing to spend each time someone clicks on your ad
  4. Set a daily budget that deactivates your ad once it’s reached until the following day

Once your keyword phrase is searched for, an instant auction begins between you and all the other advertisers bidding for the same phrase. The auction determines what position your ad will get and how much you’ll pay for a potential.


ABC Inc. $4.00
GHJ Inc. $5.00
XYZ Inc. $2.00

In this example each company has a maximum dollar amount they are willing to spend for a single click. Everyone is also bidding on the keyword phrase, “alphabet company”. When this phrase is searched for, the final order and cost for a click would look like this:

GHJ Inc. #1 $2.02
ABC Inc. #2 $2.01
XYZ Inc. #3 $2.00

The reason that GHJ Inc. doesn’t have to pay their maximum of $5 is because with pay-per-click advertising, you only pay .01 more than the person below you regardless of how high you’re willing to go.

Why Pay-Per-Click Works

Pay-per-click marketing displays ads that are relevant to any search the instant it’s made. This is a big advantage over other forms of advertising because it targets only the people you want to reach. What’s better is it catches them when they’re actively looking for a solution.


Let’s say someone is searching on Google for “blue widgets”, and you manufacture them. Wouldn’t you want this person to see your ad? Of course you would. What if someone was searching for “blue whatsits”? Would you want this person to see your ad too? Absolutely not.

Pay-per-click gives you the ability to focus only on your target market. It’s for this reason that it can offer a better return on your investment than others like billboards, television, and radio.

When Pay-Per-Click Doesn’t Work

The biggest problem with PPC advertising is click fraud. It occurs when a person, automated script, or computer program imitates a legitimate user and clicks on an ad to generate a charge for a click without having an honest interest in the ad’s link.

This problem comes from two (2) primary sources:

  • Pay-Per-Click Publishers

    As blogging has become more popular, pay-per-click programs have offered their authors, and almost anyone else with a website, an opportunity to make some money. By putting a small piece of code on a webpage, anyone can position pay-per-click ads wherever you want.

    The ads shown on each page, like search engine results, are based on the content of the page. If someone writes an article called “Why I want to be a Veterinarian”, ads from vets and pet supplies might be shown. If a visitor clicks on one of these ads, the website owner receives a portion of the revenue collected from that click.

    If everyone was 100% honest, there wouldn’t be a problem. People would only click on an ad if it was truly of interest. But this isn’t the case, and despite the efforts of pay-per-click programs, advertisers are still charged for fraudulent clicks.

  • Competitors

    In addition to worrying about dishonest webmasters and their friends, pay-per-click advertisers need to worry about their competition. Just like pay-per-click publishers, your competition can click on your ads to help waste your marketing dollars.

    Click fraud has become such a problem that there are now companies devoted solely to identifying click fraud and working with pay-per-click providers to recoup the revenue lost from it.

The best 2 questions to ask a potential marketing methodology consultant who provides pay-per-click consulting are:

  • What are your average click-through percentages?

    Click-through percentages, or CTRs, measure the effectiveness of a pay-per-click ad. High CTRs are desirable because they show that a consultant can write ad copy that makes people want to click on it. Yes, more clicks means more money, but high CTRs tell you that your ad is in touch with the needs of your audience.

  • What are your average conversion percentages?

    High click-through rates are not enough. You also want high conversion percentages as well. Conversion tells you how many people, out of the total people that clicked on your ad, actually did something useful on your website. In other words… Did they buy something? Sign up for your newsletter? Enter to win a FREE Hawaiian vacation?

Since you’re paying for each click… make it count! A good pay-per-click consultant can help you do it.

My next article discusses search engine optimization, or SEO. Many companies claim to be experts, but make sure you arm yourself with the facts before you potentially make a costly mistake.

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