Pay Per Click Marketing Explained

What is PPC?

PPC or Pay Per Click marketing 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 where the highest bidder typically earns the most prominent placement, with some caveats (see Quality Score below).

To show an ad in PPC or Paid Search results, 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 a small fee every time a user clicks on your ad, regardless of the total number of times the ad was shown.

You Are Here

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 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 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

But 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 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 PPC 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 product listing ads or PLA’s. 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 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- ormedium-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 and registers

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 like HubSpot, 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: Set a Sensible Budget

A lot of folks ask us how much we typically spend on clients’ PPC campaigns. There is no ‘right’ amount; it all depends on your circumstances and goals. A good formula, though, is:

cost per click is less than: conversion rate x total clicks x profit per conversion

In other words, the amount you spend per click should always be less than the total profit earned per click. Let’s say, for example, that we’re spending $1.00 per click to bring customers to our (totally fictitious) bicycle shop website.

We know that 2% of those visitors contact us regarding products, and that 30% of those potential customers actually purchase something. We also know that we average $10.00 profit on those purchases. Finally, we also know that we get 200 clicks per month.

That puts our pay per click campaign in this light:

.6% x 200 x $10.00 = $12.00

So, I’m only earning $12.00 per month on my PPC campaign, but it’s costing me $200.00. I need to reduce my cost per click, a lot, or cancel the campaign altogether.

Don’t make this a hard-and-fast rule, though. While your initial, direct profit from your PPC campaign may disappoint, you might be acquiring loyal customers. Ask yourself: Should your specific business track only the first sale, or could you work out an average customer lifetime value?

Going back to our bicycle shop example: At this point, we’re ready to cancel our PPC account and never look back. But we dig a bit deeper, and notice that customers acquired from our PPC campaign spend another $800 each, per year, on higher-margin items that deliver an average profit of $200 per sale – we’re getting loyal, long-term business. That changes the picture significantly:

.6% x 200 x $210.00 = $252.00

Suddenly, our PPC campaign is a narrow but definite success. We’re earning $52.00 per month (126% return on ad spend).

If you can’t get this kind of precision, pay close attention to your metrics over time: If your sales, leads, or other desired visitor actions increased right after you began your pay-per-click campaign,chances are you’re on the right track.

But if you’re selling a product or service, we strongly recommend that you invest the time and energy to collect this data and crunch the numbers – it will pay off in the long run.

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.

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 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:

Campagnolo Components
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 AdWords 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.