Pay Per Click Model of Advertising

There are a lot of builders and developers doing PPC advertising.

In the PPC advertising model, you have three core elements – keywords , ads , and bids . These three elements are combined with ‘ placement ' to create an advertising model that displays ‘relevant' ads on search engines (in response to keyword searches), portals and websites that opt to display such ads on their pages (the ads to be shown are determined by a keyword analysis of the page).

For a PPC campaign, you need to know the keywords that you are targeting. For example, for a niche site that promotes a time management product, I would create a list of keywords that included keyword groups containing terms related to time management, productivity, saving time, self improvement and maybe even business soft skills. As I've told you before about keyword research, you should have a big list so that you capture most, if not all, of your target traffic.

The next step is to write the ad copy for the ads that will be displayed for your searches. The ad copy is extremely important because along with your bid amount, this will determine the ‘conversion rate' (explained below) of your ads. Write concise, compelling ad copy that highlights the benefits of your website / product, and avoid fluff.

Once you've written your ads, it's time to bid . The bidding mechanism differs from PPC engine to engine, but the idea is the same – your bid amount is the maximum cost (usually calculated in U.S. dollars) that you are willing to pay for each keyword. It's important to know how much you can afford in terms of bidding costs so that you avoid going into bidding wars with your competitors, and also so that you don't spend more than you make through this campaign.

Cost-Per-Click

Cost-Per-Click ( CPC ) is the amount you pay each time a potential customer ‘clicks' on one of your ads that they see on their search engine results or on websites. This is often less than the maximum bid amount you set for each keyword.

Conversion Rate

Conversion Rate is the ratio of clicks over impressions (the number of times your ad is displayed on searches or page loads on websites). A typical conversion rate is between 2 to 3 percent – that is, for every 100 impressions, you get 2-3 clicks on your ads.

Conversion Rate is closely tied in with the quality of your ad copy , and also with Placement , which I'll discuss next.

Placement

If there is more than one person bidding for a keyword (as is almost always the case), the placement of the ads (which ad comes in on the first slot, which comes in on the second, etc.) is determined by bid amounts of each competitor. The higher your bid, the better your placement (Google adds the conversion rate into their placement calculations, and I'll tell you how later). Your conversion rate to a certain extent depends on how high your ad is placed on the ‘rankings' and this leads advertisers to place high bids just to rank at the top. The trouble with this approach is that you might enter into a bidding war with your competitors and lose a lot of money.

Tracking

Tracking refers to measuring which keywords are bringing you the best leads or sales, and which keywords are bringing you ‘window shoppers' – people who are ‘compulsive clickers' and don't buy or sign up. Tracking your ad campaign will help you further fine-tune your ads and improve your ROI.

ROI

Your Return-on-Investment (ROI) is determined by how much you are spending over how much you are earning in net profits from your ad campaign. It's important to establish a base ROI before your start your ad campaign – assume a conversion rate of 1 percent – so that you don't over-spend and are able to run this campaign within your budget.


The Pay-Per-Click World

Currently, there are two major PPC engines, Google AdWords and Overture (now known as Yahoo! Search Marketing ). While there are many alternatives such as Espotting (now Miva), MetricsDirect and Kanoodle, the top two PPC engines are a class apart when it comes to delivering results.

However, one of the first pieces of advice you'll hear from most people is that bigger PPC engines such as AdWords and Overture are too ‘expensive' to break into (with CPC for top positions easily passing $3-$4 for many keywords, and reaching $10 for really competitive keywords).

In reality, if you are just starting out, it's critical that you pick one of the top two PPC engines. Why?

Traditionally marketers judge PPC engines on the following criteria:

Reach – How large your potential target market is.
Cost-per-click
Quality of traffic – Do the leads fit your customer profile? Are the willing to spend on your products?
Quality of service – The tools and help offered by the PPC engines.
Overture and AdWords beat their competition on all of these metrics except CPC. However, the benefits of ‘cheaper' clicks are more than compensated for by the ease of use of the big two, and more importantly, as any PPC expert will tell you, the quality of traffic from Overture and AdWords is far better than from other PPC engines.