How PPC Works for Search Engine Advertising

Donny Kemick

Although pay-per-click advertising has been around for quite a while now, it's still very common for new clients of ours to ask us to explain how PPC works. This will be a very beginners-level post, but I hope it will help any businesses or nonprofits that have been considering using PPC to get started. For this post we are going to focus on Google Adwords because it is the most common PPC platform.

Questions I will answer:

  • What is PPC?
  • Where do ads appear?
  • How is the order of ads determined?
  • How much do you pay per click?
  • How do I avoid spending way more than I want to?
  • How do I target only my prospects?
  • How do I get started?

What Is Pay-Per-Click Advertising?

The name, Pay-Per-Click (PPC) is somewhat self explanatory. You place ads in search engines, social media, etc... and pay ONLY when someone clicks on your ad, hence pay-per-click. Unlike traditional advertising, you are not paying for impressions. In fact, you DO NOT pay for impressions at all. You only pay when someone engages with your ad and clicks through to your website. This means that users may see your ad repeatedly, gaining some brand awareness for your organization for FREE, as long as the ad isn't clicked.

Where Do These Ads Appear?

If you have done any web marketing, you have probably heard the terms organic listings and paid or sponsored listings. Here's where they appear on a Google search results page:

Location of PPC and Organic Google Results

 

The organic listings garner most of the clicks on a search results page, particularly for users that are simply researching a topic or looking for an answer. Users that are shopping or looking for a provider are much more likely to click on the sponsored listings.

It's easy to see why using pay-per-click can be very valuable to driving sales/donations/leads for search terms that are very hard to rank for organically.

How Is The Order Of Ad Listings Determined?

On the example above, there are almost a dozen sponsored ads on the search results page. The order that they are displayed in is based on 2 key elements:

  1. The maximum price each advertiser is willing to pay when someone clicks on their ad
  2. The quality score of their ad

The position of your ad is essentially an auction between advertisers. If advertiser 1 is willing to pay $0.50 when someone clicks, and advertiser 2 is willing to pay $0.45 when some clicks, advertiser 1's ad will be positioned above advertiser 2's ad. Enter quality score... Google is dedicated to providing the absolute best results possible for their users. That's why they introduced the Quality Score for Adwords Ads.

The quality score, at a very basic level looks at the way your Google Adwords account campaigns, ad groups, keywords/phrases, ad copy and landing pages are setup to determine if you are providing a good experience for their users. For example, If we have a campaign running in Google Adwords for our c80 Content Management System (CMS), we can improve our quality score by making sure our campaign/ad groups, ad copy, landing pages, etc... are all focused on providing ad-clickers with the best experience possible. Assuming our account is structured correctly (something we are super-OCD about) and someone finds our ad by searching...

'user friendly website content management system'

...we should be sure that our ad copy (the text of the ad) is relevant to their search terms and includes some of the keywords in it if possible. We should also ensure that when the ad is clicked, the user is taken to a page about our user friendly content management system.

Last week I wrote a post about not wasting your adwords spend on sending visitors to your homepage. This is one of the reasons why. It is a detriment to your quality score. THE KEY to the quality score is that it allows you to PAY LESS but be POSITIONED HIGHER than other advertisers. This means you may have a quality score of 9 out of 10, with maximum bid of $0.50 for a keyword, and a competitor may have a quality score of 6 out of 10 with a maximum bid of $0.70 for the same keyword, but your ad appears above theirs. That's one of the big reasons that quality score is so important. Josh wrote a great post explaining the quality score in very basic terms that you should definitely read.

Here is a snippet of a an infographic that I found that does a great job of visually explaining this same concept:

How Adwords Position is Calculated

How Much Do You Pay-Per-Click?

In short, it depends. As little as $0.01 depending on the keyword or phrase that you are trying to advertise for and the competition for that keyword/phrase. Broad keywords like 'insurance', 'credit card', 'health' and 'manufacturing' are going to be highly-competitive keywords that do not yield very targeted traffic. Because they are highly-competitive, the cost-per-click (CPC) is going to be much higher. For small businesses and nonprofits, this is a less than ideal situation. You will have to pay a premium for those types of keywords/phrases and it will yield very low quality visitors to your site.

For example, if you sell insurance, you may want to rank for the term 'insurance'. That is until you see how much it will cost-per-click for such a broad term. It is going to be much more cost effective to advertise for a phrase like 'Pennsylvania aviation insurance' because it is what we call a 'long tailed keyword' that is more focused. This means less competition, higher quality traffic and lower CPC.

Using the insurance example again, if you sell aviation insurance, you aren't necessarily focused on getting people looking for health insurance to your website. By paying for a broad term like 'insurance', you are going to drive a lot of clicks from people looking for health, liability, homeowners, auto, and disability insurance. These will all be wasted money spent.

Referring to the same infographic I mentioned above, here is a snippet that shows how Google uses your quality score, in conjunction with your maximum bid and your competitors' maximum bids to determine an actual cost for each click:

How CPC is calculated

 

How Do I Avoid Spending Way More Than I Want To?

Because the volume of clicks your ads will receive can be extremely variable, especially in the beginning, it's common for PPC clients to be anxious about their ad spending getting out of control.

Fear not!

Google Adwords and every other PPC platform allows you to set a budget for how much you want to spend in a given time period. If you decide that you want to invest $250.00 per month to start, your Adwords account will be setup to not exceed $250.00 in any given month. When your budget is depleted, your ads simply stop showing.

If you would like to make sure that your budget is spent in a balanced way throughout the month, you may want to set weekly or daily budget values. You might also want to turn your ads off during certain times of the day or days of the week. This helps save your budget and avoids getting clicks during low-conversion days/times of the week.

How Do I Target Only My Prospects?

Another common misconception is that by running PPC ads, you are forced to reach the entire world with your offering. Not True. Aside from the obvious fact that the user searched for a relevant keyword/phrase, Adwords and other PPC platforms allow you to use several targeting tools to ensure that you are not wasting your ad budget on pointless clicks.

Example Scenario - Geographically Targeting:

We have a healthcare client that operates in different cities throughout the United States. They are not in every state, and they are only in the United States. It would be very wasteful to show their ads to any user searching outside the US, or in any state that they don't provide healthcare services in. Even better, this client knows that their target audience is within 15 miles of each of their facilities. Because we know this, we can make sure that their ads only show to people searching within 15 miles of their facilities. As you can imagine, this REALLY narrows in on who will see their ads, and ultimately makes the size of their budget much smaller.

Aside from location, you may want to limit ad viewers to only mobile devices, or desktop devices. You may want to limit your ads to only females between the ages of 20 and 45. You may want to limit your ads to people interested in basketball or beer. There are several options to make sure you reach your prospects.

How Do I Get Started?

There's a couple ways. One, you can continue your research online and go at it alone. It can certainly be done. Two, you can give us a shout to discuss any other questions you have. We'd be happy to help.

One of the biggest advantages of having someone help you get started with PPC is that you know your account is setup in the best way possible to increase your quality score and reduce your cost per click. You also have someone in your corner to make regular adjustments to your account so you don't set it up and let it run ineffectively.

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