As much fun as it is to get into the nitty-gritty details of digital marketing, we realize that not all of our readers are looking for that level of tactical discussion. To that end, we’d like to take a moment to provide a PPC 101 and get down to basics.
Whether you’re brand new to digital marketing or just want to make sure your foundation doesn’t have any gaps, this article will help bring you the knowledge that will solidify your understanding of PPC advertising. We’ll review what PPC is, why you should use it, and how PPC ad bidding and placement work.
What is PPC?
PPC stands for pay-per-click marketing, which means that an advertiser pays each time their ad is clicked on. It might sound simple, but this is actually a revolutionary concept. In the olden days before the internet, advertisers used to negotiate deals with newspapers or television networks to show a certain number of advertisements during a particular span of time. There was no way to determine who saw the ad or how well it resonated with its target audience. While this type of advertising has been ported to the digital age in CPM (cost-per-thousand-impressions) advertising, it’s no longer the only way campaigns can be structured.
PPC is a tremendous win for advertisers because they only have to pay for the ads that people actually interact with. With this unprecedented level of data and control, platforms from search engines to social media networks have shifted to the PPC system.
Why Should I Use PPC Advertising?
I recently wrote an article about the benefits of PPC vs. SEO, which has more detail about how PPC fits into a strong marketing strategy. It’s a great way to make sure that you’re getting good exposure for your brand while people are actively thinking about making a purchase or trying to solve a problem.
PPC is also perfect for people who want instant gratification. Your highest-volume keywords and audiences can start generating traffic mere minutes after they’re launched, meaning that you can start the cycle of observation and optimization extremely quickly. You can watch your campaigns succeed or fail in real time and make adjustments at any moment. This can be addictive to the right personality.
The other unique thing about PPC advertising is that you have a tremendous amount of control over your audience. By carefully selecting the keywords that will trigger your ads to show, you can target internet users at any stage in the buying journey. Unlike organic SEO, you can tailor your ads to show the most relevant value propositions and calls to action to each audience.
How Does PPC Work?
We’ll start by talking about PPC in search since it’s the easiest to understand. As an advertiser, you could create a list of keywords that you think are relevant to your business. For example, if you owned a shoe store, you’d probably come up with keywords like “buy women’s shoes” and “men’s sneakers”. Each keyword would have its own bid and at least 1 ad associated with it. When someone performs a search using a query that contains one of your keywords, you and everyone else bidding on that term are entered into a quick auction for the top spot on the Search Engine Results Page (SERP). The results of that auction determine the order in which various ads are shown on the page and the amount that you would pay if your ad were clicked.
PPC on non-search networks works essentially the same way, except instead of having ads being triggered by user queries, the auction occurs when a user in your target audience lands on a new webpage, looks for a video on YouTube, or scrolls sufficiently far in their social media newsfeed. While the details of determining when an ad can show and to whom will vary by network, the core concept of only paying for an ad when it’s clicked remains the same.
What Do I Pay for a Click?
Unlike auctions on eBay, Google and other PPC-based ad networks have a vested interest in who wins each auction. People will stop using a search engine that doesn’t provide them with useful results, and advertisers won’t spend time and effort managing networks that can’t provide them with qualified traffic.
Google and Bing have solved this problem by calculating ad rank based not only on each keyword’s bid but its Quality Score, and many other networks have followed suit with similar metrics. Networks are deliberately vague about how quality is determined to avoid allowing people to game the system, but the three major components are ad relevance, landing page experience, and historical click-through rate.
You can achieve a higher Quality Score by ensuring that your ad is tightly related to both your landing page and the keyword it’s associated with, that your website loads quickly and doesn’t contain popups or malware, and that you’re building on a history of relevant user interaction. On the flip side, if your Quality Score is too low, your ads may not be displayed at all.
Let’s walk through an example to see how a Quality Score fits into PPC ad placement:
- You own a shoe store and decide to bid $1 on the keyword “buy men’s sneakers”.
- You write a great ad and make sure that it points to a landing page that shows your selection of men’s sneakers.
- Your Quality Score is 9.
- Your ad rank is $1.00 x 9 = 9.
- You also have a competitor bidding $1.50 on the keyword “buy men’s sneakers”, but their ad and website are not good, giving them a Quality Score of 5.
- Their ad rank is $1.50 x 5 = 7.5.
- You outrank your competitor and therefore show up in the top spot, even though your bid is lower.
I’m going to add one more twist to this equation. Let’s pretend that you increase your bid on the above keyword to $2.00. The next time your ad enters the auction, your ad rank is $2.00 x 9 = 18, compared to your competitor’s 7.5. You’re certainly going to show in the top position! However, it would hardly be fair to charge you the full $2 for your click when your ad is so much better than your competitor’s. In this case, you would only pay $1.51, one cent higher than your competitor. This is a clean way to ensure that bidding high on relevant keywords won’t punish advertisers who have really strong campaigns.
The math gets more complex as you introduce more competitors into the mix, along with things like bid offsets and different automated bid strategies.
Key Takeaway: The most fundamental aspect of PPC bidding is that you will not pay more than your keyword bid, and you can often pay less by creating good ad campaigns.
What Should I Pay for a Click?
Figuring out what to pay for a click can be a challenging proposition. One of the most important factors is the competitive landscape for each keyword. Since the auctions happen constantly and in real time, a change to your competitor’s strategy can have immediate consequences for your ad campaigns. Knowing which keywords are most important to your success will allow you to prioritize appropriately. There are times when it makes sense to be aggressive and times when you need to walk away from a bidding war.
The best way to figure out which keywords are most important is to have clearly defined goals and solid conversion tracking. You want to make sure that you’re able to understand the impact your keywords have on your revenue and profitability, which you can only do with a clear picture of your customers’ journey through your sales funnel.
For example, knowing that a particular keyword produces sales with higher-than-average order values should tell you that you can give it a higher-than-average bid and still remain profitable. Also, remember to consider factors like customer lifetime value and the length of the sales cycle. If your typical customer makes a small purchase immediately after clicking an ad and then makes a large purchase within the next 6 months, you’ll want to keep that in mind as you evaluate keyword performance.
Key Takeaway: Understanding the true value of a click can get very complex, but the more time you put into it, the better decisions you can make.
One last factor to consider is the cost of your keywords relative to your ad budget. In a perfect world, you would have a large budget that would allow you to learn about any and every keyword that seems relevant to your business and to keep your campaigns going even as your customers move through the sales funnel. However, this is often not the case, and spreading your budget too thin will prevent you from collecting meaningful data.
If your average cost-per-click is $5 and your campaign budget is $10, you’re limiting yourself to 2 clicks per day. If those 2 clicks are being spread over 500 active keywords, it will take you years to gather enough meaningful data to make decisions. In this case, you would want to either increase your daily budget, decrease your average bid, or reduce the number of keywords you’re testing to get more actionable results.
How Can We Help Make Sure You Succeed?
The best thing you can do for your PPC campaigns is to pay attention to them. The constantly-running auctions mean that if you’re not staying ahead of your competitors, you’re probably falling behind.
By monitoring performance and regularly making adjustments to your keyword mix, adding good negative keywords, constantly fine-tuning ad copy, and analyzing the data you do collect any way you can, you can find incremental gains that will take your campaigns to the next level. Barring that, find a good agency who can give your campaigns the love they deserve.
If you’d like help with your paid digital advertising, we’d love to help. We’re confident we can help maximize your ad spend, while also increasing conversion and actual ROI.
We know actions speak louder than words, so just head on over and request a free PPC audit. We’ll review your existing campaigns and provide some recommendations – and we’ll do all of it for free.