What are Pay-Per-Click Ads?

Paid Search and Pay-Per-Click advertisements are some of the primary methods digital advertising generate revenue both to websites and from websites. The nuts and bolts of these ads are relatively straight-forward, but the application of them can be as complex and algorithmic as necessary to accomplish a given set of goals. Any kind of display (image/video) or text ad you see in search results, on social media, or on a website are typically run through a system that charges the advertising company per click or CPM – cost per thousand impressions.

For example, if you want to advertise your business in those first two results that come up in a Google search result (the ones that are labeled “ad”) then you’re talking about using Google Adwords. If you want to have a picture ad for your business come up on a website like Amazon, Fox News, or Home Depot, then you’re likely talking about display ads through the Google Network or AdNexus or one of the other competitors out there. Whenever your ads come up for a user, it means that you have outbid competitors for that traffic. This is the most complex strategy for any paid search system: bidding for specific users and demographics within your budget.

Here's the thing...

Once you determine your monthly budget (how much you want to spend on paid search in a given month), you can determine how much each click/impression is worth to you. The more clicks you can convert to phone calls/qualified leads, the more aggressively you can bid for displays. You’re not the only one trying to serve ads, so make sure you’re competitive in your bid strategy.

So, what do you do?

The Nitty Gritty

Check out this video that Google put out explaining the basics of AdWords. It’s a short, 02:00 long clip that can give you a visual tour of what we’re talking about here.

Paid search and display ads are almost entirely run on a bidding strategy. Your business and other businesses are going after the same keywords in a search result. If you want your ad to appear first on that list, you need to make sure that you’re bidding higher for that keyword than your competitor. In a typical AdWords structure, you can set your “max bid” amount saying that you don’t want to spend more than X for your ads to be served. If your max bid is higher than your competitors, you will beat them out for that top spot. You’re then charged if the user clicks your ad (in the pay-per-click model) or just for the user seeing your ad (in the CPM model).

The strategies here are all based around the keywords, demographics and the competition. The more you are able to refine your target audience, the more you’re able to bid for fewer people. For instance, if your web traffic is 85% female, your business is localized to a single state, and your products are sold to almost exclusively women, you can go after that demographic specifically, not wasting your budget on people that wouldn’t buy your product. The same is applied to the specificity of the keywords you target – the more specific the keyword, the more you can aggressively capture it instead of trying to complete with the world for a broader keyword.

The most accurate way to run a paid search or pay-per-click campaign is to start off by analyzing your own business to determine how much it costs you to acquire a customer (time employee spends closing a sale, paperwork to finalize, etc.) and seeing how much a new customer is worth to you over time: Lifetime Value. Once you get an idea of how much a customer is actually worth to you, both to acquire and to keep over time, you can get a better handle on how much you should be bidding for ads served to a user.

The math for your business is half the battle, the other half is determining how often you get leads from the ads you serve. It may cost you $15 for 1,000 impressions for your ads. If you only get 1 click for every 1,000 impressions, and then 1 lead for every 10 clicks, you’re spending $150 on ads before you get an actual leads. Depending on your product, that may or not be worth it.

The Point

The competitiveness of the keywords/search terms/users you’re going after will affect how much you need to spend to get your ads out there. You may only be able to afford $500/mo in ads, and you need to make sure those ads count. If your market is incredibly competitive online, you could have to bid upwards of $20 per click on your ads. That will burn through a budget quickly, but if you’re target is very refined, you are more likely to get a lead from that click instead of just a website visit. Paid search isn’t always a valuable service for a given product, but when it is, it can be very effective.