By Laia Cardona, on 2 May 2023
PPC or pay-per-click is a common advertising model in online campaigns that helps drive traffic to a website. It is very efficient because the advertiser only pays the publisher when the ad gets clicked on. This prevents advertisers from investing their budgets into campaigns that can't be measured quantitatively.
The PPC model is an important concept to understand in digital marketing so let's dive in!
How Does PPC Work?
PPC, or pay-per-click, is a digital advertising model where an advertiser pays an amount (fixed or determined by auction) each time a user clicks on one of their ads and visits their website. The idea of a pay-per-click campaign is to "buy visits" for a specific site. The aim is to generate a specific type of user action, such as registering or buying a product.
Although PPC is a very common option, it is not the only payment model for online campaigns. Therefore, it’s important to distinguish it from others, which can include:
- PPM (payment per thousand). Here, the advertiser pays a fixed amount for every thousand impressions, meaning every time the advertisement is shown a thousand times to the users. Keep in mind that with this model you do not know how much you will pay for each visit, due to difficulties in predicting how many clicks each additional thousand impressions will generate.
- PPA (payment per action). In this case, the advertiser pays each time a user performs a certain action, like downloading an app, registering, or making a purchase. Therefore, the link between cost and objectives is even more evident than in the case of PPC.
Key Concepts to Understand About PPC
CPC or Cost Per Click
CPC is the price paid by the advertiser for each click on an ad. Here you can agree on a fixed price for each click or determine the price through an auction. In the case of the latter, the advertiser establishes a bid or maximum price that they are willing to pay for each click. The system compares the ad with similar ones based on their quality and the price they are willing to pay and shows the winning ad in the first place.
CPC = cost ÷ clicks
CPC = (CPM ÷ 1000) ÷ CTR
CPC = conversion rate x CPA
The CTR (click-through rate) is the percentage of users who click on an ad out of the total number of users who have seen it. In general, the better an advertisement is, the higher its CTR will be.
In some PPC systems, the CTR is a determining metric for setting the price of an advertisement, since the system rewards ads that have higher quality and therefore a higher CTR.
CPC = clicks ÷ impressions
CTR = (CPM ÷ 1000) ÷ CPC
The term "impression" refers to each of the views that an advertisement receives, whether the user clicks on it or not.
With online advertising, you have a great deal of control over the audience you are targeting with your ads. You can segment the audience that will see your PPC campaigns based on factors like age, gender, location, interests, etc. Each pay-per-click platform offers different options that you can combine to achieve a high level of accuracy. This way you ensure that you are only paying for clicks from users who have a good chance of becoming your customers.
The landing page is the webpage that the user is directed to after clicking on your ad. Here, they can end up converting or leave after just a few seconds. This means that it is very important for the site to be well optimized.
The main characteristics of a good landing page are clarity, simplicity, and relevance with respect to the advertisement.
Conversion is probably the most important metric in a PPC campaign because it involves measuring the performance of your ad in economic terms. The term "conversion" refers to each of the purchases made by a user after clicking on an ad. The conversion ratio is the percentage of users converted into customers out of all those that clicked on the ad.
Conversion ratio = number of conversions ÷ web visits
In this case, frequency means the number of times each ad is shown to a specific user during a given time period. To calculate frequency, divide the number of impressions by the number of unique users.
Frequency = number of impressions ÷ number of unique users
Most commonly, people will need to see an ad several time because this ensures that they are actually impacted by it. However, frequency doesn't mean you should bombard your potential customers with ads because excessive targeting can end up generating rejection.
7 Advantages of PPC
You only pay for the visits you receive. In other advertising models, advertisers pay a fee for having the ad shown but do not have any guarantee that it is generating results. With pay-per-click, there is a direct link between cost and performance (visits).
You have lots information about the performance of your ad. The pay-per-click platforms offer the advertiser complete information about what is happening with the advertisement, including the number of impressions, clicks, and conversions.
Good optimization possibilities. With all this data, it is very easy to know if an ad is working or not and correct the course in real time. In fact, the most advisable strategy is to create several variations of each ad and compare them to see which ones work best. This way, you can get better results every time.
Your ads reach the right audience. Thanks to the many segmentation options, you won’t waste clicks. Only the users you want to target will see the ad. This yields better results since a user who is part of your target audience has a higher chance of clicking on the ad. The higher the percentage of clicks, the lower the cost of the ad.
You can control your budget very precisely. The PPC models allow you to set a maximum budget per day, and in some cases, you can start with just $1. This means that it can be adapted to advertisers of all sizes and that you can control in advance how much you spend on each campaign.
You can decide where and when your ad will be shown. Within the pay-per-click model, you can show your ads on many different platforms and locations and select the ones that interest you the most. Some sites also allow you to choose the days and times when your ads will be shown.
You will achieve better positioning and visibility. Thanks to the PPC, you can show your ads on some of the sites most visited by users, such as search engines, and social networks.
Examples Where Pay-Per-Click Is Used
The PPC is a payment model, not specific to a certain site or location. That's why you have many options when deciding where you want to show your ads. The main ones are the following:
PPC Ads in Search Engines
Search engine advertising, also known as search engine marketing (SEM), allows you to show ads to users based on the keywords entered in the search bar (for example, "car-sharing in London"). The main search engines, such as Google and Bing, use a model based on PPC through auction.
For advertisers, search advertising offers two great advantages:
- It is highly visible, since ads appear on the first page of the search engine results page (SERP), meaning page one on Google. Being able to position your website in an organic way can cost you years of work, but thanks to ads, you can establish your presence at a reduced cost.
- It is very effective since it is aimed at users who are looking to satisfy a specific need that has to do with your products or services.
PPC Ads on Social Networks
The main advertising tools on social networks, such as Facebook Ads or Instagram Ads, offer pay-per-click options.
These types of ads are integrated into the user's social network experience, either in their news section or in a side column. One of their main advantages is that they allow you to take advantage of the information that the social networks have about their users so that you can launch highly segmented PPC ads (for example, "married men who have recently moved to X").
PPC Display Ads
Finally, PPC is also used when displaying banner ads on websites related to a brand's products and services or the interests of its target audience.
These types of campaigns can be very effective if they are implemented well, but you have to be careful to avoid falling into intrusive advertising. It is also worth keeping in mind that CTRs are usually much lower than in other types of ads, so a larger audience is required.