How Does Pay Per Click Work? A Complete Guide

Pay per click advertising is an incredibly powerful marketing strategy that can generate businesses thousands in revenue. With the ability to setup a campaign in a matter of minutes and watch visitors come to your website, it’s an essential strategy for many companies.

But how does pay per click work?

If you want to improve the effectiveness and ROI of your campaigns, then understanding how PPC works is essential. Many businesses jump straight into making their PPC campaigns and then complain when they don’t make their expected return. By understanding how PPC works, users have a much better chance of making a profit and having a successful campaign.

So just how does pay per click work?

How Pay Per Click Works: Advertisers

When it comes to PPC, there are 3 main parties. Advertisers, the middle man (or PPC network) and publishers. Advertisers are businesses or individuals who use PPC in order to promote their products and services. They pay the PPC network, (Adwords, Bing Ads, Facebook Ads) to display their adverts on their network.

Whenever a visitor clicks on their advert, they are charged money by the network. This is where the term “pay per click” came from. Now, depending on the keyword, they are targeting and the competition, this will determine how much they pay per click. It can be anything from a few pence up to tens of pounds.

If other advertisers are all competing for the same keyword, then it’s obvious the keyword price is going to be high. There are only a limited number of advert slots available on Google’s home page, so businesses need to battle it out to claim their spot. This is where bidding comes into play which we’ll cover later on. For now, all you need to know is there are plenty of advertisers out there all competing for the same keyword.

Now let’s see how those publishers fit into all of this.

How Pay Per Click Works: Publishers

Publishers are individuals who team up with PPC networks in order to earn revenue from displaying their adverts. Almost all publishers own some website which they can display adverts on. When website visitors click on these adverts, publishers receive a split of the revenue. How much they receive in the end depends on what keyword the user clicked and what the average bid of that keyword was.

Publishers were introduced by many PPC networks with the aim of increasing the networks display and potential audience. By having webmasters and developers display ads on their websites, apps and videos, this allows PPC networks to reach a wider range of users.

When advertisers create PPC campaigns, they are often given the choice between having the advert displayed on the network or with their partners. The benefit of having publishers and partners means advertisers can pay less per click than they usually would. In addition to this, the PPC network gets to make more money, and the publishers take a slice of the revenue. Everybody wins!

How Pay Per Click Works: Bidding

Now you know how the advertisers, publishers and PPC network interact with each other, how does the actual bidding work?

mobile phone ads

Every keyword has 4 advert slots up for grabs above the first organic search. Take a look at the picture above. Depending on the average bid for the keyword will determine which ad position your ad will get displayed. It’s important to note that bidding for the number 1 spot is not always worth it.

It’s still possible to have a successful campaign by only being in position 4. The chances are you will pay a lot less than the 1st position but will still receive relevant clicks. If you head over to the Google Keywords Planner tool you can use this to estimate what position you would be in and how much you would have to pay.

click statistics

As you can see from the picture above, for only 5p a click you can get position 4 for the keyword “mobile phones”. Only spending £10 a day you could get around 193 clicks.

Compare this to position 1 and you would be looking at £4.55 a click! Although these statistics are based on previous campaigns, it gives you a good idea how much it’s likely to cost.

How Pay Per Click Works: Quality Score

quality score

 

Now you know how bidding affects your ad position and the overall result it’s also important to understand quality score.

Quality Score is Google’s way of rating the quality and relevance of adverts displayed. It is used to determine your cost per click and also your ad position. Making sure you have a good quality score can be the difference between paying a small CPC and a huge CPC. If you want to increase your chances of having a successful campaign, then you need to ensure your adverts have a good quality score. This means making sure you have a relevant ad with relevant keywords, a good CTR and a quality landing page will pay dividends in the long term.

If you’re interested in reading guides on other topics, check out Tutorful who recently posted a guide we’re featured in!

Now you know how pay per click advertising works, it’s time to save money on your PPC campaign.

You might not know it, but almost every PPC campaign out there experiences click fraud to some degree. Some campaigns experience it a lot more than others; it just depends what market you are in and how competitive it is.

Click fraud can cost you hundreds, if not thousands, of precious dollars every single month. For every fraudulent click you receive on your adverts, you lose money. You might think the PPC networks are doing something about it. Well, think again.

Considering Google makes most of its money from PPC advertising, it’s not really in its interest to clamp down on it. After all, once someone clicks, they’ve got your money.

Here at PPC Protect we can save you money.

Thanks to our high-tech click fraud detection software, we can detect when people are fraudulently clicking your ads. To see how we can save you hundreds a month, click below to try out our free 30-day trial.