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What is Pay-Per-Click Advertising? Is it Right for Your Business?

By ZioSolutions

When you begin looking into online advertising for your business, one of the most popular options you'll find is pay-per-click (PPC) advertising.

This type of advertising is available through many of the most popular sites, social networks and search engines, including Google, Bing, Facebook, Twitter and Instagram.

This guide will cover the ins and outs of PPC advertising, its benefits and how to know if it's the right option for your business.

How PPC Advertising Works

PPC advertising works exactly how its name suggests. After creating your ads you then pay a fee every time a visitor clicks on your ad. To put it simply, you're paying for people to interact with your ad and visit your business's website.

Who sees your ads will depend on where you run them. If you go with search engine PPC ads through Google or Bing, you can set your ads to run when a user searches for specific keywords.

For example, if you have a home furniture business, you may run a pay-per-click ad for the search term "new kitchen table."

On social networks, you can set up your ads to run only for users who satisfy specific demographics, such as women between the ages of 25 and 35.

The alternative to PPC ads is cost per thousand (CPM) ads. With those ads, you pay a fee for every 1,000 people who see your ad, regardless of whether they click on it or not.

The PPC Bidding System

PPC Advertising Bidding Auction Concept

PPC ad networks typically use auction systems to decide which ads to run, but there's more to these auctions than "highest bid wins." The price you're willing to pay is just one important factor.

In a pay-per-click ad auction, you provide the ad you wish to run and your maximum bid amount. The ad network then evaluates the quality of your ad, your ad relevancy, and your maximum bid amount to determine if your ad runs and its placement in comparison to other advertisers.

This works a bit differently depending on the ad network. With Google AdWords, Google multiplies your ad's quality score, which it assigns, by your max bid. The result is your ad rank.

For example, a quality score of 8 stars and a max bid of $3 would result in an ad rank of 24. If the next four advertisers had ad ranks of 20, 18, 16 and 10, yours would run first, followed by the ads with ranks of 20 and 18. Since three ads typically run for a search query, the two ads with the lowest scores wouldn't run in this scenario.

The amount you actually pay per click with Google AdWords depends on your ad's quality score and the ad rank of the ad immediately beneath yours. In the scenario above, Google would divide 20 (the ad rank of the ad beneath yours) by 8 (your ad's quality score) for a PPC cost of $2.50.

Facebook PPC ads work similarly, except Facebook charges you the minimum you would've needed to pay to win the auction for your bid.

The way PPC costs are calculated works out in your favor, as you may end up spending less than you bid. This means it's best to determine the highest amount you're willing to pay when choosing your bid amount.

Take things such as your conversion rate, ability to close, and average sale value into account when determining this amount in order to maintain a positive return-on-investment (ROI).

Benefits of Pay-Per-Click Advertising

The biggest benefit of PPC ads is undoubtedly that you only need to pay the fee when someone clicks through and goes to your site.

With more traditional advertising methods, including CPM ads, you could pay for ads that people simply ignore. There's no risk of that with pay-per-click advertising.

Being able to set your max bid amount makes it easy to stay within your marketing budget. Ad networks also let you set daily spending limits that you can adjust whenever you want.

PPC ads are the perfect way to get your business in front of your target audience. You can control who sees your ads either by the keywords or demographics you choose. It's also possible to set up your ads to run only at certain times of day or in certain areas.

Deciding If PPC Ads Are Right for Your Business

Small Business Meeting About PPC

With all the different ways you can set up PPC ads, they work well for just about any type of business. But there are certain businesses that will benefit most.

The higher your profit margins, the more beneficial PPC ads can be for you. Let's assume that two businesses' websites have the same conversion rate.

If one business sells computer equipment for $100 and up, and the other sells accessories for $10 to $20, the first business is getting much more value from its ad sets, even if its ads cost a few dollars more per click.

Subscription businesses and businesses that get substantial lifetime value from most customers are also a great fit for pay-per-click advertising.

For example, utilities companies and hair salons are both businesses that tend to have quite a bit of repeat customers. The cost of PPC ads is well worth it to bring in a customer who will keep coming back.

If your business has products that are on the rarer side, it's a good candidate for PPC ads. With these types of products, it's all about building brand awareness, and PPC ads allow you to do that and more.

Getting Started with Pay-Per-Click Advertising

Even though PPC ads can deliver fast results, it's important to be patient as you set up your first PPC ad campaign.

Remember that the quality of your ad sets play a huge role in where your ad runs, how successful it is and how much you pay for each click.

Make sure you have a great ad and a business website built to convert visitors into paying customers so that you get optimum results.

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I hope you found this information beneficial and feel free to connect with us on social media with any thoughts or questions you may have.

Topics: Pay-Per-Click Advertising, Advertising