Pay Per Click Advertising

The Basics of Pay-Per-Click Advertising

The two different types of ads that people call pay-per-click advertising correspond to the two Google products: Google AdSense and Google AdWords.

• Google AdSense is a system in which you invite advertising onto your website that is suitably related to your product, service, or content. When visitors to your website click through using the advertisements, you get paid on a per-click basis, hence the name, pay-per-click. Ads can be targeted by keyword - these appear on search engine results pages (SERPs) - or by placement - these appear on content sites that you choose.

• Google AdWords is a system that allows you to advertise your business by suitably related Google search results or partner sites. When people click on your advertisements to arrive at your website, you pay on a per click basis, known as the cost-per-click.

There are other vendors besides Google that provide both services. In either of these models, if there are no clicks, there is no payment.

What Are Other Advertising Payment Arrangements?

Two other important pay arrangements that contrast with pay-per-click advertising are cost per action and cost per impression.

• Cost per impression (CPI or CPM, which stands for "cost per thousand impressions," using the Roman numeral for thousand) is figured by the number of times the ad server loads an ad and therefore (presumably), the number of times it is viewed. Pay per sale (PPS) is a related term.

• Cost per action (CPA), also known as Pay Per Action (PPA), is a model in which payment is made dependent upon a visitor making an explicitly defined action. This action could be a sign-up, a sale, submission of a form, etc. Cost per conversion (CPC), in which conversion might be defined as a sale or a lead, for example, is a related term.

How Payment Is Determined With Pay-Per-Click Advertising

There are two models for determining cost per click in a pay-per-click set-up.

• In a flat-rate setup, the cost is a fixed amount, determined by the location on the website and agreed to by the advertiser and the publisher of the advertisement.

• In a bid setup, the publisher or advertising network holds an automated private auction in which advertisers bid for an ad spot. The spot is usually based on a keyword. The auction is run repeatedly, for example, when a person institutes a search and the search engine results are delivered with relevant advertising. If multiple spots are available, placement of multiple winning ads will be placed on their bids.

Pros and Cons of Pay-Per-Click Advertising

There are some definite pros to using pay-per-click advertising:

• As the advertiser, you don't pay just when someone sees your ad, as in CPI/CPM, but only when someone takes an action that gets your site viewed.

• It's possible to hone in on a very specific audience.

There are also some cons to pay-per-click advertising:

• It's complex and labor-intensive.

• Click fraud, in which someone clicks on an ad with no real intent of making a purchase, is widespread - it was reported as 28.3% on PPC ads in 2007 on the Freakonomics Blog.

• You need to learn a great deal before you can safely get started, both choosing between various systems - such as Google, Yahoo!, MSN, MIVA, etc. - and learning enough of the system you choose to get started.