Pay Per click Advertising (PPC)

Optimising your website for the search engines is only one option for generating traffic for your website.  Another option is to advertise on a search engine or some other website. 

When advertising on a search engine, you pay for an advertisement to appear when a person searches for a particular keyword or phrase, relevant to your website. There are three common models search engines (and other websites) use for charging for advertisements- in fact; these models are common across all forms of online advertising:

  • Pay-Per-Impression (PPI)
    In the Pay-Per-Impression model you are charged every time one of your advertisements is ‘served up’ to a viewer.  With this model you are usually charged per 1000 impressions.  The amount you are charged per 1000 impressions is called your Cost Per Impression or CPM.  This model is the hardest to control, as you don’t know how many people will click on your advertisements, and then purchase products or services, or even make enquiries (although you should be able to forecast this accurately after you have some historical results).

  • Pay-Per-Click (PPC)
    With this model, you are charged for each click your ad listing receives.  The amount you pay per click is called your Cost Per Click or CPC.  Pay-per-click advertising is a lot more attractive than pay-per-impression advertising as you can manage your costs a lot easier- you only pay for visitors that have clicked-through to your website. Read our 10 reasons why you should commit to PPC

  • Pay-Per-Acquisition (PPA)
    Pay-per-acquisition advertising is the best of the lot!  In this model you pay only when someone purchases something from your website.  You pay ‘a commission’ for a new customer.  The amount you pay is called your Cost-Per-Acquisition or CPA.  This method of charging is very common in affiliate programs, which are discussed in a later section.

Advertising Types

There are two common types of search engine advertising:

  • Fixed Placement Advertising

    Fixed placement advertising is exactly how it sounds.  It is an advertisement that is locked into a specific position on a search engine’s results page.  Generally, the position of the advertisement doesn’t change.  Many search engines reserve a portion of space at the top or side of their page for fixed placement ads.

    The advantage of fixed place advertising is that you can lock-in your advertising rates and lock out your competitors from the top positions.  Unfortunately, this type of advertising with the search engines is often very expensive and is usually in the realm of larger organisations with substantial advertising budgets.  This type of advertising has also become less and less common.

    Demo of Fixed Placement Ad
     
  • Pay For Placement Advertising (PFP)

    Pay for placement (PFP) advertising works like this - people bid for placement in the advertising slots provided by the search engines, on their results page.  The highest bid wins the number one slot, second highest bid the second slot, and so on.

    PFP advertising can change day-to-day as advertisers change their bid amounts, and as new advertisers start bidding. Almost all PFP advertising utilises a Pay-Per-Click (PPC) method of charging.  The advertiser pays each time a person clicks their advertisement.

    Demo of Pay for Placement Ad
     

PFP advertising is great for small businesses as you can trial it with very little advertising budget.  You can often secure visitors to your website for just a few cents.  Its only downside is that it can require substantial time and effort to manage it successfully.

 

PFP Advertising Providers

In the PFP advertising world there are two main providers:

  • Google

    Google runs a PFP system called Google Adwords.  Google Adwords allows you to bid on keywords. When these key words are searched, an appropriate advertisement will appear on the right-hand side of the page, under the title– ‘Sponsored Links’.

    Demo of Google Adwords Results


    Using Google Adwords you can also advertise on a vast array of other websites that allow Google to place adverts on their sites through Google's 'Adsense' program (see below).

    googleadsenseexample.gif 

    Google Adwords allows you to target your advertisements to the New Zealand area and to particular regions without including the country or region in the keyword.  What this means is that you don’t have to include the geographical region in the keyword that you are targeting, i.e., ‘New Zealand Meat’.  Instead, you can just tell Google to only ‘serve’ advertisements to New Zealand or Taranaki etc based searchers.  This is called 'geo-targeting' your advertising.

    Any advertisements that you set up using Google Adwords will be displayed in these search engines: Google, Ask Jeeves, Teoma, Netscape Search and AOL Search.  You can also get Google to place your advertisements on other peoples websites through its Adsense program.
     
     
  • Yahoo Search Advertising (formerly Overture)

    Yahoo Search Advertising is another supplier of PFP advertising.  Similar to Google Adwords, Yahoo Search Advertising allows you to bid on keywords that when searched show an advertisement on the right-hand side of the page under the tile – ‘Sponsored Results’ and also on other websites that allow advertising from the Yahoo Search Advertising system.

    Demo of Yahoo Search Advertising results

    Yahoo Search Advertising also allows you to target your advertisements to the New Zealand area or a region within New Zealand ('geo-targeted advertising).  Yahoo Search Advertisingw advertisements are displayed in these search engines: AllTheWeb, AltaVista, MSN Search and Yahoo.

There are also a number of smaller PFP providers:

Budgeting


One of the first things you need to do before venturing into the world of search engine advertising is to establish your advertising budget.  In order to successfully establish an advertising budget you need to work out exactly how much you can afford to spend on attracting visitors to your website.  How much can you pay for each visitor or each click while you’re making money?  This is called your Maximum Cost-Per-Click (CPC) or ‘Bid Cap’.

Calculating the max CPC/bid cap will vary depending on whether your website sells products or services directly online (e-commerce) or merely looks to generate an enquiry (e-profile or e-catalog).

To work out your max CPC/bid cap for an e-commerce website, perform the following calculation:


Average Sale

X

Margin

=

Gross Profit

X

Conversion Rate (Visitors)

=

Max CPC / Bid Cap

$100

X

30%

=

$30

X

5%

=

$1.50

 

To work the max CPC/bid cap on an e-promotion website, you perform a slightly more complicated calculation:

 

Average Sale

X

Margin

=

Gross Profit

X

Conversion Rate (Enquiries)

X

Conversion Rate (Visitors)

=

Max CPC / Bid Cap

$100

X

30%

=

$30

X

25%

X

5%

=

$0.375


This shows your absolute max CPC/bid cap.  We strongly suggest that you set a bid cap a little below what is shown by these calculations, as they do not take into account the fixed overheads of your business.

Your max CPC/bid cap is sometimes not an easy thing to work out– especially if you are venturing into the online world for the first time.   This is because it is hard to know exactly what ‘visitor conversion rate’ your website will achieve if you haven’t had several months of testing and measuring it.

If your website is really new, we suggest you work with a visitor conversion rate of 3%.  Website conversion rates across the world are currently averaging between 2-3%.  Hopefully, as you measure your website over a number of months, you will find that your conversion rate is much higher than the standard.

Now that you know your max CPC/bid cap, you need to work out your total search engine budget.  Most search engine advertising providers will allow you to set an advertising budget, so that in the event you receive many more clicks than you anticipated, you will not end up with a hefty bill.

If you have worked-out your calculations correctly, and you pay for advertising at a rate significantly below your bid cap, you should see a significant return on the money that you have invested.

The final thing you need to decide is exactly how much search engine advertising you can afford to bankroll.  “What!?”, we hear you say,  “I thought you just said that providing we do our calculations well, we will make returns on search engine advertising– so what’s the risk?”

This is true, but like all advertising projects you need to be aware that there will be a period of time before you see a return on that advertising investment. You need to understand your sales cycle and product or delivery cycle.

Let’s take a look at an example:

You pay $50 a day, everyday, for search engine advertising.  Based on your calculations you know that the advertising is going to generate approximately $100 worth of profit everyday.  Now imagine that it takes you on average of 10 weeks for you to deliver the product or service that you provide to your customer, and receive payment.  This means that you will need to pay $3500 ($50 X 70 days) before you will start to see the profits resulting from your advertising.  You need to be able to bankroll $3500 worth of advertising before you will see the results of that advertising making a positive affect on your bank balance.

So let’s imagine that we have $2000 that we can dedicate to search engine advertising, and that it takes us four weeks to deliver the product or service to our customer, and receive payment.  This means that our search engine, advertising budget is $66.70 per day ($2000 / 30).

This can be a little confusing when you are looking at these concepts for the first time.  Don’t worry … soon you will be able to do all this in your sleep!

Remember– the key figures you need to know before starting a search engine, advertising campaign are:

•    Max CPC / bid cap
•    Daily search engine advertising budget.

Choosing Keywords

Choosing your keywords for search engine advertising is very similar to choosing keywords for your search engine optimisation.  Please refer to the section ‘Keyword Research’ (under Search Engine Optimisation) for a detailed breakdown of choosing search engine, advertising keywords.  Click here to go there now.

Writing Advertisements

Writing search engine advertising is not very different to writing sales copy for your website.  If you haven’t already– go back and review the sections on copywriting focusing on the sections about ‘Writing Headlines’ and ‘Opening Hooks’.  When writing your titles and descriptions for your advertisements make sure you follow the principles outlined in these sections.  You should always be thinking– “Will this title and description clearly attract my target visitors, and repel visitors who are not genuinely interested in my products and services?” For example:

Order Meat Online Today
Order New Zealand’s finest meat online and have it delivered direct to your doorstep.
www.meatcuisine.co.nz

To substantially increase your click-through rate, mention the keywords that you are targeting in your title or description.

Don’t always send users through to the home page of your website.  If your ad is targeted at a certain product or service, direct the customer directly to that section of your website.

Analyse your competitor’s advertisements.  If they are positioned higher than yours, especially on Google, then there is a good chance that they are achieving a higher click-through rate.  Look at what they may be doing to gain a higher click-through rate.

Submitting Your Listing

Now it’s time to submit your listings and start your PFP advertising.

The first thing that you will need to do is set up an account with a PFP advertising provider.  Our recommendation for beginners is to set up an account with Google Adwords first.  You can move to Yahoo Search Advertising and some of the other PFP providers at a later date.  Google Adwords has a simple system and it costs only US$5 to create an account.

Go to Google Adwords website (http://adwords.google.com).

The Google Adwords website provides detailed instructions for setting up an account, and running and managing Adwords listings.

Don’t forget– ‘walk before you run!’

Start with a small advertising campaign on Google and once you are familiar with that and you’re achieving results, move forward.

Monitoring

As with every part of your website– always monitor and test your listings.

Most of the different PFP providers supply tools to help you monitor and measure your advertising results.

The key metrics that you will need to monitor when advertising on the search engines, using paid placements programs are different depending on what type of website you have. 

The key metrics for an e-commerce website are:
  • Impressions – the number of times your advertisement has been ‘served’ to viewers
  • Click-Through Rate (CTR) – how often visitors click on your ad
  • Clicks/Visitors – the amount of clicks that you have received
  • Conversion Rate (Visitors) – the percentage of visitors that placed an order
  • Orders – the number of orders placed
  • Average Sale – the average value of each order
  • Revenue – the total amount of revenue generated
  • Gross Margin – the percentage of revenue that is your profit
  • Gross Profit – the total amount of profit that you have made
  • Cost Per Click (CPC) – the cost per click on your advertisement
  • Total Cost – the total cost of your campaign
  • ROI - the return on your advertising investment (gross profit divided by the total cost).

The key metrics for an e-promotion website are:

  • Impressions – the number of times your advertisement has been ‘served’ to viewers
  • Click-Through Rate (CTR) – how often visitors click on your ad
  • Clicks/Visitors – the amount of clicks that you have received
  • Conversion Rate (Visitors) – the percentage of visitors that made an enquiry
  • Enquiries – the number of enquiries made
  • Conversion Rate (Enquiries) – the percentage of enquiries that resulted in an order
  • Orders – the number of orders placed
  • Average Sale – the average value of each order
  • Revenue – the total amount of revenue generated
  • Gross Margin – the percentage of revenue that is your profit
  • Gross Profit – the total amount of profit that you have made
  • Cost Per Click (CPC) – the cost per click on your advertisement
  • Total Cost – the total cost of your campaign
  • ROI - the return on your advertising investment (gross profit divided by the total cost)

Other Opportunities

There are many other online advertising opportunities for you to tap-into, for driving visitors to your website.  Think about the following areas:


Specialty Search Engines

Specialty search engines focus themselves on specific niche areas.  They can be an excellent source of targeted website traffic. Some examples are:

  • Top Ranking Websites
    Find websites that are ranking highly for the keywords that you are targeting, and are not in competition with you.  You may be able to approach these website owners to see if they offer Pay-Per-Impression, Pay-Per-Click, or Pay-Per-Acquisition advertising opportunities.
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