Pay-Per-Click (PPC) is an online advertising model where advertisers pay a fee each time one of their ads is clicked. It’s a way of buying visits to your website rather than earning those visits organically through search engine optimization (SEO) or other marketing methods.
- PPC advertising is commonly associated with search engines like Google, Bing, and Yahoo, but it can also be used on social media platforms and other websites.
- PPC can be an effective way to drive targeted traffic to a website and generate leads or sales. It allows advertisers to control their budgets and target specific audiences.
- PPC platforms include Google Ads, Microsoft Advertising (formerly Bing Ads), and various social media advertising platforms like Facebook Ads and LinkedIn Ads.
- It is important for advertisers to research and plan their PPC campaigns carefully to maximize their ROI, as competition for popular keywords can be intense, and poorly managed campaigns can be costly.
Here’s how PPC typically works:
- Ad Campaign Setup: Advertisers create and set up an advertising campaign with a specific budget and targeting criteria. This includes choosing keywords, defining geographic locations, and specifying the times when their ads should be displayed.
- Ad Creation: Advertisers design text, image, or video ads that are relevant to the keywords and audience they are targeting. These ads are displayed on the search engine results pages or other websites.
- Keyword Selection: In search engine PPC, advertisers select specific keywords or keyword phrases relevant to their products or services. When a user searches for those keywords, their ad may appear.
- Auction Process: When a user performs a search or visits a website that displays ads, an auction takes place. The search engine or advertising platform determines which ads to show and in which order based on factors like bid amount, ad quality, and relevance to the user’s query.
- Clicks and Billing: If a user clicks on an advertiser’s ad, they are taken to the advertiser’s website, and the advertiser is charged for that click. The cost per click (CPC) varies depending on factors such as the competitiveness of the keyword and the quality of the ad.
- Ad Performance Analysis: Advertisers track the performance of their PPC campaigns using various metrics, such as click-through rate (CTR), conversion rate, and return on investment (ROI). They can adjust their campaigns in real-time to optimize results.
MODELS OF Pay-Per-Click
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Flat-rate model
In the flat rate pay-per-click model, an advertiser pays a publisher a fixed fee for each click. Publishers generally keep a list of different PPC rates that apply to different areas of their website. Note that publishers are generally open to negotiations regarding the price. A publisher is very likely to lower the fixed price if an advertiser offers a long-term or a high-value contract.
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Bid-based model
In the bid-based model, each advertiser makes a bid with a maximum amount of money they are willing to pay for an advertising spot. Then, a publisher undertakes an auction using automated tools. An auction is run whenever a visitor triggers the ad spot.
Note that the winner of an auction is generally determined by the rank, not the total amount, of money offered. The rank considers both the amount of money offered and the quality of the content offered by an advertiser. Thus, the relevance of the content is as important as the bid.
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Additional Resources
CFI is the official provider of the global Financial Modeling & Valuation Analyst (FMVA)® certification program, designed to help anyone become a world-class financial analyst. To keep advancing your career, the additional CFI resources below will be useful:
- Bait and Switch
- Click and Mortar
- Customer Acquisition Cost (CAC)
- Introduction to E-commerce
- See all valuation resources
Pay-per-click (PPC) is an online advertising model in which an advertiser pays a publisher every time an advertisement link is “clicked” on.
The pay-per-click model is offered primarily by search engines (e.g., Google) and social networks (e.g., Facebook). Google Ads, Facebook Ads, and Twitter Ads are the most popular platforms for PPC