Pay per click (PPC) is an Internet advertising model used on websites, where advertisers pay only when your ad is clicked. Search engines, advertisers typically bid on keyword phrases relevant to your target market. Content sites often require a fixed price per click instead of using a tender system. Cost per click (CPC) is the amount paid by an advertiser for Internet search engines and other editors to do is click advertising that directs a visitor to the advertiser’s site.

In contrast to the generalized portal, which aims to drive a high volume of traffic to a site, PPC implements the model called subsidiary that provides buying opportunities for people to surf. To do this, offering financial incentives (as a percentage of revenue) to affiliated partner sites. The affiliates provide purchase points for click-through to the merchant. This is a performance pay model: If an affiliate does not generate sales, at no cost to the merchant. Variations include banner exchange, pay per click, and revenue sharing programs.

Websites that utilize PPC ads will display an advertisement when a keyword query matches an advertiser’s keyword list, or when a content site displays relevant content. Such advertisements are called sponsored links or sponsored ads, and appear adjacent to or above organic results on search engine results pages, or anywhere a web developer chooses on a content site.

Among PPC providers, Google AdWords, Yahoo! Search Marketing, and Microsoft adCenter are the three largest network operators, and all three operate under a bid-based model. Cost per click (CPC) varies depending on the search engine and the level of competition for a particular keyword.

The PPC advertising model is open to abuse through click fraud, although Google and others have implemented automated systems to guard against abusive clicks by competitors or corrupt web developers.

Determining cost per click

There are two primary models for determining cost per click: flat-rate and bid-based. In both cases the advertiser must consider the potential value of a click from a given source. This value is based on the type of individual the advertiser is expecting to receive as a visitor to his or her website, and what the advertiser can gain from that visit, usually revenue, both in the short term as well as in the long term. As with other forms of advertising targeting is key, and factors that often play into PPC campaigns include the target’s interest (often defined by a search term they have entered into a search engine, or the content of a page that they are browsing), intent (e.g., to purchase or not), location (for geo targeting), and the day and time that they are browsing.

Flat-rate PPC

In the flat-rate model, the advertiser and publisher agree upon a fixed amount that will be paid for each click. In many cases the publisher has a rate card that lists the CPC within different areas of their website or network. These various amounts are often related to the content on pages, with content that generally attracts more valuable visitors having a higher CPC than content that attracts less valuable visitors. However, in many cases advertisers can negotiate lower rates, especially when committing to a long-term or high-value contract.

The flat-rate model is particularly common to comparison shopping engines, which typically publish rate cards. However, these rates are sometimes minimal, and advertisers can pay more for greater visibility. These sites are usually neatly compartmentalized into product or service categories, allowing a high degree of targeting by advertisers. In many cases, the entire core content of these sites is paid ads.

Bid-based PPC

In the bid-based model, the advertiser signs a contract that allows them to compete against other advertisers in a private auction hosted by a publisher or, more commonly, an advertising network. Each advertiser informs the host of the maximum amount that he or she is willing to pay for a given ad spot (often based on a keyword), usually using online tools to do so. The auction plays out in an automated fashion every time a visitor triggers the ad spot.

When the ad spot is part of a search engine results page (SERP), the automated auction takes place whenever a search for the keyword that is being bid upon occurs. All bids for the keyword that target the searcher’s geo-location, the day and time of the search, etc. are then compared and the winner determined. In situations where there are multiple ad spots, a common occurrence on SERPs, there can be multiple winners whose positions on the page are influenced by the amount each has bid. The ad with the highest bid generally shows up first, though additional factors such as ad quality and relevance can sometimes come into play (see Quality Score).

In addition to ad spots on SERPs, the major advertising networks allow for contextual ads to be placed on the properties of 3rd-parties with whom they have partnered. These publishers sign up to host ads on behalf of the network. In return, they receive a portion of the ad revenue that the network generates, which can be anywhere from 50% to over 80% of the gross revenue paid by advertisers. These properties are often referred to as a content network and the ads on them as contextual ads because the ad spots are associated with keywords based on the context of the page on which they are found. In general, ads on content networks have a much lower click-through rate (CTR) and conversion rate (CR) than ads found on SERPs and consequently are less highly valued. Content network properties can include websites, newsletters, and e-mails.

Advertisers pay for each click they receive, the actual amount paid is based on supply. It is common practice in the auction for the winning bidder will be charged only slightly (for example, one cent) that the next highest bidder or the current offer, whichever is less. This avoids situations in which suppliers have continued to alter product offerings in very small quantities, to see if he can still win the auction, paying just a little less per click.

To maximize the success and reach a critical size, the automated bid management deployed. These systems can be used directly by the advertiser, even if they are more commonly used by advertising agencies that offer PPC bid management as a service. These tools generally allow for bidding on the scale, with thousands or even millions of PPC bid, controlled by a highly automated system. The system is generally set by each bid based on the target has been set for it, such as profit maximization, maximize traffic to zero and so on. The system is generally related to the website of the advertiser and fed the results of each click, which then allows identifying auction. The effectiveness of these systems is directly related to the quality and quantity of performance data they have to work with – real low road may lead to a problem of lack of data that allows many auction management tools useless at worst, or at best, ineffective.