Pay Per Click Advertising (PPC)

Pay per click(PPC)advertising is another type of affiliate program. In order to understand PPC advertising, let’s discuss PPC, its history, and some background information.

Let’s start our discussion with a definition of PPC advertising from Wikipedia.

From Wikipedia, the free encyclopedia

Pay per click (PPC) is an advertising technique used on websites, advertising networks, and search engines.

With search engines, PPC advertisements are usually text ads placed near search results; when a site visitor clicks on the advertisement, the advertiser is charged a small amount. Variants include pay for placement and pay for ranking. Pay per click is also sometimes known as Cost Per Click (CPC).

While many companies exist in this space, Google AdWords and Yahoo! Search Marketing, which was formerly Overture, are the largest network operators as of 2006. MSN has started beta testing with their own pay per click services MSN adCenter. Depending on the search engine, minimum prices per click start at US$0.01 (up to US$0.50). Very popular search terms can cost much more on popular engines. Abuse of the pay per click model can result in click fraud.

Pay per click advertising covers the three main search engines, but let’s concentrate on Google since it has the largest market share of searches on the Net. At the end we will briefly discuss Yahoo Search Marketing. Microsoft AdCenter is too new for any comments.

Pay per click advertising is where an advertiser creates an ad for a product or service that will be presented to a search engine (“SE”) user when the user searches on a specific key word or key word phrase. When you use an SE, you see the ads when you receive the results of the search. You have noticed that the ads are about the same information that you entered into the search. This is based on the keywords for which the ads are targeted.

The advertiser that puts the ad in the SE agrees that it will pay a certain amount to the SE each time the ad is clicked by a user. The order of presentation of the ads on the search engine results page depends on the price that the advertiser agrees to pay and the historical click-through rates of all ads shown for a given search.

This advertising concept has revolutionized Internet advertising and has created Google Adwords, Yahoo Search Marketing, and Microsoft Adcenter. In 2000 Google was the first to start a program of this type and it has developed into Google’s flagship product from which it derives the majority of its revenue.

Originally, Google permitted the Adwords ad to send the user directly to the advertisers site. Early in 2005, the policy changed and now you must link from the Google ad to a “landing page” (page where the searcher will be directed when the ad is clicked). The landing page is used to presell the readers and then send them on to the sales page of the company selling the service or product.

Pay per Click advertising is a great way to make money as an affiliate. You identify a company that you want to promote, identify the keywords that searchers will use when searching for the company’s products, and set up a landing web page to receive the click from the SE. On the landing page, you place ad copy to sell the reader on clicking to the company’s site that you are representing. If the user clicks to the company site and takes the desired action (purchasing a product or completing a lead form), you are paid for the completion of the action. This will be a percent of the sale of a product or a flat payment for a sales lead.

Anyone can sign up for these pay per click programs and it is quite easy to do so. You can make money using this technique. However, before you think this will make you rich overnight, let’s get a little education on how it works.

When an SE presents your ad to a user, it is called an “impression”. When a user clicks on the ad, it is called a “click”. The SE develops a ratio called the click through rate (CTR) by dividing the clicks by the impressions. If your CTR remains high enough (this varies by SE’s, but usually above one percent is sufficient), your ad will continue to run. If it does not perform well, the SE will inactivate it until you change something about the ad to make it perform better.

Your account with the pay per click program will have reports that show you the impressions, the clicks, the CTR. It will also show you your average cost per click, the total cost for the keyword (clicks time average cost), and the average position of the ad in the times it was displayed (first, second, third, etc.).

When evaluating the profit that you can make from a pay per click program, you will only be charged for the times that the user clicks the ad. However, there is another variable that you need to consider which is called conversion rate (CR). This is the number of users who click the ad and land on your landing page divided into the number of users who go on to the affiliate company site and buy the product. A rough rule of thumb for CR is five percent.

You need to project the economics of the campaign before you jump in with both feet. If you have a low cost per click (CPC) and the commission from your affiliate company is high, you can afford a campaign with a low conversion rate. On the contrary, if the commission per transaction from the affiliate company is low, and the CPC is high, you need a conversion rate that is high.

It is a matter of simple math to project the results of a pay per click campaign.

Profit per click = ($ per sale X Conversion rate) - (Average cost per click)

Let’s plug in some numbers and see how this works. Assume that the selling commission is $5.00, the conversion rate is 5%, and the average cost per click is $.10. Multiply the selling commission ($5.00) by the CR of 5% to get $.25. Subtract the cost per click (CPC) of $.10 from $.25 and you get a profit of $.15. This does not seem like a lot of money, but the Internet is viewed 24/7 so if you have 1000 clicks per month and convert 5% of them, you will make $150 for setting up the campaign and then monitoring it occasionally. If you set up several of these programs for different key words, you can make a nice supplemental retirement income.

Some of the differences between Google and Yahoo are:

1. It is quicker to set up a Google campaign than to set up a Yahoo campaign. Google is automated and Yahoo ads must be reviewed by a human. Yahoo can take a few days for approval.

2. The ad position for Google is based on a proprietary formula that combines price and ad effectiveness. An ad that has a high click rate but a lower price per click may actually get a higher page rank than an ad with a higher price but a lower click rate.

3. When you bid on Yahoo, it is based strictly on price. You can see the prices that are being paid for your keyword when you bid and make the decision in which position you want your ad. (Quick note: There is a theory that it is better to be in the second ad position than the first. Net surfers will sometimes click on the first ad to see what it is. The serious shopper will look at the first few ads. If your ad is in second place, you will probably save money in click fees versus the possibility of lost sales.)

This is an exciting business model for creating supplemental retirement income. If you want more detail about Google Adwords, I recommend that you invest $67.00 in your education and buy the “Adwords Bible” by Chris Chandler called “Google Cash”.

We have read this ebook several times. It is our reference for our PPC campaigns. We currently have campaigns running on both Google and Yahoo.

The following link will open a new window. To return and continue your education, close the new window.

Click here to learn more about pay per click advertising
and Google Cash by Chris Chandler.

This completes your education about pay per click advertising. It is a great way to make money on the Net with very little work. Once the campaign is set up and running successfully, it takes very little attention.

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