What is PPC advertising & How does it work

This article will introduce you to everything you need to know about the exciting world of ppc advertising: keywords, ads, budgets and bids, ad rank, targeting, and conversions.

Let’s kick things off with the basics.

Pay-per-click (PPC) is an advertising model that lets advertisers place ads on an advertisement platform and pay the platform host when their ad is clicked.

The goal of the ad is to lead the user who clicks to the advertiser’s website or app, where the user can complete a practical action such as purchasing a product, downloading a guide, or viewing an offer.

Google SERP for the query: “blue running shoes.”

Search engines like Google or Bing allow advertisers to display ads relevant to what users are searching for.

How does PPC work?

Whenever there is an ad spot on a search engine results page (SERP), an instantaneous auction takes place for the keyword.

A combination of multiple factors, including bid amount and the quality of the ad, decide the winner who will appear in the top spot of the SERP.

These auctions are what keep the gears of PPC moving. They begin when someone searches for something on a search engine.

If advertisers are interested in showing ads related to a user’s search query, an auction is triggered based on keywords bid on by advertisers. The ads that win the auction then appear on the search engine results page.

Advertisers use accounts on platforms like Google Ads or Bing PPC Ads to set up their ads and determine where and when they would like those ads to appear to get involved in these auctions.

Accounts are split into campaigns to ease management and report different locations, product types, or other helpful categorization. Campaigns are further divided into ad groups that contain keywords and relevant ads.

Keywords

Keywords lie at the centre of PPC, connecting advertisers to users’ search queries.

Queries are the words that users type into the search box of a search engine to find results. On the other hand, marketers use keywords to target these users by matching their search queries.

Along with keywords, advertisers need to prepare ads in their campaigns. These are nestled within ad groups that target shared keywords and are organized by common themes.

Ads are what the users will see if the auction is won, so they’re essential to get right. They typically contain headlines, description lines, and a URL.

On a SERP, they can show up on top of the results or at the bottom of the page. It’s good practice to test different versions of ad copy to see what performs best.

Budgets & Bids

Advertisers need to decide how much they’re willing to spend on a given keyword to participate in the auction. This is done using budgets at a campaign level and bids at the ad group or keyword level.

Budgets are set at the campaign level and can be exceeded daily but will not be overspent monthly.

You should set budgets according to the overall account strategy, but bids are more precise to control spending. All ad groups must have bids, but keyword-level bids override ad group-level bids.

Many advertisers use automated bidding strategies. These allow advertisers to set a specific goal for their campaigns and then have the advertising platform determine the most appropriate bid for each auction.

You can apply bid strategies to individual campaigns or a portfolio of multiple campaigns.

AD Rank

There’s more to winning the auction than having the highest bid. Search engines look at other factors to determine which ads should be at the top and the most valuable spot on the SERP.

Search engines have particular ways of factoring in other elements to determine ad rank.

Google, for example, considers:

Bid amount.
Ad relevance and quality.
The search context (such as the user’s device and time of day).
Format impact (e.g., whether it includes extensions that enhance the format of the ad).

PPC Terms you should know

PPC terms and acronyms can be difficult to digest at times. That’s why we’ve described the most important of them so you can quickly speak the industry’s language!

Ad Copy – In PPC advertising, ad copy is the headline, text, and URL implemented in the online ad. It is used to persuade users to click through to a website.
Call Extensions – Feature enables users to display a Google forwarding or business phone number along with their PPC ad.
Click – In PPC, a click is registered when someone clicks on one of your ads.
Click-Through Rate (CTR) – A way of measuring the success of an online advertising campaign. CTR is determined by dividing the number of users who clicked on an ad by the number of impressions.
Conversion Rate – Conversions divided by clicks represent the rate at which a click on your ad resulted in a conversion or desired action.
Cost-Per-Click (CPC) – The amount of money an advertiser pays search engines and other Internet publishers for a single click on its advertisement brings one visitor to its website.
CPM – The cost per 1,000 impressions.
Daily Budget – An amount set for each ad campaign to specify how much, on average, you’d like to spend each day.
Impressions – Number of people who see your PPC ad.
Keyword – A word or phrase a Web user types into a search engine, and you set your PPC ad to display.
Keyword Bid – The highest amount of money you’re willing to pay for each click on your PPC ad.
Landing Page – The webpage that a Web visitor lands on when clicking through your PPC ad.
Pay-Per-Click (PPC) – An advertising method where the advertiser pays for each click received through the search engines.
Quality Score -A ranking system that Google uses based on relevancy to determine bid price.
Return on Investment (ROI) – ROI refers to comparing the profits and costs of your PPC campaign.

How to develop a PPC strategy

A successful PPC campaign begins with a strategy. You need to know and clearly define what you want to accomplish.

What is your goal?

A PPC or paid social program can consist of many different goals. Sometimes your PPC goals will be obvious, but sometimes this will require more consideration of all the options available to your organization.

The most common PPC goals include:

Brand awareness
Product and brand consideration
Leads
Sales
Repeat sales

These goals align with the sales funnel: awareness, consideration, and purchase.

As an advertiser, you should closely examine the sales funnel for your business and customize your paid media programs accordingly.

For example, a B2B business may have a much longer sales cycle due to researching business solutions and internal decision-maker involvement.

In contrast, a consumer e-commerce product could be an immediate purchase or a few hours from clicking on a PPC ad.

Let’s look at each of these five PPC goals and tactics that will help you accomplish each.

1 Brand Awareness

PPC is often used for brand awareness to introduce and raise a brand’s or product’s visibility. At this phase, we want to maximize exposure to a highly relevant audience, with hopes clicks will lead to the consideration phase.

Using PPC display ads can be effective if the targeting is on-topic by using keywords, topics, relevant placements, in-market lists, or a combination of those. These targeting tactics are the most general but will offer a wider reach.

For example, if the business sells scuba equipment, potentially bidding on “scuba gear” could increase awareness of the product offering.

The downside of this approach is that you will often see higher cost-per-clicks due to competition and sometimes irrelevant clickthroughs.

2 Product & Brand considerations

In this phase, when users are considering and researching a purchase, it is a great time to reintroduce the brand with more detailed targeting and persuasive call-to-action language in the ad copy.

When consumers hit the considerations phase, their search queries will typically become more detailed and specific.

They may search for brands and product combinations to research, compare, and read reviews such as ‘Samsung 50″ TV’ or ‘LG 50″ tv.’

This is an excellent time to use remarketing with a banner or responsive ads to bring the consumer back to the previously viewed product.

3 Leads

When your business model doesn’t support immediate or online sales, you want to collect leads to follow up with interested prospects and engage them in a conversation.

These ideas entice users to call or fill out an online web form to initiate conversions.

How the lead is followed up on will vary for each business, but now you also have the information you can use for PPC and paid social customer match campaigns.

4 Sales

Consumers ready to purchase tend to use words in their search queries that indicate higher intent. This can include things like: Model numbers. Shipping information. Discounts. Coupons. Financing.

It is good to have separate campaigns that address this phase by highlighting offers, guarantees, warranty information, or your return policy.

This reassures consumers that your business is the one to buy from. Make full use of your ad copy and ad extensions. Also, try cart abandonment ads and remarketing ads that show the products the user viewed.

A solid PPC and paid social strategy should include numerous goals to reach and lead the consumer down the sales funnel to purchase.

It might be helpful to outline this in a chart containing goals, keywords, themes, key messaging, and landing pages to organize and ensure all bases are covered.

After launch, review the results and determine how to optimize and allot budgets. Check the “Attribution” section of the paid media platform or analytics to see campaign paths and assisted conversions to help move forward with a successful account.

How to calculate the ROI of ads

Even though measuring the ROI of ads should be one of the first things marketers should learn, many don’t even consider it and are clueless about it.

There are three ways of calculating them:

1 Return on Ad Spend

Most of the time, when marketers are talking about ROI, they’re talking about ROAS, a return on Ad Spend. The simple formula for ROAS is PPC revenue minus PPC cost, divided by PPC cost. The result would be in percentage. Let’s look at an example to help you understand better:

If your sales from PPC are $1000 and $500 would be your PPC costs, then your ROAS would be 100%. (1000-500=500)/500 = 1.0 or 100 percent.

2 Return on investment

When looking at the definitions of ROI and ROAS, you would find them almost similar. Profit minus cost divided by cost. The only difference is how the cost is calculated. In e-commerce, PPC costs aren’t the only costs you should take care of.

Other costs are incurred to make the products and then fulfill the orders, including credit card processing costs, prices of returned goods, and salaries of people who answer phones and reply to customer inquiries through emails. You would have to include all the charges, not just click fees.

3 Profit per Impression and Profit per Click

Whether it is Profit per Impression or Profit per Click, calculating them isn’t as simple as calculating the other two methods. However, once you understand the metrics, they are pretty easy to generate in a spreadsheet.

You need impressions, total cost, clicks, and sales value data. All you need to do to calculate profit is to subtract the total cost from the total sales value. For-profit per impression, divide profit by impressions, and for-profit per clicks, divide profit by clicks.

There is no best way to calculate the ROI of PPC. You should choose the metric that you find comfortable and helps you according to your costs. Just pick one, and don’t keep moving back between different metrics.

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