How Pay-Per-Click Works

Pay-per-click marketing is a marketing method that gives you opportunity to buy search engine placement of your website by bidding on different keywords or keyword phrases.

There are two major types of PPC marketing. In the first PPC type users pay a fee for an actual search engine placement of their website, and sometimes they also pay a so called per-click fee that means more you pay, the higher in the returned results your page will rank.

The second type of PPC marketing involves bidding on different keywords or phrases that appear in, or are associated with, text advertisements. Google is probably most popular provider of this kind of PPC service. For example Google Adwords are a true example of this type of PPC marketing.

The first thing you should find out when starting with PPC is how much money is each visitor worth to you. It is really vital to know the amount, because how else can you determine if you are paying too much for each click.

For example that on average a conversion on your website will cost you 30 $, and the value of conversion is only 15 $. That means you are loosing money.

To find out how much money is each visitor worth, you have to have some kind of long term historical data ( for example 1 month) of how many visitors you had and how many sales did you close. You can use a special data tracking program like Google Analytics. When you have the total sales and the number of visitors per month lets say, you just simply divide the profit with the number of visitors in that time frame.

The result should tell you approx. how much each visitor is worth. Let’s say that in January you had 5000 $ profit and you had 30000 visitors in that month. This is a simple calculation that is ignoring other vital elements.

Now you divide 5000 $ with 30000 visitors and you get 0.167 $/visitor. That is .17 $ per visitor. That number is changing all the time and it can be higher or lower in each month. So basically this number is a breakeven point and it means that you can spend up to .167 $ per visitor without loosing money.

If you are spending more than that without increasing sales you are loosing money. You have to know that different keywords cost different amount of money. The price ranges from 0.01 to more than 1 $ per click. Very popular keywords cost few dollars per click.

But if you think that for example a keywords that costs .25 $ per click will increase your sales, you should try it, and maybe your price for 1 visitor will increase to .4 $, because you will close more sales per visitor.

There are always many trials and errors involved in PPC, so you should always test all the elements of PPC strategy. You need to find out how much you can realistically spend on keywords or other promotions.

Some keywords may be powerful enough that you can spend for example $.12 per click for it, and raise your sales and visitor value substantially.

You have to decide what your profit margin is and what promotions are likely to get it.

As a rule you should not spend all of your money on PPC keywords, there are many other elements that you should consider investing in also.

You should always consider bidding on less popular terms that are much less expensive, but that provide good results for the investment that you do make.

After determining your average visitor value you should check out the different keywords on which you might bid. There are much more questions that need to be answered beside what is your goal of your PPC campaign. You need to have more specific goals like how much would you like to increase your profit? How many visitors will it take to reach the desired increase?

For example let’s say each visit to your site is worth $.50, using our simplified example, and on average your profits are 10000 $ per month. This means you get 20000 visitors per month on average.

Now you need to set your goal on how much you’d like to increase your profit. So let’s say you want a 5000 $ increase in profit. This means your overall profit will be 15000 $ per month. If each visitor is worth $.50, you would need to increase the number of visits to your site to 30,000 per month. So, the goal for your PPC program should be “To increase profit to $15000 per month, I need an additional 10,000 visits per month.” This is your concrete goal that you can track in your PPC campaigns.

Now that you know what you want to spend, and knowing your goals, you can start researching further different PPC programs that might work for you. Beside keywords that are the main PPC element, there are also other PPC programs that you might consider.