How Does Pay-Per-Click Advertising Work?
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Payment
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In pay per click advertising (PPC), advertisers pay for the advertisements they display on search engines only when a visitor enters a specific search term and then clicks on their displayed ad. These ads are displayed on the right-hand side of search results pages and are custom designed by the companies that pay for the advertisements.
Popular Search Engines
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Overture and Google AdWords are two of the most popular PPC search engines. One of their best features is there Ebay-like advertising bidding system that allows companies to bid on how much they are willing to pay for certain keywords or key terms. This allows a company to control how much they are willing to spend on a per-click basis. Companies can also pay for ads that only display to a certain audience. For example, a medium-sized business who only caters to Southern California clients would not want to pay significantly more for its ad to display to a national audience. Similarly, a U.S.-based company may not want to display its ad overseas or to a non-English speaking audience, as there is little likelihood that these demographics would be interested enough in the company to spend any money.
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Risk
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There is a certain degree of risk associated with PPC advertising. When a company agrees to or bids on a certain search term, they have agreed to pay a fixed amount every time a visitor who enters that search term clicks on its ad. However, if the visitor fails to become a customer the company can actually lose money because it still must pay the agreed upon amount of money per click. For example, if a company has won a bidding war over the search term "recession proof" and has agreed to pay $5 for every visitor who enters that term and then clicks on their ad, they must pay that $5 regardless of whether the visitor spends any money at the company's website or not.
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Resources
- Photo Credit globalpov.com
