PPC – Pay Per Click Advertising

When using your search engine of choice, you’ve probably noticed the term sponsored links appearing next to some results. Sponsored links are advertisements, and they are one of the most popular forms of pay per click advertising (or PPC, as it’s often called).

With PPC, you only pay the search engines when someone clicks on your ad – if your ad doesn’t draw a single click, you don’t pay a penny. But clicks are what everyone wants because more website visitors mean more sales and bookings.

You’ll be unsurprised to learn that the more you’re prepared to bid, the higher up the sponsored listings you’ll get. But it’s not quite as cut and dry as that...

Only ads that get clicked bring in revenue, so those that don't are no use whatsoever to the search engines – even if the advertiser is prepared to pay £10 per click. The search engines are better off giving the space to an advertiser only paying 50p per click, but whose ad gets clicked once in a while.

With that in mind, let's look at clickthrough rates (CTR). These are a measure of how often your ad is being clicked, expressed as a percentage.
If your ad gets clicked two times for every 100 times it’s displayed, your CTR is 2%. Once every 200 times, and your CTR is 0.5%.

Now, imagine a big name toy retailer whose ads have a CTR of 0.5%. They’re prepared to pay £3 for every click they from people searching for the term ‘wooden train set’. Also bidding on that term is a small, specialist wooden train set retailer. They can only afford 80p per click, but they have a much better CTR of 2%.

The specialist retailer may only pay 80p per click, but he’s getting clicked four times more often. So for every thousand people who tap ‘wooden train set’ into the search engine, twenty will click on that 80p ad, generating £16 for the search engines. Five people will click on the big name retailer, but their clicks will only generate £15.

Savvy search engines rank the specialist retailer higher because the ad is more profitable for them. The specialist retailer receives four times as many clicks, but only pays a fraction more than the big name retailer.

The playing field’s never been so level.