Pay-per-click (PPC), also known as cost per click (CPC), is an internet advertising model used to drive traffic to websites, in which an advertiser pays a publisher (typically a search engine, website owner, or a network of websites) when the ad is clicked.
Pay-per-click is commonly associated with first-tier search engines (such as Google Ads and Bing Ads). With search engines, advertisers typically bid on keyword phrases relevant to their target market. In contrast, content sites commonly charge a fixed price per click rather than use a bidding system. PPC "display" advertisements, also known as "banner" ads, are shown on web sites with related content that have agreed to show ads and are typically not pay-per-click advertising. Social networks such as Facebook and Twitter have also adopted pay-per-click as one of their advertising models.
However, websites can offer PPC ads. Websites that utilize PPC ads will display an advertisement when a keyword query matches an advertiser's keyword list that has been added in different ad groups, or when a content site displays relevant content. Such advertisements are called sponsored links or sponsored ads, and appear adjacent to, above, or beneath organic results on search engine results pages, or anywhere a web developer chooses on a content site.
Pay-per-click, along with cost per impression and cost per order, are used to assess the cost effectiveness and profitability of internet marketing. Pay-per-click (PPC) has an advantage over cost per impression in that it conveys information about how effective the advertising was. Clicks are a way to measure attention and interest: if the main purpose of an ad is to generate a click, or more specifically drive traffic to a destination, then pay-per-click is the preferred metric. Once a certain number of web impressions are achieved, the quality and placement of the advertisement will affect click through rates and the resulting pay-per-click.
In the flat-rate model, the advertiser and publisher agree upon a fixed amount that will be paid for each click. In many cases the publisher has a rate card that lists the pay-per-click (PPC) within different areas of their website or network. These various amounts are often related to the content on pages, with content that generally attracts more valuable visitors having a higher PPC than content that attracts less valuable visitors. However, in many cases advertisers can negotiate lower rates, especially when committing to a long-term or high-value contract.
The flat-rate model is particularly common to comparison shopping engines, which typically publish rate cards. However, these rates are sometimes minimal, and advertisers can pay more for greater visibility. These sites are usually neatly compartmentalized into product or service categories, allowing a high degree of targeting by advertisers. In many cases, the entire core content of these sites is paid ads.
The advertiser signs a contract that allows them to compete against other advertisers in a private auction hosted by a publisher or, more commonly, an advertising network. Each advertiser informs the host of the maximum amount that he or she is willing to pay for a given ad spot (often based on a keyword), usually using online tools to do so. The auction plays out in an automated fashion every time a visitor triggers the ad spot.
When the ad spot is part of a search engine results page (SERP), the automated auction takes place whenever a search for the keyword that is being bid upon occurs. All bids for the keyword that target the searcher's Geo-location, the day and time of the search, etc. are then compared and the winner determined. In situations where there are multiple ad spots, a common occurrence on SERPs, there can be multiple winners whose positions on the page are influenced by the amount each has bid. The bid and Quality Score are used to give each advertiser's advert an ad rank. The ad with the highest ad rank shows up first. The predominant three match types for both Google and Bing are Broad, Exact and Phrase Match. Google also offers the Broad Match Modifier type which differs from broad match in that the keyword must contain the actual keyword terms in any order and doesn't include relevant variations of the terms.
In addition to ad spots on SERPs, the major advertising networks allow for contextual ads to be placed on the properties of 3rd-parties with whom they have partnered. These publishers sign up to host ads on behalf of the network. In return, they receive a portion of the ad revenue that the network generates, which can be anywhere from 50% to over 80% of the gross revenue paid by advertisers. These properties are often referred to as a content network and the ads on them as contextual ads because the ad spots are associated with keywords based on the context of the page on which they are found. In general, ads on content networks have a much lower click-through rate (CTR) and conversion rate (CR) than ads found on SERPs and consequently are less highly valued. Content network properties can include websites, newsletters, and e-mails.
Advertisers pay for each single click they receive, with the actual amount paid based on the amount of bid. It is common practice amongst auction hosts to charge a winning bidder just slightly more (e.g. one penny) than the next highest bidder or the actual amount bid, whichever is lower. This avoids situations where bidders are constantly adjusting their bids by very small amounts to see if they can still win the auction while paying just a little bit less per click.
To maximize success and achieve scale, automated bid management systems can be deployed. These systems can be used directly by the advertiser, though they are more commonly used by advertising agencies that offer PPC bid management as a service. These tools generally allow for bid management at scale, with thousands or even millions of PPC bids controlled by a highly automated system. The system generally sets each bid based on the goal that has been set for it, such as maximize profit, maximize traffic, get the very targeted customer at break even, and so forth. The system is usually tied into the advertiser's website and fed the results of each click, which then allows it to set bids. The effectiveness of these systems is directly related to the quality and quantity of the performance data that they have to work with — low-traffic ads can lead to a scarcity of data problem that renders many bid management tools useless at worst, or inefficient at best.
As a rule, the contextual advertising system (Google AdWords, Yandex.Direct, etc.) uses an auction approach as the advertising payment system. CPC.