A Beginner’s Guide to Pay-Per-Click Marketing

Viewers of AMC's "Mad Men" watched Don Draper and his Sterling Cooper ad agency cohorts create groundbreaking advertisements for iconic products, then release those ads into the world, holding their booze-soaked breath and hoping those ads were good enough to earn them another opportunity.

Maybe the reason that Draper and his gang self-medicated so much was because they didn't have access to modern marketing marvels—for example—PPC, or pay-per-click, marketing.

Running an ad agency without modern marketing tools, such as PPC advertising, can be a frustrating game

What is pay-per-click marketing?

In pay-per-click marketing, you only pay for an ad each time that a potential customer actually clicks on it.

It might be easier to get a handle on pay-per-click marketing by comparing it to a more common term (at least to anyone who's ever ordered a boxing match or WrestleMania): pay-per-view.

Even if you're not a connoisseur of combat sports, you're likely familiar with the concept: You want to watch something—a fight, a concert, a movie—so you pay a one-time fee to the broadcaster to view it.

How is this related to pay-per-click marketing? Well, each concept involves paying per use, as opposed to purchasing a monthly subscription to a premium channel, or buying a series of ads on a radio station. With the "pay-per" model, you're only paying for each event you actually view, or each ad a potential customer actually clicks on.

This guide won't necessarily turn you into a pay-per-click marketing expert or some kind of web analytics guru, but it will give you a working knowledge of a concept that can help you generate more traffic, so you can dip your toes in the water and add pay-per-click marketing to your small business's marketing toolbox.

But first, for a little historical context, let's travel in time from the mad '60s to the rad '90s.

The history of pay-per-click marketing

The frontier days of the internet were a wild time. Nobody knew what to charge for and what to give away for free, how to really track the effectiveness of online marketing, or how much it should cost.

Then, in 1998, an internet start-up company called GoTo.com introduced the concept of pay-per-click advertising, a system in which advertisers only paid GoTo.com when a genuine potential customer actually clicked on their ad.

And because GoTo.com was a search engine, advertisers could bid on different terms—say, "baggy jeans" or "inkjet printers"—for the right to have their advertisement appear higher on the list of results when someone searched for that term.

It was a novel idea, and one that formed the foundation for internet advertising for decades to come.

The GoTo.com homepage, circa 2000 (Source: Internet Archive's Wayback Machine)

As GoTo.com founder Bill Gross told Slate:

"The whole point of Internet advertising, I thought, was accountability … You could measure it, unlike with print ads. But here was everyone still selling ads the old way: buy a bunch of impressions, cross your fingers, and hope it turns out well."

That sums up the need for, and the beauty of, pay-per-click marketing.

In the past, advertisers would use focus groups, feedback, or research studies to determine how effective their advertisements were. But the pay-per-click advertising model allowed them to pay only for ads that work, meaning they could also track the success of those ads—and entire campaigns—over time.

With pay-per-click advertising, you can save your time, money, and resources for when the customer is already "on the lot," to borrow a term from automobile sales.

Working out the kinks in the PPC model

GoTo.com's pay-per-click system was not without its flaws.

Advertisers with deep pockets could drive up the bids on keywords that had nothing to do with their business, knowing they would only have to pay if someone clicked on their ad, diluting the quality of the results for consumers.

Why would advertisers do this? Imagine searching for "hot dogs," but the top search result is for Hondas. If you happened to be in the market for a new car, you might click on the Honda ad anyway, which would make Honda happy.

But you would probably also find a new search engine to use next time you were looking for a delicious frankfurter, and that wasn't good for GoTo.com.

Google steps in to the PPC game

Google—which at the time was still trying to find its own footing as a profitable company—saw these flaws and addressed them in their own PPC system, AdWords, which included a Quality Score algorithm to ensure relevant results.

Google launched AdWords in 2002 and it eventually became Google's primary source of income, raking in almost $70 billion in advertising alone in 2015.

See those little [Ad]s? That's how Google became a bajillion dollar company

Google made about $7 billion—or less than 10%—in 2015 across all of their other business combined.

While Google is not the only pay-per-click advertising company—you may have also heard of Microsoft's Bing Ads, AdRoll, or Yahoo! Gemini—it is by far the biggest.

Pay-per-click vs. pay-per-lead

You may have heard of another "pay-per" marketing term called pay-per-lead (PPL).

If you're thinking, "Great, I was just getting the hang of pay-per-click, and now I have to learn a whole new marketing strategy" don't worry: Pay-per-lead isn't that different from pay-per-click.

The fundamental difference is that in a pay-per-lead model, the advertiser only pays if its ad results in a potential customer providing contact information to the advertiser—such as a phone number or email address—often by filling out a form online. In other words, you pay for each new lead you gather.

Typically, pay-per-lead marketing will result in higher quality leads (because they went through the effort to give you their contact information), but a pay-per-lead marketing campaign will cost more as a result.

Should you be using pay-per-click marketing?

When considering whether or not your business should invest in a pay-per-click marketing campaign, you need to consider:

How much you can afford to spend

How much of a return on your investment you're hoping to receive

If you have a lot of room in your marketing budget, and new customers directly translate into profits for your business, a pay-per-click marketing campaign makes a lot of sense. Examples of these type of businesses include insurance companies, software companies, and online retailers.

As an example for a software company, check out the PPC Bid Calculator that Capterra offers our software vendors to help them determine how much to spend on a pay-per-click marketing campaign based on factors such as budget, revenue per customer, close rate, and conversion rates.

Next steps

Now that you know what pay-per-click marketing is and how it could potentially benefit your small business, here's some additional reading to help you take the next step in your pay-per-click marketing education. Like what to do once your customer has already clicked.

Source: A Beginner's Guide to Pay-Per-Click Marketing