Secrets of Cost Per Click Marketing - Part 1

By CPU Review
Posted Sunday, August 22, 2004

Part I

What is cost per click marketing?

Cost per click marketing (also sometimes referred to as: pay per click marketing, pay for performance marketing, or search engine bidding sites marketing) is a form of online advertising in which an advertiser only pays when a visitor clicks through an ad on a vendor’s site and onto the advertiser’s web site. In other words, no matter how many times your ad is shown (number of impressions) you only pay for actual visitors to your site. Your advertising costs are tied directly to the actual performance of your ad.

Why cost per click marketing is so effective

Cost per click marketing is effective for 2 reasons:

1. You only pay when you get tangible results.
2. Since advertisers are competing for a click, the end user sees more relevant results.

As previously mentioned, cost per click models are designed to reward the cost per click sites for actually delivering customers to your site. If no customers are delivered, then no advertising dollars are paid by the advertiser. You only pay when you see results.

The majority of cost per click sites use a competitive bidding model. That is, advertisers compete for each click by deciding how much they are willing to pay. The more that an advertiser is willing to pay for the click, the higher the ranking in the list of advertisers displayed by the cost per click site. Therefore, the end users of the cost per click site see the most serious advertiser listings first. An advertiser that is only half-heartedly interested in a particular keyword or phrase will be listed lower.

In this respect, cost per click sites using this model are very similar to the Yellow Pages phone directory listings. Practically any business can get a very small, barely noticeable listing. However, in order to get attention and draw business to themselves, many businesses are willing to spend thousands of dollars to have an enhanced listing. The larger the listing, the greater the cost. Prospects are much more likely to notice a full page advertisement than a one line listing. So it is with the cost per click sites that use a competitive bidding model – the higher your bid, the more likely that online traffic will find you.

Why cost per click marketing is better than banner ads or sponsorships

We know that cost per click sites are rewarded for actually delivering customers to your site. We also know that if no customers are click through to your site, then you pay no advertising costs. You only pay when you see results.

This is completely different from traditional online banner advertisements or site sponsorships. Banner ads are almost always sold on a ‘cost per thousand’ (CPM ) impression basis. That is, you pay for the advertising based on how many times the ad is shown – regardless of whether or not anyone actually clicks through your ad. CPM rates can range from a low of around $5 to over $100 (this is per thousand impressions). Typical clickthrough rates for banner ads range from 0.25% to 4% on average. Let’s do a quick comparison:

Say you want to drive 1,000 qualified visitors to your site and you’d like to pay a maximum of $2.50 for each visitor. Using a traditional banner advertisement model with a CPM of $50 and a clickthrough rate of 2%, we know the following:

At a 2% clickthrough rate, we need to serve up 1,000 impressions to actually get 20 people to visit our site. Therefore, it takes 50,000 impressions to get 1,000 visitors to actually land on our site. At a $50 CPM this will cost us $2,500. Each visitor to our site will have cost us $2.50. Maybe we’re okay with that number. But what happens if our clickthrough rate is only 1%? Well, each click (visitor) now costs us $5. What if we only get a 0.25% clickthrough rate? Now each click will cost us $20!! It is practically impossible to tell with any real certainty what the actual clickthrough rate will be until after the advertising contract has been signed. You are stuck with whatever cost per click you get. What if you carefully measure the results, and see that your banner ads are not working, and that each click is costing you $20. Well, you would want to STOP spending money on your ads, right? Most of the time, banner ads are sold in lots of thousands, and you can’t just STOP any time you want to. You are obligated to keep advertising until you have used up all of your impressions. Not very advertiser friendly!

Let’s compare that to a cost per click site. You know that you want to drive 1,000 qualified visitors to your site. You are willing to spend up to $2.50 for each visitor that actually clicks on your ad. I would recommend investigating the current bids for traffic and placing a conservative bid (as little as possible) based on the competitive bids. As an example perhaps you decide to bid $1 per click on a relevant and well-trafficked keyword at a cost per click site. If you get all 1,000 visitors for only $1 each, you have really scored! Even if you have to increase your bid to get sufficient traffic to your site, you can always STOP anytime. You will never ever ever HAVE to pay more than $2.50 for each visitor if you don’t want to. That is the big difference, your risk is always limited. You can stop advertising at any time that you decide.

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