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The Benefits and Risks of Pay-Per-Click

By Barry Harrison
Posted Tuesday, October 19, 2004

Many companies have been "buying their way to the top" of search engines using Pay-Per-Click (PPC) campaigns. Should you promote your Website with PPC? There's no simple answer. But in this REDiTIPS we offer an introduction to PPC so you can make an informed decision.

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What Is Pay-Per-Click?

Google AdWords Select (http://www.google.com/ads) and Overture (http://www.overture.com) are the two leading Pay-per-click players, but there are over 400 search engines using this model. They all work in more or less the same way. You bid on keywords and phrases that your target audience may use to find your site in the search engines. When they do a search for those keywords your ad or "sponsored listing" appears in a special section near the top or side of the search results.

The position of your ad depends on the amount you bid and the competition for your keywords, so selecting the best keywords is essential. You pay only when someone clicks through to your site.

What Does it Cost?

You can set up your PPC campaign with Google AdWords Select for just $5.00, with no monthly minimum. Overture requires a $50 setup fee and a $20.00 monthly minimum. Both allow you to set a maximum monthly budget. The cost is a function of your keywords, your bid amount, and your click-thru-rate.

Make sure that the cost of acquiring a customer through your PPC campaign is less than your average profit from each sale. Overture has a return on investment (ROI) tool to help with this calculation.

Here's an Example

As of 3/11/03 the top bid in Overture for the term "professional website design" is $3.86. Every time a searcher clicks on that ad, the company pays $3.86. For "web design consultant" the top bid is $1.05. In January 2003, Overture tells us 5,955 searches were done for "professional website design" and 3,522 for "web design consultant." Assuming a 1% click-thru-rate (CTR) that translates to about $230 for the first term, and about $37 for the second.

Let's say 1% of the people who click through to your site from the "professional website design" ad become customers. The cost of acquiring one customer is $460. For the other ad the cost is about $106. That may be OK if you're offering an expensive product or service, but if you sell duct tape it's a losing proposition.

Use a Common Sense Approach

When you bid on multiple keywords the cost can increase quickly and there's no guarantee that clicks will convert to customers. We advise our clients to avoid the most competitive keywords, create ad copy that speaks to your specific target audience, and make sure that when they get to your site they can find what they're looking for-- quickly.

Is PPC More Effective than Search Engine Optimization?

It isn't an either/or proposition. PPC listings should not be considered a replacement for high ranking in regular search results. Ideally you should do both..

Next Steps

In our next REDiTIPS we'll offer specific suggestions for creating an effective PPC campaign and avoiding some common mistakes. If you have any questions, comments or suggestions, or you'd like help setting up your PPC campaign please contact us:

email: barry@resolvedigital.com
phone: 415. 642. 3624

About the Author
Barry Harrison is the author of "REDiTIPS" eMarketing Newsletter and a partner in Resolve Digital, Web Strategies for the Real World.

Engaging Web design
Effective Internet Marketing
Essential Content Management Tools

Visit his site at (http://www.resolvedigital.com) or mailto:barry@resolvedigital.com