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How Does Pay-Per-Click Work?

Pay-per-click (ppc) is an online advertising model where the advertisers pay for clicks, or visits to their website, rather than paying each time the ad is shown (impressions). Most ppc programs are offered by internet search engines, although they are becoming more popular on social media and review sites. This article addresses how Google’s ppc program, Google Adwords, works. Google has the largest online ppc program. According to a Search Engine Land, Google earns 78% of $36.7B US search ad revenues. Search spending in the US is expected to increase 24 percent over the next three years, from $36.69 billion in 2017 to $45.63 billion in 2019.

Here is a typical pay-per-click result in Google.

Pay-per-click is essentially an auction where advertisers bid for ad position for their targeted keywords. Advertisers select keyword phrases to be included in their pay-per-click program. They group keyword phrases by theme, known as an ad group, and develop text ads for each ad group.

The advertiser bids on each keyword. The bid amount is the maximum amount they are willing to pay for a click to their website. The amount bid compared to competitive bids is a major factor in determining the ad position; however, there are other factors including:

  • The relevance of the keyword to the ad.
  • The relevance of the ad to the landing page.
  • Click-thru rate, or the percentage of people seeing the ad who click on it.

Google encourages advertisers to develop relevant, quality pay-per-click campaigns. A high quality campaign will produce a lower average cost per click and is much more likely to yield a positive return on investment.

Pay-per-click Options

There are several options that allow the advertiser to customize their Adwords campaigns to their specific needs. Some of the more important options include:

  • Budget: The budget is the maximum daily spend. Budgets eliminate any surprise costs for the advertiser.
  • Geographic Locations: This determines where your ads will show. Targeted locations can be set to a large geographic area, such as the entire United States, or to specific towns or even zip codes.
  • Device: Advertisers can set whether ads are shown only on desktop computers, smartphones, tablets, or on all devices.
  • Schedule: Days of the week, and hours of the day when ads are shown.

Conversion Tracking

One of the most valuable features of pay-per-click advertising is the ability to track conversions. While this feature is not unique to pay-per-click advertising, conversion tracking tells the advertiser what’s working and what’s not working. Conversion tracking allows the advertiser to focus on keyword phrases and ads that produce conversions and modify or eliminate those that don’t.

A conversion can take several forms, including:

  • Purchases made by the visitor.
  • Forms completed.
  • Telephone calla.
  • Whitepapera or some other material downloaded by the visitor.


Testing of pay-per-click programs is important to determine the success of any ppc program. Testing helps identify:

  • Which keywords generate the most conversions for the amount spent
  • Which ads produce the most clicks and conversions
  • Which landing pages produce the most conversions
  • The most effective time of day and location.

Return on Investment (ROI)

The bottom line success factor for almost any ppc program is a positive ROI. If the PPC program is for an ecommerce website, return on investment can be easily measured by the sales generated. However, if the business uses the ppc program for lead generation, then the advertiser must establish a value for each conversion.

Typically, this involves answering these questions:

  • What percentage of conversions lead to a sale?
  • What is the average profit per sale?

Once the advertiser answers these questions, they can compute a value per conversion. If the value per conversion times the number of conversions is more than the cost of the advertising campaign, then the campaign is producing a positive ROI. If not, the advertiser may need to do more testing, or discontinue the ppc program.

Want more information on ppc programs specific to your business? Contact us via email or call us at 817-545-1188 and we can provide you specific pcc information relative to your business.