Login to your new FMVA dashboard today.

Pay-Per-Click (PPC)

An online advertising model in which an advertiser pays a publisher every time an advertisement is clicked

What is Pay-Per-Click (PPC)?

Pay-per-click (PPC) is an online advertising model in which an advertiser pays a publisher every time an advertisement link is “clicked” on. Alternatively, PPC is known as the cost-per-click (CPC) model. The pay-per-click model is offered primarily by search engines (e.g., Google) and social networks (e.g., Facebook). Google Ads, Facebook Ads, and Twitter Ads are the most popular platforms for PPC advertising.

 

Pay-Per-Click

 

How the PPC Model Works

The pay-per-click model is primarily based on keywords. For example, in search engines, online ads (also known as sponsored links) only appear when someone searches a keyword related to the product or service being advertised. Therefore, companies that rely on pay-per-click advertising models research and analyze the keywords most applicable to their products or services. Investing in relevant keywords can result in a higher number of clicks and eventually, higher profits.

The PPC model is considered to be beneficial for both advertisers and publishers. For advertisers, the model is advantageous because it provides an opportunity to advertise products or services to the specific audience who is actively searching for related content. In addition, a well-designed PPC advertising campaign allows an advertiser to save a substantial amount of money as the value of each visit (click) from a potential customer exceeds the cost of the click paid to a publisher.

For publishers, the pay-per-click model provides a primary revenue stream. Think about Google and Facebook, which provide free services to their customers (free web searches and social networking). The online companies are able to monetize their free products using online advertising, particularly the PPC model.

 

Pay-Per-Click Models

Commonly, pay-per-click advertising rates are determined using the flat-rate model or the bid-based model.

 

1. Flat-rate model

In the flat rate pay-per-click model, an advertiser pays a publisher a fixed fee for each click. Publishers generally keep a list of different PPC rates that are applicable to different areas of their website. Note that publishers are generally open to negotiations regarding the price. A publisher is very likely to lower the fixed price if an advertiser offers a long-term or a high-value contract.

 

2. Bid-based model

In the bid-based model, each advertiser makes a bid with a maximum amount of money they are willing to pay for an advertising spot. Then, a publisher undertakes an auction using automated tools. An auction is run every time when a visitor triggers the ad spot.

Note that the winner of an auction is generally determined by the rank, not the total amount, of money offered. The rank considers both the amount of money offered and the quality of the content offered by an advertiser. Thus, the relevance of the content is as important as the bid.

 

Additional Resources

CFI is the official provider of the global Financial Modeling & Valuation Analyst (FMVA)™ certification program, designed to help anyone become a world-class financial analyst. To keep advancing your career, the additional CFI resources below will be useful:

  • Bait and Switch
  • Click and Mortar
  • Customer Acquisition Cost (CAC)
  • Introduction to E-commerce