What Is Pay-Per-Click (PPC) Advertising?

What Is Pay-Per-Click (PPC)?

Pay-per-click (PPC) is a digital advertising model where advertisers pay a publisher — typically a search engine or social media platform — every time a user clicks their ad. PPC is also called cost-per-click (CPC) advertising.

This model allows businesses to “buy” visits to their website rather than earning them organically through SEO. The most popular forms of PPC advertising include Google Ads, Bing Ads, Facebook Ads, and other social media platforms.

How Does Pay-Per-Click Advertising Work?

The pay-per-click model is primarily based on keyword targeting. Advertisers bid on keywords relevant to their business offering. When users search for those terms, ads appear on the search engine results page (SERP) — if the bid and ad quality meet platform standards.

For example, in search engines, online ads (also known as sponsored links) only appear when someone searches for a keyword related to the product or service being advertised. Companies that rely on PPC advertising research and analyze the best keywords for their offering. Investing in relevant keywords can lead to more ad clicks and higher conversion rates.

The PPC model benefits both advertisers and publishers:

• Advertisers gain access to a highly targeted audience actively searching for their products or services. A well-optimized pay-per-click campaign often results in a high return on investment (ROI) and primary revenue stream.
• Publishers such as Google or Facebook earn revenue by offering free services (like search or social networking) while monetizing ad space through PPC models.

Types of Pay-Per-Click (PPC) Models

PPC advertising can follow different pricing models depending on the platform and campaign structure. Here are the two primary approaches:

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 apply 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 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 whenever 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.

Benefits of PPC Advertising

Why do marketers invest in PPC campaigns? When implemented strategically, pay-per-click advertising can offer a range of advantages for businesses of all sizes. Below are the key benefits PPC can bring to your digital marketing strategy:

• Targeted reach: Show ads to your ideal audience using keyword research, location, device, or behavior filters.
• Quick results: Drive traffic and leads immediately, unlike SEO which takes time.
• Scalability: Increase or decrease budget and targeting in real time.
• Cost control: Set a daily or campaign-wide budget to control ad spend.
• Measurable performance: Track impressions, clicks, conversions, and ROI through analytics tools.

PPC is one of the most efficient digital marketing strategies when executed correctly, especially for businesses looking to drive traffic, generate leads, or increase online sales.

Examples of PPC Advertising

• Search Ads: Text-based ads appearing above or below organic search results on Google or Bing.
• Display Ads: Banner or visual ads placed across websites in the Google Display Network.
• Shopping Ads: Product-based ads that appear in Google Shopping results.
• Social Ads: Sponsored posts on platforms like Facebook, Instagram, LinkedIn, and Twitter.

For example, a retailer may launch a pay-per-click campaign on Google Ads targeting the keyword “best running shoes.” When a user searches that term, the retailer’s PPC ad may appear above the search results, and the company is charged only when the user clicks on the ad.

PPC vs. SEO: What’s the Difference?

• PPC (Pay-Per-Click): You pay for traffic. Ads appear at the top of search engine results immediately.
• SEO (Search Engine Optimization): You optimize content to rank organically without paying per click. Results take time, but they can be more sustainable in the long term.

Many businesses combine PPC and SEO for a comprehensive search engine marketing (SEM) strategy.

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
• Click-Through Rate (CTR)
• Customer Acquisition Cost (CAC)
• E-commerce and Online Sales
• See all Valuation resources

FAQs: Pay-Per-Click Advertising

How does pay-per-click advertising work?

Pay-per-click advertising works by allowing advertisers to bid on specific keywords related to their products or services. When a user searches for one of those keywords, eligible ads appear on the search engine results page (SERP). If the user clicks the ad, the advertiser pays the platform a small fee. The system is designed to drive targeted traffic to a website, making it one of the most effective forms of digital marketing.

What is an example of a PPC?

A classic example of PPC is a Google Search Ad. Suppose a company selling wireless headphones bids on the keyword “buy wireless headphones.” When a user searches that phrase, the company’s ad may appear at the top of the results. If the user clicks on the ad, the company pays Google for that click — potentially gaining a high-intent customer.

What is a good pay-per-click rate?

A “good” PPC rate can vary depending on your industry, competition, and campaign goals. However, a strong click-through rate (CTR) is typically above 2%, and your cost-per-click (CPC) should align with your overall ROI targets. Monitoring performance metrics like Quality Score, conversion rate, and customer acquisition cost is key to evaluating PPC campaign success.

What is pay-per-click advertising vs. SEO?

PPC (pay-per-click) and SEO (search engine optimization) are both strategies for gaining visibility on search engines. With PPC, you pay for ad placement and receive immediate visibility, which is great for short-term traffic and targeted campaigns. SEO, on the other hand, involves optimizing your website and content to rank organically, which can take longer but often delivers more sustainable, cost-effective results over time. Many businesses use both to maximize their reach.