How Does PPC Work?

This guide is going to explain:

1. What pay-per-click (PPC) advertisements are
2. How much PPC costs
3. What industries/businesses that can benefit from PPC (and how to tell if PPC will not work for you)
4. A quick guide to setting up PPC ads that are profitable

What are Pay-Per-Click (PPC) Ads?

You’ve seen these ads.  You’ve searched for something and the results looked something like this:

PPC ads are paid placement results on Google, Bing, Yahoo, or any search engine.  The advertiser only pays for when someone clicks on the ad, hence the name “pay-per-click.”.  PPC advertising is one of the fastest and most predictable forms of digital marketing available to small businesses.  If customers search for your services and products on Google, PPC will likely help them to find you.

How does PPC bidding work?

An instantaneous auction takes place every time someone performs a search that includes a keyword that an advertiser is bidding on.  Google has developed a formula that determines placement and cost for the different ads based on four factors:

1. The advertiser’sMaximum bid on the keyword
2. Ad and landing page quality
3. The ad’s expected clickthrough rate
4. Availability of ad extensions

Here is a video about the auction that Google produced:

As the video explains, this process often results in the the top result costing less than the results below it.

What Each Factor Means

Maximum bid on the keyword

This one is self explanatory.  How much are you willing to pay for a bid?  This doesn’t mean that you’ll pay it; you’ll just end up paying a little more than the result that is right below you.

Ad and landing page quality

If you are bidding on “modular home dealers” and sending people to a page about sheds, your ad will be considered irrelevant and may not run regardless of how much you bid. Additionally, if you are sending people to a page covered in ads and/or poorly-written content, your ad rank score will suffer.  Finally, Google tracks user signals; if large numbers of users click on your ads, leave the site and return to Google to click on other results, your landing page quality score will suffer.

Expected clickthrough rate

If no one clicks on your ads, your PPC efforts will suffer. First, your ad is wasting valuable ad space.  Second, Google knows that a given percentage of users should be clicking on your ads depending on their placements.  If people aren’t clicking on them, there’s likely a reason (i.e. something is wrong with your ad copy).

Availability of ad extensions

Ad extensions are additional text that go below the ad and provide additional information about your offerings.

“Services: Project Management, Timeline Creation & View…” and the “Meet Your New Way To Work” are ad extensions.  If you don’t set them up when you configure your Adwords account, you’ll end up regretting it.

How quickly does PPC work?

It varies from industry to industry, but typically, a good Adwords manager can get a PPC campaign driving new leads within a few days of starting up a new campaign.  An even better PPC manager will optimize the campaign regularly, resulting in decreasing costs for the advertiser as the campaign progresses. (See the last section of this article to read an example of how we lowered a client’s cost-per-lead 10x in just a couple months).

Do people actually click on PPC ads?

Yes.  Over 60% of Google’s revenue comes from these sorts of ads.

Additionally, we have several clients whose entire lead generation model centers on PPC ads. While you may usually scroll past these results, our clients have ads with click through rates (CTR) of up to 8%.  In other words, it’s safe to say that for some searches, at least one in ten users click on these paid results.

How much do PPC ads cost?

The cost of a PPC campaign varies, and frankly, “how much does it cost to run PPC ads?” is the wrong question.  The question should be “how much will it cost to get business with PPC ads?”  The cost per click isn’t what matters; what matters in the cost to get a new client.

Since we are dealing with an auction, the cost-per-click will vary based on the bids of your competitors.  Google has a tool called the “keyword planner” that gives some imperfect, but usable data on keywords that you may be interested in targeting.

Take the expected cost-per-click, divide the budget that you think you’ll be able to dedicate to PPC, and that’s the number of clicks you can expect.  Multiply that number by 2%, 5%, and 10% and you’ll have an average, good, and best scenario of your account and the cost to get a customer.

Let’s give an example

Let’s say you’re a local personal injury lawyer.

If you log into the keyword planner, you’ll click on the second box titled “get metrics and forecasts for your keywords.” You’ll type in some of your keywords and get an idea of the costs and likely return on investment.  This is what the interface looks like:

You’ll need to set the location at the top.  It will default to the entire USA, but you’ll change it to the areas you want to reach

This tells us that for $800, we’re likely to get 82 clicks.  If we manage to get the following percentages to “convert,” which in this case means contact us, we can calculate a cost per acquisition and return on investment.

• If we get an average 4% conversion rate, we’re looking at 3 contacts.  If I manage to get half of them to hire me, I’m looking at spending $800 to gain a new personal injury case.
• If we get a solid 8% conversion rate, we’re looking at 6 contacts.
• If you manage to get the 10%-20% conversion rates like we get for attorney clients at Sagapixel, you’re looking to pay $50-$100 for a client contact.

A rule of thumb is to aim for a cost-per-acquisition that is no more than 25%-33% of customer lifetime value, so if a new case is worth $5000, you should be aiming to spend no more than $1250-$1666 to acquire a new client.

What industries are PPC ads good for?

If your customers search for your goods and services on Google, it is worth testing PPC ads.  If Google is not part of your customer journey, don’t waste resources.

The personal injury lawyer example from the previous section should run PPC ads.  The land use attorney that helps hospitals get approval to build new offices would likely be wasting his time.

Why would PPC be good for one type of attorney but not another?

In the case of the personal injury attorney, clients are turning to Google to find representation.  In the case of the hospital and its $10 million expansion, it most certainly is not turning to Google to find an attorney.

You need to know your customers and whether they are turning to Google.  If search is not a part of their customer journey, don’t waste money.

[Case Study] An example of how we lowered our cost per conversion from $584 to $45

We inherited a wildly unprofitable Adwords account from another agency.  The client was a regional real estate appraiser that chose his former agency because they claimed to specialize in marketing home appraisers online.  He reached out to us after receiving a recommendation from a attendee at one of our events and granted Sagapixel access to look under the hood at the account.

Overall metrics from the previous agency’s campaign over roughly 100 days. $584 per lead.

Metrics after 100 days of having Sagapixel manage it. Cost down to $45 per lead.

ARE YOU INTERESTED IN HAVING US DO THIS FOR YOU? CLICK HERE!

A Massively Mistaken PPC Strategy

I log into the account and as always, go straight for the cost per conversion.  In my view, the most important metric of a marketing campaign is its effect on cost per customer acquisition and its relationship to customer lifetime value.  An ad campaign that costs a client $10 to make an $11 sale is rarely going to profitable once fixed costs are factored in.  I ask the client to estimate how much profit is made on a new home appraisal, and learn that his $584 cost per client contact is nowhere near profitable.

Find Stuff to Cut Out

TIME OF DAY AND DAY OF WEEK

The first thing that I do is look at the time of day and days of the week that have seen the most conversions:

Conversions by time of day and day of week (over lifetime of the previous campaign)

In most cases, I have found that PPC campaigns perform best during certain times of day and days of the week.  This being the case, it would only make sense to concentrate one’s ad spend during these high-performing times.  One look at the previous campaign and it becomes clear that it makes no sense to run the ads during the weekends, since not one conversion was tracked on a Saturday or Sunday over the lifetime of this account.

I also notice that there were no conversions outside the hours of 7am-7pm, and the highest converting times were between 11am and 2pm.  The previous campaign was running 24/7, despite the fact that no one was clicking on the ads and converting:

There were clicks all times of day; they just didn’t convert

We limited the ads from 8am-6pm, Monday through Friday.

WHAT WORDS SHOULD WE NOT BID ON

Often, I log into accounts that have no negative keywords, but that wasn’t the case with this account.  There was a healthy list of negative keywords, but there was one clear thing missing: negative keywords generated from search terms that triggered the ads.

A thoroughly managed Adwords campaign has its search terms monitored constantly.  From the nature of the list that I saw, the keywords were clearly a predetermined list that was simply added to the account:

Clearly, no account manager would add terms related to Utah for a campaign running in NJ; this was a premade list devoid of any NJ-specific keywords.

You need to look for search terms such as the following:

Real estate appraisers do not do mass advertising.  If a person is searching for an appraiser by name, he or she is likely already a customer of that appraiser or has already received a recommendation from a friend.  Bidding on branded keywords in this industry does not make sense in this case (this was confirmed by the 0% conversion rate for these search terms).  There were no such negative keywords in this account, so we added them (a lot of them).

This is how you do it.  Click on “keywords” on the left bar, then click on “search terms” across the top:

Find the search terms that you don’t want triggering your ads, and add them as negative keywords.  That’s it.

WHAT ADS OUTPERFORM THE REST

There are thousands of blogs out there that explain how to a/b test (or split test) your ads.  I have little to add to that conversation outside of “you have to do it because it really helps.”  I recommend that you start learning about it here.

Today, Our Real Estate Appraiser Has a Profitable Adwords Account

One does not have to be an expert in the real estate, legal services, or construction industry to make PPC work.  The important thing is to make decisions based on the numbers and common sense.  If a keyword, time of day, specific type of device, ad, or anything else that you can use to adjust your bidding doesn’t work, stop bidding.  Cutting out what doesn’t work is almost always the best approach for accounts that have limited budgets and it is likely the best approach for you.

Clicks to Cash: What Are the Benefits of Advertising on Adwords?

Google Adwords is perhaps the most robust advertising platform that has ever been available to a small business. It provides unparalleled amounts of data on an ad campaign, allowing any advertiser an unprecedented amount of information about the campaign and the people it reaches.

There are a number of benefits to advertising on Adwords:

1. Ads at the Zero Moment of Truth (ZMOT) – An advertiser has the ability to place an advertisement in front of the buyer in the crucial moment when he or she is ready to buy.
2. Relevance – It is one of the only forms of advertising in which the ad is almost certainly relevant to what the viewer wants.
3. Allows for Split-Tests – The platform allows us to test ads against one another.  This can be used to develop the perfect slogan, find the perfect value proposition, or gauge customer preferences. Never before was it possible to test ads against one another to create the “ultimate ad.”
4. Only Pay When Someone Clicks on the Ad – Adwords allows the advertiser to only pay when someone clicks on the ad.  Unlike traditional media, no one pays if no one is interested in what the ad offers.
5. No Long-term Contracts – One can begin and pause an Adwords campaign whenever one chooses. There are no minimum lengths of time that one must run ads, as is common with television and outdoor advertising.
6. Provides a Measurable ROI – With Adwords, an advertiser knows exactly how much business is generated by the campaign. This allows the business to calculate an ROI to the penny.
7. Allows for Highly Targeted Ads – If a product is most appropriate for a specific demographic, an advertiser can set the campaign to only display to a specific age or income level.
8. Takes Little Time to Get Started – Unlike other media that can take weeks or months to get an ad in front of buyers, one can get started with Adwords in a couple hours.
9. It Can Inform Your SEO Strategy – Running an Adwords campaign will often provide insights to common questions that customers have, allowing us insights that can be leveraged to improve organic search rank

Advertise When People Are Ready to Purchase

Unlike traditional advertising, Adwords paid search ads only display when a potential buyer is ready to make a purchase.  This allows for a much more immediate impact on the buyer’s purchase decision than traditional advertising such as billboards, radio, or television.

Paid Search Ads Are Relevant to What People Want

By targeting the ads so narrowly, an advertiser is able to get the message in front of the right buyer just as she is considering a purchase.

This contrasts significantly with the interruptive model of advertising in which a TV spot interrupts the thing that the viewer wants to see.  In this case, the ad is much less intrusive and more relevant to the needs and wants of the customer.

Adwords Allows for A/B Testing

Traditional advertising requires that a final decision be made on messaging before the ad ever runs. Adwords allows an advertiser to come up with a number of different messages and see which drives the most sales.

By split testing the message in the ad, the advertiser is able to best understand exactly what message resonates with potential customers. As an added bonus, the general public does not have to suffer through ads that mean nothing to them.

Only Pay When Someone Clicks on the Ad

An ad may be ignore whether it’s on Google, a billboard, or any other traditional media platform.

The difference is that when it is ignored on Google Adwords, there is no cost.

This is wonderful for advertisers, since they no longer have to pay for ads that have no impact on their sales.

No Long-Term Contracts

Traditional media require long-term agreements whether your campaign is a success or not.  Adwords does not require this.

It would be entirely possible to run an ad for 5 minutes.  It would also be possible to run it for 5 years.

This allows flexibility for an advertiser to test paid search as an advertising medium.  If it does not produce the desired results, the advertiser is not on the hook for another 6 months of advertising expenses.  If an Adwords campaign doesn’t drive sales, you can stop.

Adwords Provides Ample Amounts of Data to Calculate ROI

Unlike other forms of advertising, Google Adwords allows us to calculate an exact ROI.

Given a period of time, we know how much was spent and how much revenue was generated as a result of the ads. This eliminates the uncertainty inherent to much paid advertising, allowing the business to make an informed decision to scale or eliminate paid search from its marketing mix.

Adwords Allows for Highly Targeted Ads

Without referencing any overused quotes of John Wanamaker, we can identify the parts of our campaigns are the parts that make money and which are losers.

It is commonly stated that advertising delivers the right message to the right person at the right time. Google Adwords allows business owners to do this like never before.  Google Adwords provides data that allows us to focus our ad spend on the parts of our campaigns that produce the most desirable results.

The advertiser can set:

• The hours and days of week that buyers may see the ad
• Demographics to deliver the ad
• A maximum cost-per-click depending on:
  • The location of the searcher
  • The keyword entered
  • Whether the searcher has been on the advertiser’s website before
  • The day of the week
  • Whether the user is searching on a desktop, smartphone, or tablet
• Locations where the ad may be seen

It Only Takes a Few Hours to Get Started

Traditional advertising takes days, weeks, or even months to get started.

While competitors wait to complete the filming of an ad spot or wait for a magazine to be printed, an advertiser can start a paid search campaign the same day.  Google has produced a number of videos that show advertisers how to get started with Adwords.  You can find it here: https://support.google.com/adwords/answer/4362159?hl=en

It Can Inform Your SEO Strategy

Adwords data can be invaluable in finding topics to blog about. One of the biggest challenges of SEO is that it can be incredibly difficult to find topics to blog about that haven’t already been written about extensively.

Adwords data can often give insights into the kinds of questions that people have and the way they form those questions.  For example, Adwords may allow you to discover that people have been searching for “lawyers to help with death benefits” vs. “lawyer for life insurance claims,” allowing you to begin using this term that you had never previously considered.

How to Lower Your Adwords Cost Per Conversion From $584 to $45

We inherited a wildly unprofitable Adwords account from another agency.  The client was a regional real estate appraiser that chose his former agency because they claimed to specialize in marketing home appraisers online.  He reached out to us after receiving a recommendation from a attendee at one of our events and granted Sagapixel access to look under the hood at the account.

Overall metrics from the previous agency’s campaign over roughly 100 days. $584 per lead.

Metrics after 100 days of having Sagapixel manage it. Cost down to $45 per lead.

ARE YOU INTERESTED IN HAVING US DO THIS FOR YOU? CLICK HERE!

A Massively Mistaken PPC Strategy

I log into the account and as always, go straight for the cost per conversion.  In my view, the most important metric of a marketing campaign is its effect on cost per customer acquisition and its relationship to customer lifetime value.  An ad campaign that costs a client $10 to make an $11 sale is rarely going to profitable once fixed costs are factored in.  I ask the client to estimate how much profit is made on a new home appraisal, and learn that his $584 cost per client contact is nowhere near profitable.

Find Stuff to Cut Out

TIME OF DAY AND DAY OF WEEK

The first thing that I do is look at the time of day and days of the week that have seen the most conversions:

Conversions by time of day and day of week (over lifetime of the previous campaign)

In most cases, I have found that PPC campaigns perform best during certain times of day and days of the week.  This being the case, it would only make sense to concentrate one’s ad spend during these high-performing times.  One look at the previous campaign and it becomes clear that it makes no sense to run the ads during the weekends, since not one conversion was tracked on a Saturday or Sunday over the lifetime of this account.

I also notice that there were no conversions outside the hours of 7am-7pm, and the highest converting times were between 11am and 2pm.  The previous campaign was running 24/7, despite the fact that no one was clicking on the ads and converting:

There were clicks all times of day; they just didn’t convert

We limited the ads from 8am-6pm, Monday through Friday.

WHAT WORDS SHOULD WE NOT BID ON

Often, I log into accounts that have no negative keywords, but that wasn’t the case with this account.  There was a healthy list of negative keywords, but there was one clear thing missing: negative keywords generated from search terms that triggered the ads.

A thoroughly managed Adwords campaign has its search terms monitored constantly.  From the nature of the list that I saw, the keywords were clearly a predetermined list that was simply added to the account:

Clearly, no account manager would add terms related to Utah for a campaign running in NJ; this was a premade list devoid of any NJ-specific keywords.

You need to look for search terms such as the following:

Real estate appraisers do not do mass advertising.  If a person is searching for an appraiser by name, he or she is likely already a customer of that appraiser or has already received a recommendation from a friend.  Bidding on branded keywords in this industry does not make sense in this case (this was confirmed by the 0% conversion rate for these search terms).  There were no such negative keywords in this account, so we added them (a lot of them).

This is how you do it.  Click on “keywords” on the left bar, then click on “search terms” across the top:

Find the search terms that you don’t want triggering your ads, and add them as negative keywords.  That’s it.

WHAT ADS OUTPERFORM THE REST

There are thousands of blogs out there that explain how to a/b test (or split test) your ads.  I have little to add to that conversation outside of “you have to do it because it really helps.”  I recommend that you start learning about it here.

Today, Our Real Estate Appraiser Has a Profitable Adwords Account

One does not have to be an expert in the real estate, legal services, or construction industry to make PPC work.  The important thing is to make decisions based on the numbers and common sense.  If a keyword, time of day, specific type of device, ad, or anything else that you can use to adjust your bidding doesn’t work, stop bidding.  Cutting out what doesn’t work is almost always the best approach for accounts that have limited budgets and it is likely the best approach for you.

Adwords Next: A Preview of the New Adwords Interface

I am not a fan of the standard Adwords interface and I think that “Adwords Next” is a step in the right direction.  If one compares the current Adwords interface to the interface of Salesforce, Waveapps, or Hubspot, it feels dated and clunky, and some of its most valuable features are somewhat buried.  The new Adwords interface addresses a number of these shortcomings, though the changes are bound to upset more than a few of its veteran users.

Improvement #1: Valuable Features Are Easier to Find.

SEARCH TERMS AND NEGATIVE KEYWORDS ARE NOW MORE PROMINENT

It can be difficult for a new to Adwords user to learn of the existence of some of Adwords’ most valuable features.  At the top of this list is the “search terms” tab.  The most underutilized tool in the world of PPC is the negative keyword and the “search terms” tab, which can help a PPC manager to identify negative keywords that should be added.  We get to see the work of other agencies all of the time, often because their client is unhappy with the results that they are receiving and want “someone to take a look at what’s going on.”  The most common issue that we see is that the accounts are getting a lot of irrelevant clicks from ads that were triggered by irrelevant search terms. When we dig into these accounts, we see very few negative keywords added, most likely the result of a novice PPC manager that doesn’t ever check the search terms that are triggering the clients’ ads.  Even the most novice of PPC managers would start adding more negative keywords if he realized that his life insurance lawyer client’s ads being triggered by people looking to get their auto insurance claim paid out (believe me, I see it all of the time)

By placing the “negative keywords” and “search terms” tabs so prominently in the interface, this novice PPC manager is more likely to see and click on them in the first place.  Just look at how much more prominent these tabs are now (the difference is even more stark given the smaller sizes of the two images; the negative keywords tab is all but illegible in the “standard” Adwords interface:

Improvement #2: Graphs Are Given More Real Estate on Your Home Screen

The tiny sliver of the standard Adwords interface provided very limited information about the account; so little, that I usually minimized it so that I could focus instead on the numbers in the tables.  The new home screen comes with a larger version of this line graph, as well as:

• a table for the performance of each ad group
• a breakdown of ad performance per device
• a breakdown of ad performance during different times of day and days of the week

In my opinion, the latter of these is the most valuable.

THE NEW INTERFACE MAY HELP PPC MANAGERS TO REALIZE THAT THEY ARE THROWING AWAY MONEY

As anyone that has ever talked to me knows, I’m a huge proponent of maximizing performance by cutting out waste.  If you have a limited budget for a campaign (which most clients do) you should focus that limited budget on the highest converting keywords, at the highest converting times of day, on the highest converting days of the week.  A quick glance at this graph to right will tell anyone that this account gets the highest converting clicks around lunchtime on Mondays.  This is valuable info that an Adwords manager may have missed by looking at tables.  The new interface may help managers to see this kind of data.

Hopefully, PPC managers will gain these kinds of insights as far as their ad performance and how it relates to devices as well.

Improvement #3: Loading

The new interface’s loading feels smoother.  Maybe it’s just that I like to see the progression bar that makes it feel like it’s making progress, as opposed to a gear that may just spin around and around.

Overall

The new interface’s colors are more similar to what I see on Salesforce, Waveapps, and some other online interfaces that I use regularly.  The new Adwords UI feels as if it is taking a step towards the future.