PPC, or Pay-Per-Click, is aptly named: you pay every time someone clicks your ad on Google or on partner sites. In the old days of PPC, paying for clicks was built on a “testosterone-based” auction model. The more you were willing to pay, the higher your ad appeared on the page. This has been completely replaced with algorithm-based bidding, where Google determines the rank of an ad by various factors including historic performance, landing page Quality Score, and competition.
When setting up or optimizing your Google AdWords account, it’s important to decide how you want to display your ads. You can choose between one of 3 options: standard cost-per-click (CPC), cost-per-acquisition (CPA), or cost-per-thousand (CPM). Each has its benefits and detriments. So, without further ado, here is an explanation of each method.
Cost-Per-Click (CPC) Bidding
This is the traditional way advertisers have always spent money on Google. You create a campaign, populate ad groups with keywords and ads, set a particular maximum cost-per-click total for the group, and then let it run! So, for example, if you specify a $1 cost-per-click bid for Ad Group A, this means that, on average, a $100 budget would produce at least 100 clicks.
It’s important to realize that the CPC you set is the maximum amount you are willing to pay. Very rarely do you ever pay the full total, on average, per click, unless you are using just 1 keyword. The average of all the keywords you have included, combined with factors such as competition, Quality Score, etc., tends to yield an average cost-per-click somewhere south of the maximum you originally set.
Depending on the results–or your goals–you might want to raise or lower the average CPC for each ad group. You’d want to raise it if you want to help your ad achieve a higher ad position (though this isn’t the only factor that would determine ad position, as we stated above). Conversely, you’d want to lower it if the number of leads were low, or if you felt that paying a lower average cost-per-click–and, therefore, achieving a lower ad position–was more profitable.
Cost-Per-Acquisition (CPA) Bidding
The CPA bidding model is perhaps one of Google AdWords’ most successful new features. It was instituted a few years ago and is a modified CPC bidding option. Instead of specifying a certain maximum cost-per-click for your ad group, you instead specify a maximum cost-per-acquisition amount. As long as you’ve implemented AdWords Conversion Tracking to track sales or leads, you can let AdWords deliver traffic to your ads based on which keywords have collectively generated sales/leads that correspond with a specific cost per sale/lead amount. Sound confusing?
With the CPA bidding method, it is important to remember that you are still paying an average cost-per-click for your ad group; however, the difference is that you are leaving this to Google to decide. You only care that at the end of a specified period, your ad group should have yielded a cost per sales/lead at or below the total you originally specified.
As an example, if you specify a max CPA of $50 and you have a $100 budget, this says that you will let Google charge per click whatever it needs to in order for your ad group to have produced at least 2 sales/leads by the time the $100 budget is reached. This would mean that your $100 budget produced a cost-per-acquisition of $50.
Cost-Per-Thousand (CPM) Bidding
The CPM bidding method is mainly used for branding strategies via banner ads or image ads that show on Google’s Display Network sites, including YouTube, Fox News, About.com and more. Instead of paying for every click, you pay a combined cost for every 1,000 impressions your ad receives.
Let’s say you run an advertising agency. You might want to use this bidding strategy to promote a new perfume for one of your major clients, supplementing offline advertising efforts. By paying per impression, you are ensuring your ad gets a certain amount of exposure and you don’t have to pay each time someone clicks. Banner ads tend to have a very low clickthrough rate anyway, so the CPM model helps maximize exposure and brand awareness.
PPC Bidding Methods: Summary
When working to optimize results in your AdWords Pay-Per-Click account, choosing a bidding method for your ad groups should be determined by your goals and objectives. If you want total control over the average cost-per-click of your ads, choose a standard CPC bidding method. If you want to let Google determine the cost-per-click and, instead, aim to achieve a specific cost-per-acquisition, choose the CPA bidding method. Lastly, if you wish to generate massive impressions for the purposes of branding and exposure, utilize the cost-per-thousand CPM bidding method. Happy bidding!