Pay Per Click Search engine advertising

Introduction – What is ‘Pay Per Click’ advertising

Starting from just 5 pence per click, any company can deliver a targeted message to search engine users. This is often referred to as ‘Pay Per Click’ (PPC) search engine advertising which means that text adverts, usually shown as sponsored links, are displayed to search engine users according to the keywords they type in.

This article was written as a basic introduction to pay per click (PPC) search in 2002 when the medium was in it's infancy. The main principles hold true, but a fair bit has changed since...

See my blog for the latest innovations in paid search:
www.davechaffey.com/Paid-Search-Best-Practice

For example, if a search engine user types ‘holiday insurance’, the search engine will display ‘Sponsored link adverts’ from companies offering solutions for this.

To see this approach in action, follow this link: http://www.google.com/search?q=holiday+insurance.

Two different forms of search engine advertising can be seen:

1. A small text ad which appears above and to the right of the search engine listing. This is Pay Per Click (PPC – where the advertiser only pays for each clickthrough) – this is what we will be concentrating on this article.

An example sponsored link from September 2002 is:

‘The UK Income Protection

Compare our rates, get quotes online

See how we beat the competition

www.income-protection.info’

2. A premium sponsorship which is prominent above the search engine listing. This is Pay Per Impression (CPM – cost per thousand, or monthly flat fee for display of text advert or in the case of other search engines, an banner ad)

Note, in 2008, this option is no longer available, this position is determined by the quality score.

Example premium text ad from September 2002:

‘Norwich Union Direct Insurance - Save 10% when you buy online!!

www.norwichunion.com Buy online from a name you can trust. Click here.’

As well as targeting by keyword, these ads can also be targeted according to geographical location of the users, so users in different countries see different adverts.

The popularity of Pay Per Click is shown by the success of companies running these online advertising networks. For Q3 2002, Overture increased its revenues to $172.7 million –a 138% increase compared to the previous year. Each quarter consumers view over 500 million paid ads.

The competition to place adverts is also becoming fiercer with an average of $0.34 paid by advertisers for each ‘paid introduction’ during the third quarter 2002, compared to an average of $0.21 a year before.
Why is search engine advertising important?

Pay per Click advertising can be helpful in getting your message across to search engine users when it is impractical for your name to be in the main listings when matching results are displayed for keywords entered which relate to your products. Search engine optimization (SEO) is normally used to try and achieve the highest listing position relative to your competitors. However, successful SEO will be difficult for common key phrases such as ‘holiday insurance’ and it may be prove difficult or costly to maintain a position.

A further problem with SEO, is that aside from Google, it may be difficult to get a free listing at the top of the returned results since popular portals such as MSN and Orange display sponsored links before the free submissions positioned by SEO.

You may question how many people will type in such a generic term. However, a visit to the Overture PPC ad network, term suggestion tool shows that for October 2002, in the UK, on Overture alone, nearly 14,000 people typed ‘holiday insurance’.

You will see that many people will use the country or brand name or associated terms such as ‘travel’ or ‘company’ to narrow down their search.
How to do PPC

In this article we are going to concentrate on the more recent phenomenon of Pay Per Click text advertising. However pay per impression keyword advertising has been established since the mid 1990s and is relatively well known. If you want to check out the latest, read ‘Keyword Banners: More Effective and More Complicated’, LINK:

http://www.clickz.com/media/media_buy/article.php/1474631

It is necessary to deal direct with some search engines, notably Google, which have their own programmes. For example, Google (https://adwords.google.com) have their own Adwords Select programme which is Pay Per Click (PPC).
Bidding strategies

Different advertisers bid on particular key words to achieve the listing that they want. Typical aims are to be top, or to be in the top 3 or 5 sponsored ad links. Espotting estimates that 97% of its traffic to its advertisers’ destination sites are from the top 5 positions.

Advertisers decide on the maximum Cost Per Click (CPC) they are prepared to pay. If this is more than the current top position, the Cost Per Click will be reduced so that it is just sufficient for you to be top. If your bid is less than the current Cost Per Click of the top position, you will be placed according to the ranking of your bid.

A minimum bid of 5 pence is typical, with a maximum capping on bids and amounts spent per month possible.

For Google, the listing position is based on two factors: the maximum CPC and also the Clickthrough rate (today known as the Google quality score. These two figures are multiplied together to give a ranking position. This ranking system rewards well-targeted, relevant ads.
The impact of conversion rate

With PPC as for any other media, media buyers carefully evaluate the advertising costs in relation to the initial purchase value or lifetime value they feel they will achieve from the average customer. As well as considering the Cost per Click (CPC), you need to think about the conversion rate when the visitor arrives at your site.

Clearly, an ad could be effective in generating clickthroughs, but not achieve the outcome required on the web site such as generating a lead or purchasing a product online. An implication of this, is it will be more cost-effective to build a specific microsite or landing page as a result of the clickthrough to encourage conversion to sale or other outcome.

The cost per acquisition (or Cost per Primary Action) (CPA) or Cost per Outcome (CPO) can be calculated as follows:

Cost per acquisition = (100 / Conversion rate) * Cost Per Click

Given the range in costs, two types of strategy can be pursued in PPC search engine advertising. If budget permits, a premium strategy can be followed to compete with the major competitors who are bidding the highest amounts. Such a strategy is based on being able to achieve an acceptable conversion rate once the customers are driven through to the web site. This is not a form of advertising to use unless the effectiveness of the web site in converting visitors to buyers is known.

A lower cost strategy involves bidding on more specific phrases such as Womens car insurance. These will generate less traffic, so it will be necessary to devise a lot of these phrases to match the traffic from premium keywords.
Optimising Pay per Click

Each PPC keyword needs to be managed individually in order to make sure that the bid (amount per click) remains competitive in order to show up in the top of the results. For retailiers this is not straightforward. Each advertiser may need to manage thousands of keywords to generate clickthroughs so manual bidding soon becomes impractical. A recent Kelkoo campaign used 600,000 keywords and increased traffic by 700% in less than 4 months.

Example: Pricerunner use the Espotting network (now MIVA)

The Campaign:

15,000+ keywords

Generic: 'cars'

Highly targeted: '4x4', 'buying a saloon', 'BMW Z3'

URL link for all keywords took consumer straight to the relevant pages

The Result:

25,000 click-throughs

26% went on to a retailer & 18% conducted a sale

Cost £3,000 = Sales £1.2 million

"Espotting is the best form of advertising we have found."

Jamal Hirani, Managing Director, Pricerunner

Some search engines include their own bid management tools, but if you or your agency is using different Pay Per Click services such as Overture, eSpotting and Google, it makes sense to use a single tool to manage them all. It also makes comparison of performance easier too.

Bid management software systems such as BidBuddy (www.bidbuddy.co.uk) from The Search Works can be used across a range of PPC services to optimise the costs of search engine advertising. The current CPC is regularly reviewed and your bid is reduced or increased to maintain the position you want with amounts are capped such that advertisers do not pay more than the maximum they have deposited.

The final part of this article is a detailed case study of optimising PPC. Check this against the approach used by your agency. It raises common issues in PPC search engine advertising, including the complexity of approach required and can be readily applied to other companies.

A detailed campaign example: WSPS revitalise a travel company’s PPC strategy

Source: Search engine marketing specialists Web Site Promotion Services (now The Search Works).

The client: A leading UK holiday rental company which already used Overture PPC.

Objectives: Reduce overall cost per sale and increase number of PPC sales fro Overture UK.

This case describes 4 stages in the development of this campaign.

1. Analysis of current campaign:

• Review keyword response. 5,000 keywords were listed of which only 25% had recently generated clicks. Redundant keywords were flagged for removal to simplify the management of the remaining, active keywords.
• Assess number of clicks and spend per keyword. Many of the keywords which were generating traffic were generic and weren’t directly related to the client such as ‘holiday’. A considerable proportion of spend was going into these less relevant keywords where the possibility of a visitor converting to a sale were lower than that with more targeted keywords.
• Assess current performance to establish a benchmark. Accurate figures were identified for Cost Per Click, Cost Per Sale, Average Clicks Per Day, Average Sales Per Day and conversion ratios. These figures were acceptable, but the aim was to generate more sales at a lower cost.

2. Develop new campaign:

• Data mine for relevant keywords. 11 seed words such as ‘holiday’ were brainstormed in order to be able to identify related words in Overture.
• Assess candidate keywords. 11,000 candidate keywords were reviewed individually to exclude competitor trademarks and non relevant keywords, which then gave 9,000 keywords relevant to the business.
• Second review – classification. A second review classified this list into a number of categories which included types of keyword, e.g. country, location, type of accommodation and special categories. Categorising the keywords in this way took considerable time but made the next step of configuring individual listings much easier.
• Define listing details. Each keyword needs an appropriate listing title, description and URL and WSPS experience is that customising each keyword generates higher click through rates than using a generic listing.
• Decide on appropriate strategy for each keyword. For each keyword, the following was decided upon: the maximum allowable bid price, the appropriate position within the results set and when we should drop a position to take advantage of gaps which occur between listings. With 9000 keywords we had to decide another level of categorisation and this was done using 3 factors. The first factor was how many searches were performed for each keyword. The second factor was how relevant each keyword was to the clients business and the third was the amount of competitor activity on the keyword. This resulted in 5 main strategies.

  (1) Low traffic keywords, those which are relevant but which receive very few searches. This campaign contains approx 5000 listings.

  (2) Medium Listings which were relevant and which received the occasional click.

  (3) High Traffic Low Relevance keywords.

  (4) High Traffic High Relevance keywords

  (5) Top listings which contained a select group of 40 keywords which were considered to be the prime listings for the campaign.

  Strategies 2-4 were than subdivided into High Medium and Low sub-campaigns based on the relevance of the keyword in terms of the category in which it appeared. This gave us 11 categories as well as the Top campaign. Each of these 11 groups was then allocated a tracking tag as were the individual keywords in the Top campaign to allow measurement of the performance of each group.

  3. Implementation of the campaign.

  • Client reviews plan. The listings and strategies proposed by WSPS were submitted to the client for approval in 3 stages. First the title/description format was approved after a couple of revisions. Secondly the campaigns strategy proposal was approved and thirdly the overall campaign was approved for final signoff by the client.
  • Listings submitted to Overture. 2 new accounts were opened within the clients Overture login and the listings were submitted to Overture for review. A small number of keywords were rejected for not meeting the Overture content standards as no accommodation was available on the clients site at the time of review for the locations rejected. Several other more generic keywords were rejected but after an appeal by WSPS these were accepted.
  • Bid management system used. The WSPS BidBuddy bid management system was then updated with the listings accepted by Overture and appropriate strategies set for each campaign.
  • Review. Keywords in the Low campaign were checked weekly as these were keywords where the clients listings had no competition and which generated little traffic. Keywords in campaigns 2-4 were checked and updated daily to ensure that the listings remained in the best positions despite competitors trying to outbid. Listings in the Top campaign were checked several times each day and adjustments made to their bids following competitor activity.

  4. Measures and Results.

  • Initially the new campaigns were analysed on a daily basis to ensure that overall spend limits and costs were within expectations. This analysis highlighted that traffic on the Generic Locations campaign was much higher than anticipated and because these were new keywords with no historical Costs Per Sale information, the bids were adjusted so that we gathered enough clicks to enable a later judgement on their effectiveness without spending a significant amount on unproved listings.
  • After 2 weeks of activity a review was made which compared overall figures with the previous activity.This initial review gave the following headline results:

    (1) Overall traffic remained level. By reducing bids on less relevant terms and increasing bids on more relevant ones, we retained approximately the same number of clicks per day.

    (2) Average sales per day doubled. This is due to an overall increase in the quality of the traffic generated.

    (3) Average costs per click had halved. Targeting a higher number of relevant keywords meant that we were able to generate a high proportion of the traffic at low bid prices because there was little competition. This was combined with a reduction in bid prices on less relevant high volume generic keywords which would produce poor quality traffic.

    (4) Average Costs Per Sale had more than halved. The combination of better traffic and reduced bids combined to produce a much higher conversion ratio.

    (5) All the above figures include the fees charged by the agency, WSPS.

    Metrics for monitoring and improving PPC

    - Number of clicks in period

    - Number of sales by product

    - Conversion rate by product

    - Cost Per Click (visitor acquisition cost)
    - Cost Per Sale (customer acquisition cost for new customers)