Example: A company that sells “blue widgets” will set up a PPC account with Google, Yahoo, or another service. They’ll write an online ad promoting their product or site, and wait for it to be found. Based on a number of ranking criteria, their ad will show up in a certain position in the paid search results on the search engine results page (SERP). If the searcher clicks on the ad and goes to the site, the advertiser is charged for the click.

How much they are charged will vary based on a number of proprietary factors for some search engines, and for others, it’s the highest bid in first position, and on down the line. So, this is also a competitive marketing tool. Your bid will influence where your ad is placed, however, with Google and Yahoo, the two largest, there are other factors that are considered for ad ranking.

A quality score, as Google calls it, for an ad is constantly being computed. It is a proprietary algorithm, but generally is based on the CTR (Click Through Ratio) for the ad and sometimes the quality of the landing page. Let’s define:

1. Click Through Ratio (CTR) – The number of times visitors click on the ad through to the site divided by the number of times the ad is presented, or “Impressions.”  It’s expressed as a percentage.  Many advertisers are quite happy with CTRs of 5%, while some can only manage tiny percentages for their CTR.
2. Landing Page – The page where the visitor is taken from the ad, where they landed.  It should be highly relevant to their original search, as well as the wording of the ad.  In other words, a page all about “red widgets” would get a lower score if the ad was worded around “blue widgets.”  The search engine wants the visitor to find what they expected.

Here’s a very brief look at how the PPC ads are displayed on Google search results pages, and a couple of comments about the way PPC works: