BY ROBERT D. TRUOG
Not to brag, but when I started our website in 1994, I hadmany ground-floor opportunities. Oh, I could have bought the URLs business.com,or Amazon.com, or Webmd.com for just $75, but noooo. I was way too smart forthat. I could have gone public and made millions in 1996, but noooo, I knewbetter opportunities were coming. Then came the IPOs buying up all the bestwords for URLs, and the run on words became a panic—the demand was sohigh that business.com sold for $8 million. Did I panic? Nooooo.
I was waiting for the perfect opportunity.
Then in 1998, Overture.com started the first sponsored advertising service,in which advertisers bid against each other for premium ad placement on searchengines’ results for specific words. Pay per click (ppc) advertisingwas born. So, with the same understanding of the net I used in 1994, I willexplain to you the mysteries of pay per click advertising and how to get themost out of it.
Pay Per Click Advertising
On the surface, pay per click advertising is simple. You pay only when someoneclicks on your ad—hence, “pay per click.”
Of course, it’s a little more complicated. For any search, Google orYahoo will usually display ten paid ads along with their free results. Thehighest bidder gets the top ad position, the second highest comes next, andso on. The top position is the most valuable, because it generates about twicethe traffic (clicks on your ads) of the number two spot and four times of numberthree. So, to get the most traffic, you want to be number one, right? Maybe.
Looking Out for Number One
It turns out that the top ad position also generates the most curious visitors.Buyers often check out several sites, not just one. So they tend to click onseveral ads, not just the top one. Curious browsers tend to check out fewersites, usually the first ones they see, at the top. So you get more trafficwith the number one position, but not necessarily more sales. Counter intuitive—don’tyou hate that?
One more thing. Google also ranks each ad by relevance and its click-throughrate. “Relevance” is simply Google’s measure of the similaritybetween your ad and the keywords used in a search query. The “click-throughrate” is the number of times visitors clicked on your ad divided by thenumber of times it was seen, also known as “impressions.”
This approach maximizes Google’s revenue by giving ads that generatethe most money the best exposure. However, more revenue for Google may notmean more profit for you.
Your Google account automatically reports how much traffic comes to your sitefrom each keyword search and each advertisement, as well as how much that trafficcosts you. It does not automatically tell you if this traffic is generatingany sales, but it can—and I will.
The Answer is Conversion Code
And the question is: How do we decide what to bid—that is, how muchyou’re willing to pay per click?
A conversion is a desired transaction of visitors at your site, from buyinga product to signing up for a newsletter. Conversion code is html code generatedby Google and placed on the page that appears after the transaction. The thankyou page that appears after each purchase is one example. This code allowsyou to make the connection of every sale to the search term that the buyerused to find you. From this, you can calculate the advertising cost for eachsale, or cost per conversion.
For example, Johnny pays $1 per click to Google to post his ad. If, for every10 clicks, he has one sale, what is Johnny’s cost per conversion? Anyone,anyone? Yes, you are right! $10. So now we know what to do. The cost per conversionwith our profit margin determines the amount we can afford to bid.
This ability to track sales—to see the direct connection between yourad spending and sales—is why money is leaving traditional direct-responseadvertising.
Now online advertising is booming, and I fear an impending shortage of wordsthreatens the world economy! What will happen if we run out of words to bidon? Forget about the oil shortage—any yahoo can dig a hole in the ground.It takes a special person to create new words.
The next generation’s contribution of forsure and I’mlike to ourlexicon is not enough to forestall the deficit. But, I’mlike, workingon it. In fact, I just thought up a couple of new words myself. I’m puttingthem on eBay for auction as a test. I mean, eBay, how hard was that to thinkup—“e” and “bay”? I can do that all eDay long!Oops, I eDid it again! Do I hear a bid of, say, $1,000,000? I’m not missingthis one, nooooooo. It’s a slam dunk, forsure!
Email The Webmeister at firstname.lastname@example.org
In 1994, Robert Truog founded PhysicianEmployment, one of the first and largest physician job sites, andin 1999, anadvertising network offering services from website optimising and PPCmanagement to online advertising.