An Introduction to Pay-Per-Click Advertising and How it Works

Pay-per-click (PPC) advertising is a powerful tool for businesses to reach new customers. This guide dives into the basics of PPC, explaining how it works, from keyword research and ad creation to setting budgets and tracking conversions. You'll learn how to target the right audience, craft compelling ad copy, and measure your campaign's success. By understanding the core principles of PPC, you can create effective campaigns that drive traffic and conversions.

Haider Irfan

2/2/20213 min read

A person using laptop viewing PPC report
A person using laptop viewing PPC report

Pay-per-click (PPC) is a popular advertising model where advertisers pay the host of an advertisement platform each time their ad is clicked. This allows advertisers to reach potential customers by displaying ads related to their search queries. In this chapter, we will cover the basics of PPC, including keywords, ads, budgets and bids, ad rank, targeting, and conversions. Let's dive into the details.

Understanding PPC:

PPC, or pay-per-click, is an advertising model that enables advertisers to place ads on an advertising platform and pay the host when their ad is clicked. The main goal of these ads is to direct users to the advertiser's website or app, where they can take a desired action, such as making a purchase. Search engines are commonly used as host platforms for PPC ads, as they allow advertisers to display their ads to users searching for relevant information. Platforms like Google Ads and Microsoft Ads operate using real-time bidding, where ad space is sold through a private automated auction based on real-time data.

How PPC Works:

Every time a user searches for something on a search engine, an auction takes place for relevant ad spots on the search engine results page (SERP). The winner of the auction is determined by a combination of factors, including the bid amount and the quality of the ad. These auctions are the foundation of the PPC system and are triggered whenever there are advertisers interested in displaying ads related to a user's search query. Advertisers use platforms like Google Ads to create and manage their ads, which are organized into campaigns and ad groups for ease of management and reporting.


Keywords are a crucial element of PPC, connecting advertisers to users' search queries. Search queries are the actual words that users type into a search engine, while keywords are used by advertisers to target these users. Keywords are generalized abstractions of a wide range of search queries and can account for irregularities like misspellings. Advertisers can choose different keyword match types to match search queries with varying levels of precision. They can also use negative keywords to prevent their ads from being triggered by irrelevant search queries.


Along with keywords, advertisers need to create ads to be displayed on the SERP. These ads are organized into ad groups based on common themes and target shared sets of keywords. Ads typically contain headlines, description lines, and a URL. Advertisers can use different versions of ad copy and utilize features like ad extensions (e.g., site link and call extensions) provided by platforms like Google Ads and Microsoft Ads to make their ads more engaging and informative.

Budgets and Bids:

To participate in the auction, advertisers need to determine their budget and bids. Budgets are set at the campaign level and can be exceeded daily but not monthly. On the other hand, bids are set at the ad group or keyword level and are a more precise way of controlling spend. Automated bidding strategies are also available, where the advertising platform determines the most appropriate bid for each auction based on the advertiser's campaign goals.

Ad Rank:

Winning the auction is not just about having the highest bid. Search engines also consider other factors, such as ad relevance and quality, the context of the search, and the ad format, to determine ad rank. Quality Score is a crucial metric that determines ad relevance, and it takes into account factors like historical click-through rate, keyword and ad relevance to the search query, and landing page quality. A higher Quality Score can result in a lower cost-per-click (CPC), which is why it is essential to have engaging and relevant ad copy and a user-friendly landing page.


In addition to choosing the right keywords, advertisers can optimize their campaigns by utilizing other targeting options, such as device, location, day and time, and demographic targeting. This allows advertisers to target specific audiences and tailor their ad copy accordingly. Remarketing tools can also be used to target or exclude past website visitors and adjust budgets for better ad performance.


The ultimate goal of PPC is to obtain conversions, which are the actions that advertisers want users to take after clicking on their ad. These actions can vary, from making a purchase to signing up for a newsletter or placing a phone call. It is crucial to track conversions to measure the success of a PPC campaign and determine its effectiveness compared to other marketing channels. Platforms like Google Ads provide conversion tracking tools, but it can be challenging to track conversions accurately, as they often involve multiple searches and website visits.

In conclusion, PPC is a dynamic and powerful advertising model that can help businesses reach their target audience and drive conversions. By understanding the fundamentals of PPC, such as keywords, ads, budgets and bids, ad rank, targeting, and conversions, advertisers can create successful PPC campaigns and achieve their marketing goals.