How to pay for clicks (and not pay too much!)

While many users will be satisfied with getting free clickthroughs from the search engines, for some people (myself included), it pays to pay for traffic. There are many sources of paid traffic on the internet, including banner ads, newsletter sponsorships, and so on, but this article is devoted to two of the most "search-engine"ish sources, Yahoo Search Marketing, and Google Adwords Select.

Yahoo Search Marketing

Yahoo Search Marketing (formerly Overture, and before that, Goto.com; hereinafter, YSM) is simply a way to place small text ads on search engine results pages on a variety of search engines (in particular, Yahoo's search engine). It cuts through all the "search engine position" baloney, and simply says "put your money where your mouth is."

It works like this: for some keyword (say, "hand tools"), you place a bid. If your bid is one of the top N bids for the keyword (where N varies depending on the site the ad is shown on; on Yahoo's search engine, it's 8), then it appears when someone searches for "hand tools". If they click on your ad, you get charged whatever your bid was.

Overall, I find YSM to be reasonably effective. For every $1.00 I spent with them, I typically get $1.50-2.00 in contributions from new users. Compared to banner ads, PPC (pay-per-click) systems like YSM tends to deliver much more targeted and valuable clickthroughs.

However, there is a big gotcha: "Content Match". These are ads that appear on non-search engine sites (Google has a similar program, Adsense). Make sure you don't use these unless you are very experienced with pay-per-click, as they tend to generate low-value clickthroughs and it's easy to overpay and waste a lot of money. Make sure you're buying ads on the main Yahoo search engine and partner search engines, not some stupid blog (like mine, for example). Remember: when you get a click from the search engine, you know that the visitor was searching for something when he/she noticed your ad. But if they see your ad on some affiliated site, they are probably only casually interested. This means you have to be a lot more careful, a lot more selective, and a lot more vigilant in order to make Content Match cost-effective. For 99% of the readers of this page (and the author!), it isn't going to be worth the effort.

How to use YSM

Rule #0: 3-4 word keywords attract buyers, 1-2 word keywords attract browsers. As much as possible, you want to target and bid on very specific phrases. The more specific the phrase, the more likely it is that a click will convert into a sale. As I love to say, "It isn't the number of clicks you get, but the number of sales you make!", and this is particularly true when you're paying by the click.

I should give credit where credit is due: I came across this insight during my regular perusal of WebMasterWorld. It's a must-read if you're serious about web promotion.

Rule #1: don't be obsessed with getting the number 1 bid for a keyphrase. It usually isn't worth it. My rule of thumb is that the more specific the keyword, the higher I want to rank. For very specific keywords I want to be in the top 3, but for general, nonspecific keywords, I believe that the lower positions (currently on Yahoo, 8 ads are shown, so these would be positions 6-8), because the first few listings will tend to "filter" the clickthroughs you get. After all, the more other listings the visitor passes up before getting to yours and then clicking on it, the more likely he is going to be interested in what your site is about. See rules #3 and #4 for amplifications on this.

Rule #2: monitor the effectiveness of your clickthroughs. You can have each of your search terms click through to a different URL if you want, and you can use this to track what search terms are actually generating income for you. Some search terms are worth only a few pennies, others might generate a dollar or more in income per click. Bid accordingly.
Because of the current "minimum bid" requirements, it is imperative that you only bid on search terms that are specifically focused on your product or service. The more specific the keyword, the better it is likely to convert into a sale. Conversely, for most people, it is usually no longer worthwhile sponsoring general keywords; they are worth less than the minimum bid. Do the research to figure out what specific search terms apply to you (read my search engine optimization article for tips on how to do this; in particular, use the WordTracker service).
Rule #3: If you are bidding on a keyword that isn't the prime focus of your site, my advice is, at first, simply bid enough to get on the bottom of the list. Later, once you know how much those clickthroughs are worth, you can raise your bid to get more clickthroughs, but note that often, the higher up on the page your link appears, the less valuable it becomes (because of the filter effect).

Rule #4: Consider bidding for one of the first 3 positions, but only on very specific, very focused search terms that are directly relevant to your site, and only if they are reasonably cheap.

YSM is provides paid search listings for some other search engines, and this promises to generate a large amount of traffic, but because each of these sites differs in how many ads they display on their first page of results, the "let the top positions act as a filter" advice may not be the best approach because it means you won't appear on the other search engines.

If a small raise in your bid can get the ad to appear on a lot of other places, it may be worth it to do so. But this kind of strategy only works if you're willing to seriously monitor your results, so it probably isn't worth it to most people.

Obviously, you should only do this on search terms that will only be searched for by people who are clearly interested in what you're offering, and like any other search term, you need to monitor how cost effective it is. You can't lose a penny on every click and hope to make it up on the volume!

Google Adwords

Adwords is Google's entry into the pay-per-click arena, and of course it has typical googolian (googolic? googolicious?) twists.

Adwords are small text ads that appear to the right of the main Google listings. Google makes it very clear these are advertisments. The format has become so iconic that YSM ripped it off!

Like other pay-per-click engines Google lets you decide how much you want to pay for a click. However, Google doesn't rank sites by how much they are willing to pay! Instead, they rank them by how much money they generate for Google!

Lets say you have an ad that generates a 2% Clickthrough Ratio (CTR). This means every time Google shows your ad 100 times, on average, 2 clicks result. And suppose you're willing to pay 50 cents for each click. The result is that, on average, Google earns 1 cent per showing (100 showings = 2 clicks = 100 cents of income).

Your competitor, on the other hand, is willing to pay 75 cents for a click. However, his ad only generates a 1% CTR, so if Google shows his ad 100 times, he'll get 1 click and Google gets 75 cents.

In Google's system, even though you are bidding less than your competitor, your ad will appear in a higher position, because it generates more money for Google. Even better, Google will automatically adjust the amount you pay down to the minimum amount needed to maintain your position.

This means that Google's system rewards those advertisers who can write good ad copy that attracts clicks, and that sponsor relevant keywords. In fact, if your CTR on a keyword drops below 0.5%, Google stops showing your ad. The whole system is very slick, and very much in the Google tradition of doing things very differently from the rest of the search engines.

Oh, and did I mention that Google charges a piddling $5.00 to open an account, and only charges you for your clicks after you get them? Such a deal.

I've been using Adwords since day 1, and my results have been modest but positive. It isn't the screaming bargain that Overture used to be (and alas, as YSM, no longer is!), but it's making money for me. Also, I very much like the way the advertiser interface helps you optimize keywords and ad copy. If you're just starting out in pay-per-click, I'd use it to get my feet wet, and then, if you do well, use the knowledge gained from Google Adwords to effectively use YSM. And if you're already advertising on YSM, you should strongly consider giving them a try.

Like YSM's "Content Match", Google has a "Content Network" (aka "Google Adsense"; ads that are shown on affliate websites) that you should not play around with unless you're a pro.

Andrew Goodman has written an excellent report on Adwords that raises some interesting points. It costs $69 but if you are a serious pay-per-click advertiser, it is probably worth the investment. You can find out more about it here. As always, commissions I receive on referrals are donated to charity.

Wrapping it up

The whole point with pay-per-click is this: if the average visitor to your site generates 20 cents of profit for you (after counting all your costs!), and you can get the visitor for less than 20 cents, then you make money. So it's crucial that you be able to track your visitors and determine how much they are worth to you. For example, I know that the average visitor sent to me from YSM is worth 18 cents. My average cost per click is around 10 cents, so I'm making a nice profit on the investment.

But in order to do this, you must be careful and monitor your clickthrough conversions more closely. Both YSM and Adwords provide tools that help you do this. You may also wish to consider using a visitor tracking system (to learn not only how they get to your site, but what they do when they get there).

Two services that seem to do a good job and are easy to use are Web-Stat and VisiStat. I've been testing them for some time and they both have nice feature sets.

Other Pay-per-click services

There are tons of second-tier PPC services. Don't even think about using them until you're making money on Adwords and YSM. Then be careful; their click-quality is lower, and click-fraud is more of a problem. So before using one of the other PPC services, do some research and find out what experiences other people have had.

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