Paid Search Basics Guide

Paid Search is also commonly referred to as “PPC.” What is PPC, you ask? Well, PPC stands for pay-per-click. This is because an advertiser only pays if a user clicks on their ad. An advertiser is not charged if an impression is served but is not clicked on. Great — now let's dive into the basics of an account!

A PPC account should mirror the structure of the associated website by having campaigns and ad groups around a specific theme or product.

Paid Search Account Basics


1. Account

  1. Associated with a unique email and billing information.

2. Campaign

  1. Each campaign within an account has its own budget and settings to determine where and when your ad can appear. It should be centered around a theme or category on your website.

3. Ad group

  1. Each ad group within a campaign contains a set of similar ads and keywords that you want to trigger your ads to show, and should be attributable to an overarching theme or category. The more granularity you use, the more relevant the keywords within the ad group will be.

4. Keyword

  1. A word or phrase describing your product or service that you choose to help determine when and where your ad can appear. Commonly abbreviated as "kw."
  2. Keywords are housed within ad groups and are the most granular level within an account. There are four different match types (defined below) that allow you to target all types of different search queries to optimize clicks for your ads and for when Google serves an impression of your ad copy.
  3. Long tail keywords include phrases that are typically closer to the 80 character keyword limit.
  4. Selecting high quality, relevant keywords for your ad campaign allows advertisers to target the most interested people and those likely to become customers.

5. Match types

Match types define to which extent a keyword or phrase within a PPC campaign should trigger an impression. The five types are:

  1. Broad – includes misspellings, synonyms, related searches, and other relevant variations.
  2. Modified Broad – contains the modified term (which is denoted by “+”) and close variations but not synonyms and in any order.
  3. Phrase – the phrase and close variations of the phrase.
  4. Exact – are an exact term and close variations of the exact term.
  5. Negative – will exclude showing the ad to any queries matching up to the negative keywords. Although this is not a match type, we feel it should be noted here

6. Auction style

  1. Google has an algorithm set up to determine how advertisers show after a search query and place those advertisers in different positions.
  2. Each query triggers a new auction.
  3. Advertisers set their max CPC bid and then pay the actual CPC, which is the bid of the advertiser in the position below. The methodology for this is to pay the least amount of money needed to show above your competitor.

7. Quality score

  1. Components that make up the quality score of an ad are ad relevancy, landing page experience, and expected clickthrough rate (CTR).
  2. Ad relevancy refers to how relevant your ad is to the user's search query.
  3. Landing page experience is defined by whether or not the site has a lot of pop ups, if it is easy to navigate, or if it lands on a page relevant to the ad copy and keywords.
  4. Expected clickthrough rate is based on historical data for that keyword. If a keyword is getting a lot of impressions but few clicks, the CTR is low and the expected CTR is lower.
  5. Having a higher quality score benefits advertisers because it can result in higher ad positions and lower CPCs.
  6. The default quality score for any new keyword is a 6. Traffic data will then adjust it based on the expected CTR.
  7. The quality score of a keyword can fluctuate over time, especially after changes made to ad copy, destination URLs, and the website.

8. Ad positioning

  1. This is the average position (often abbreviated as avg. pos) an advertiser's ad has for the total amount of impressions served. It's calculated as the following: average position = sum of all positions for each impression / total impressions
  2. Formula = quality score x max CPC
    • This formula is generated every time a search query is entered, and the highest value earns the top position. Therefore every time the ad has a new ad rank that is calculated for each query and each ad copy has an average position metric.
    • Max CPC can be set at the keyword level or the ad group level. The more granular level overrides any other bid set. For example, the keyword level bid will always override the ad group level bid.

9. Max CPC

  1. The set bid of the highest (or “maximum”) amount the advertiser is willing to pay per click.

10. Actual CPC

  1. Actual CPC is the actual amount paid for a specific click dependent on the auction of that impression. An advertiser pays the CPC of the advertiser in the position below their ad because you only pay the least amount needed to hold that ad position.

11. Clickthrough rate (CTR)

  1. The formula for clickthrough rate is calculated as the following: CTR = clicks / impressions
  2. CTR measures engagement with ads, and allows advertisers to gauge how well keywords and ads are performing.
  3. If an ad is getting a low clickthrough rate, that may indicate that the keywords are getting triggered by search queries that aren't relevant. To mitigate this problem, analyze the queries triggering this keyword and add them as negative keywords to prevent the ad from showing an impression to those irrelevant searches and increase the CTR.

12. Ad copy

  1. The ad copy is made of the following components:
    • Headline - 25 characters shown underlined at the top of the ad.
    • Description Line 1 - 35 characters of copy.
    • Description Line 2 - 35 more characters of copy.
    • Display URL - 25 characters that are often used to that show a URL more relevant to the keywords of the auction the ad is running in as opposed to the actual URL of the page the user is sent to.
    • Final URL (or Destination URL) - the actual URL of the page the ad sends the user to after they click on the ad.

13. Ad delivery

There are two different options that can be selected. Choosing the right one depends on the strategy of the campaign and the budget pacing methodology.

  1. Accelerated - uses up daily budget as fast as possible by serving as many impressions as it can.
  2. Standard - the impressions served will be spread throughout the day; therefore, the budget will be paced throughout the day.

14. Ad extensions

  1. A type of ad format that show extra information about your business, extending from your text ads. Some are added manually and others are automated. They won't show up 100% of the time and are dependent on the ad position, as more space is available in the top three positions. There is no additional cost to run ad extensions, and are on a CPC basis from the same max CPC bid set.
  2. Benefits of ad extensions include two things. (1) Improved visibility - extensions often appear above the search results rather than in the sidebar, and if two competing ads have the same bid and quality, the ad with greater expected impact from extensions will generally appear in a higher ad position than the other. (2) Higher ROI - extensions can help improve the CTR of your ads and drive more traffic to your site.
  3. Usage of ad extension improves expected CTR, which improves keyword quality score and lower CPCs.

15. Manual ad extensions

  1. App extensions show a link below your ad text that sends people to the app store or begins downloading your app.
  2. Call extensions let people click a button to give you a phone call.
  3. Location extensions help people find your nearest storefront or give you a call, add a map pin, or provide navigation assistance.
  4. Review extensions showcase positive, third party reviews from reputable sources.
  5. Sitelink extensions add links to help people find what they are looking for. They can lead to another specific landing page.
  6. Callout extensions add descriptive text to your ad to help people learn more about what you have to offer.

16. Automated ad extensions

  1. Consumer ratings show off what customers appreciate with high quality survey data.
  2. Previous visits show people if they've clicked through to your website from Google Search results before.
  3. Social extensions show how many Google+ followers you have.
  4. Dynamic structured snippets show additional landing page details automatically with your ad on Google Search.
  5. Seller ratings show your online business ratings with your ad.

Paid Search Performance

It is important that any Ecommerce business has revenue tracking in place so the account can be optimized toward profitability rather than simple CPA. Why? Well, take this situation for example: one keyword converts at a $25 CPA with an average order value of $50, while another keyword converts at a $50 CPA with an average order value of $200. The second keyword is more profitable based off the revenue it brings in, which you would not know if you're not tracking revenue.

Here's important terms to know when analyzing paid search performance:

1. Return on Ad Spend (ROAS)

  1. The return, measured by total conversion value, generated from the cost of an ad campaign.
  2. The formula for ROAS is calculated as the following: ROAS = total conversion value / ad spend
  3. This is a key metric in a direct response campaign used to evaluate the amount of return generated from the investment in an ad campaign. For brand awareness campaigns, the return will be generated in the long run and should be calculated with long term consideration.

2. Return on Investment (ROI)

  1. The true measure of the profitability of any investment (in our case, advertising initiatives or budgets). Though it might casually used interchangeably with ROAS, strictly speaking, this calculation should account for COGS (costs of goods sold) and any management fees, while ROAS does not take these into account.

3. Cost-Per-Acquisition (CPA)

  1. The cost needed to acquire a customer and get them to convert. Also can be referred to as cost-per-lead (CPL).
  2. It is calculated by taking the total conversions and dividing it by total amount of cost: CPA = total conversions / total cost
  3. The target CPA is the goal set to ensure ad spend is generating a return. It can be determined in several different ways, but in general it should be lower than the average order value (AOV) or average conversion value. A model can be created that will project the run rate of lifetime value (LTV) for customer cohorts and find the profit-per-member (PPM). The target CPA should be equal or less than the PPM in order to break even or achieve profitability.

4. Average Order Value (AOV)

  1. The average value of an order or conversion.
  2. This metric gives an idea of the revenue earned from each conversion and assists in evaluating if the cost-per-conversion metric is low enough to generate profit or if the campaign is operating at a loss.

5. Lifetime Value / Longterm Value (LTV)

  1. This is the metric used to calculate the revenue generated over the whole lifetime of a customer. Where average order value (AOV) only accounts for the revenue of that one conversion, lifetime value (LTV) accounts for total revenue earned from one customer from all the repeat purchases made.
  2. LTV should be used because cost of customer acquisition is always higher than cost of customer retention, so this LTV metric will give an accurate value of how much a customer is really worth. By projecting the revenue of one acquired customer over their lifetime with the company, a more cost-effective CPA can be determined because a customer may be more expensive to acquire now but will pay off in the long run.
written by: Wpromote

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