The Difference Between Flat Rate & Bid-Based PPC Campaigns

The Difference Between Flat Rate & Bid-Based PPC Campaigns

For beginners and the uninitiated, pay-per-click (PPC) advertising can come across as a confusing and intimidating series of never-ending acronyms. However, once you use your PPC decoder ring to determine the difference between terms such as CPC (cost-per-click), CPM (cost-per-thousand impressions), CPA (cost-per-acquisition), CTR (click-through rate) etc., you begin to understand that PPC advertising boils down to one basic concept- bidding on keywords so your ads achieve higher rankings in organic search results.

When paying for individual clicks to your website, cost can quickly become an issue, especially when bidding on highly sought after keywords. As with any aspect of business, the market drives the price for what you’ll pay for each click. If your business sells niche widgets, you’re likely to pay far less for premium keywords than if you dabble in retail clothing, electronics or any other highly competitive industry. This makes understanding which bid strategy best fits your business’ needs such a crucially important component of running a successful PPC campaign.

PPC campaigns offer two types of keyword bidding options: flat rate and bid-based. The following will hopefully help you gain a better understanding of which bidding strategy best suits your PPC needs.

Flat Rate PPC

With flat rate PPC bidding, advertisers (your business) work with publishers (search engines) to agree on paying a fixed amount for every ad click. Publishers typically have established rate cards for keyword terms that are based on the level of competition that exists for each specific term. This means highly sought after keywords will carry a higher fixed price when compared to terms that receive fewer searches.

For example, terms such as “wonder widgets” or “wonder widgets retailers” will have their cost based on how many other businesses use those keyword phrases to drive traffic to their website. In addition to search volume, keyword cost is also usually determined by the quality of the content on your website. If you run a premiere retail widget website, clicks to your site will carry a higher value because they have a higher likelihood of ending in a conversion/sale. Conversely, if your selection of overpriced widgets is poor in comparison to the competition, you’ll likely pay less because you’ll attract less valuable visitors – individuals unlikely to make a purchase – to your website. However, in most instances a successful website can negotiate lower rates with a publisher – especially if willing to sign a long-term contract – for high value keywords.

Flat rate bidding is commonly used with comparison shopping engines such as Nextag, PriceGrabber, eBay and Shopzilla which use published rate cards for individual keywords. Rates can vary between search engines, and advertisers can usually pay a higher rate for increased visibility. These types of websites typically compartmentalize available products or services, so advertisers have a higher chance of making a sale because individuals using comparison search engines are specifically looking to make a purchase based on their search criteria.

Bid Based PPC

If you have ever noticed the ads that pop up at the top and along the right of the page whenever you perform a search on Google or Bing, you’re seeing the results of a bid-based PPC campaign.

With Google Adwords and Microsoft AdCenter, both major search engines feature their own advertising network where advertisers compete with each other for top ad positioning in organic search results. Unlike flat rate PPC, keywords in a bid-based PPC campaign can vary in cost depending on the demand for a given term at the moment of its search. Adwords and AdCenter determine how much an ad click generated by a keyword search is by running a real time auction.

Here’s how it works. Advertisers set a maximum price they agree to pay should someone click on their ads, which are generated whenever a search is performed on a relevant keyword. So if someone searches for wonder widget retailers, this keyword phrase would trigger an ad impression for your website. To determine how much a click on that ad will cost, the publisher will run a real time auction that takes a variety of factors into account to determine which advertiser has the highest bid. The higher an advertiser’s bid, the higher their ad will appear on the page, a position referred to as ad rank.

In addition to your bid, several other factors are also taken into account when determining your ad rank that include:

  • Expected click-through rate: the likelihood of whether the individual who searched for your keyword phrase will actually click on the ad
  • Ad relevancy: does the relevant keyword phrase that triggered the ad impression appear in your ad text
  • Landing page quality: does your landing page contain unique content that’s relevant to the keyword phrase that triggered the ad to appear

These three factors are used to determine your ad’s Quality Score, which basically tells Google and Bing the overall quality of your ads and website. The higher your ads’ Quality Scores and keyword bids are, the higher your ad rank becomes. Keyword auctions are held every time someone searches for a keyword phrase, so your ads have the potential to move up or down in organic search results depending on the amount of competition that exists for relevant keywords at any point during the day.

Conclusions

So which PPC strategy will work for you? It really depends on what you’re attempting to sell and how much cost certainty you desire from your marketing budget.

Retail websites can enjoy a solid return on investment and maintain a concise ad budget by working with cost comparison search engines to establish a satisfactory flat rate PPC campaign. Keep in mind, however, that these types of search engines receive far fewer users than Google or Bing, so the number of potential customers your ads will reach using a flat rate PPC campaign will be significantly lower. Fortunately, shoppers using cost comparison search engines typically are farther along in the buying process, which should improve your conversion rates in comparison to a PPC campaign run on Bing or Google.

A bid-based PPC campaign works very well for businesses interested in lead generation and brand building, while also offering business owners the opportunity to use geo-targeting so their ads are only shown in select markets. Due to the Quality Score metric used to measure where an ad will rank, websites can also improve their page positioning by focusing on the content of their ad’s landing page; allowing them to place higher than the competition while bidding less, a significant difference when compared to flat rate PPC campaigns.

So whether you value cost certainty over ad exposure, desire a national campaign or one that highlights your small business in the surrounding community or want build a brand identity instead of receiving an immediate boost in sales, all play an important role in helping you select the right PPC campaign for your business.

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