Once you assemble a list of keywords you need to associate with your PPC ads, you need to determine how much you should bid on those keywords. There are a variety of different bidding strategies you can employ. The bidding strategy you select affects the success of your PPC ad campaign.
If you bid too low, you won't win enough keywords, your ads won't appear as high or as often, and you won't generate much traffic. If, on the contrary, you bid too high, then you'll end up overpaying for your ads and generating too low a return on your investment.
As you've learned, the price per click for most PPC advertising is determined by a bidding process. Whenever you sign up being an advertiser, you pick the keywords you would like and tell the ad network the maximum amount you're willing to pay for each ad placement. As it pertains time to serve an ad onto a search results page or a joint venture partner website, the ad network runs an automatic auction process to determine which ad gets placed. Obviously, the advertiser who's willing to pay the highest price has a better chance of having his ad displayed than does a marketer with a lower bid.
This automated auction takes place whenever a user looks for a keyword that advertisers have bid on. The ad network takes various factors into account beyond only the bid price. In some instances, the advertiser's location, the date and time of day, as well as the actual content associated with by the advertiser also figure into the equation. And because most search search engine pages have slots for several of these "Sponsored links," there might be more than one winner for each keyword search. In this case, the ad from the highest bidder typically turns up first in the list.
This same kind of automated auction occurs when an ad appears on an affiliate website. Whenever a page is visited on that site, the ad network conducts a bidding for the ad slots on that page. As with ads in search engine results, those ads with the highest bids as well as best quality content are most likely to be displayed. When the site has placement for multiple ads, the ad from highest bidder typically shows up on the highest position on the page.
The bidding for PPC ads works much the same way as bidding in an eBay auction. You specify the maximum amount you'll pay and allow the ad network's automated bidding software do the dirty work for you. That is, the ad network places a bid for you that is only a little greater than existing bids. If competition forces the bidding higher, the ad network raises your bid accordingly, as much as but not exceeding the maximum amount you specified.
The result is advertisers aren't necessarily charged the full amount of their maximum bids. Because the bid raises are automated and incremental, Google along with other ad networks charge the winning bidder just a penny or so more than the next-highest bid. So if you bid no more than USD 5 and the nexthighest bid was USD 4, you won't pay the full USD 5; instead, you'll be charged USD 4.01 for your winning bid.
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