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Pay Per Click, along with cost per impression and cost per order, are used to assess the cost effectiveness and profitability of internet marketing. Pay per Click has an advantage over cost per impression in that it tells us something about how effective the advertising was. Clicks are a way to measure attention and interest. Inexpensive ads that few people click on will have a low cost per impression and a high Pay Per Click. If the main purpose of an ad is to generate a click, then pay-per-click is the preferred metric. Once a certain number of web impressions are achieved, the quality and placement of the advertisement will affect click through rates and the resulting pay-per-click.
In the flat-rate model, the advertiser and publisher agree upon a fixed amount that will be paid for each click. In many cases the publisher has a rate card that lists the Pay Per Click (PPC) within different areas of their website or network. These various amounts are often related to the content on pages, with content that generally attracts more valuable visitors having a higher PPC than content that attracts less valuable visitors. However, in many cases advertisers can negotiate lower rates, especially when committing to a long-term or high-value contract.
The flat-rate model is particularly common to comparison shopping engines, which typically publish rate cards. However, these rates are sometimes minimal, and advertisers can pay more for greater visibility. These sites are usually neatly compartmentalized into product or service categories, allowing a high degree of targeting by advertisers. In many cases, the entire core content of these sites is paid ads.
The advertiser signs a contract that allows them to compete against other advertisers in a private auction hosted by a publisher or, more commonly, an advertising network. Each advertiser informs the host of the maximum amount that he or she is willing to pay for a given ad spot (often based on a keyword), usually using online tools to do so. The auction plays out in an automated fashion every time a visitor triggers the ad spot.