PPC glossary of key terms: what you need to know

Whether you are a newcomer or an experienced marketer, our glossary of key terms will help you find your way around the world of PPC advertising. Clearly and straight to the point, we explain the basic terms you cannot do without when managing campaigns. Let's get started!

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PPC (pay per click)

PPC ("pay per click") is a simple and effective way to reach potential customers online. In this model you only pay when a user clicks on your ad. You pay for genuine interest, not for a mere ad impression. That lets you manage your budget efficiently and focus on people who are really interested in your products or services.

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Where can you find PPC ads? 

• Search engines: For example on Google or Bing. These ads appear in the search results, usually at the top or bottom of the page.
• Social media: Ads on platforms such as Facebook or Instagram. They appear between posts or in the sidebar.
• Websites: On various websites, where they appear as banners or text links.

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CPC (cost per click)

CPC ("cost per click") is the amount you pay every time someone clicks on your ad. This model is very common in PPC (pay-per-click) advertising. By setting your CPC correctly you can better control how much you spend on ads and focus on getting the highest return on your investment (ROI).

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How it works:

When setting up an ad, you define the maximum amount you are willing to pay for one click on your ad. If you set your maximum CPC to €0.40, it means you are willing to pay up to €0.40 for every click on your ad.

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Enhanced CPC:

With Enhanced CPC, the ad system can raise your CPC bid up to double your maximum CPC if it judges that the click has a high probability of converting. For example, if you set a max. CPC of €0.40, the system can raise the bid up to €0.80 when it estimates a higher chance of success.

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CTR (click-through rate)

CTR ("click-through rate") shows how many people clicked on the ad compared to how many times it was shown. It gives you immediate feedback from customers and tells you how your ad is performing. If 100 people see your ad and 5 of them click on it, the CTR is 5%.

High CTR? Lots of people saw your ad and lots of them clicked on it – great job! Low CTR? The ad did not appeal to the people it was shown to. Try changing the copy or the visual.

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Conversion

A conversion is counted when a visitor to your website does what you want them to do – whether that is buying a product, subscribing to a newsletter, filling out a contact form or another conversion action.

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Conversion rate

This is the ratio between clicks and conversions: what percentage of the people who clicked on the ad actually completed the action you wanted them to take. 

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Why are conversions and conversion rate important? 

Measuring conversions and conversion rate shows you how successfully your website or ad campaigns turn visitors into customers. It is the indicator that tells you how well your online activities are fulfilling their purpose.

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ROAS (return on advertising spend)

ROAS ("return on advertising spend") is a metric that tells you how many euros you earn back for every euro you invest in advertising. 

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A high ROAS means your ad campaigns are effective and bring in more money than you invest in them.

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How is ROAS calculated?

It is calculated as the ratio between the revenue generated by an ad campaign and the cost of that campaign. Imagine you spend €100 on an ad campaign and earn €300 back. Your ROAS is 300% and every euro invested earned you three more. 

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COS (cost of sales)

COS ("cost of sales", also known as ACoS – advertising cost of sales) measures what percentage of your total revenue is spent on advertising. The lower the COS, the more of your revenue remains as profit.

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How is COS calculated?

Divide your total ad costs by your total revenue and multiply the result by 100 to get a percentage. For example, if your revenue is €100,000 and your ad costs are €60,000, your COS is 60%. That means 60% of your revenue goes towards covering your advertising costs.

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KPI (key performance indicator)

A KPI ("key performance indicator") is a metric that measures how well you are doing in business or in a specific area. If something is not working, a KPI shows you quickly. It gives you clear data that helps you decide what to do next and what to improve. 

Examples of KPIs

Number of new customers, conversion rate, average order value or customer satisfaction from a survey.

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GMC (Google Merchant Center)

Google Merchant Center is the place where you tell Google: "Here are my products, this is what they look like and this is what they cost." Once you upload this information to GMC, Google can show it to people who are searching for exactly what you offer – whether on Google Shopping or directly in the search results.

Uploading product information is easy. You need photos, prices, descriptions and other important attributes. This way you can effectively increase the visibility of your products and attract more potential customers.

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CPA (cost per action)

CPA ("cost per action") is the amount you pay for every desired action a user takes. That could be buying a product, subscribing to a newsletter or filling out a form.

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Example

Imagine you sell a product for €100 and your profit margin is 10%, i.e. €10. If you pay €20 in advertising for every completed order (CPA), you are spending more to acquire a customer than you earn. That is why it is important to keep your CPA lower than your profit per order.

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How to reduce CPA

• Lower your bids in campaigns with a high CPA.
• Go through the search terms report, find irrelevant terms that only drive up costs and exclude them.

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CLV (Customer Lifetime Value)

CLV (Customer Lifetime Value) is an estimate of how much revenue an average customer will generate throughout their entire relationship with your business. It helps you determine how much you can spend on marketing to acquire new customers without losing money.

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Calculating CLV

To calculate this value accurately, you need to track customer purchases, ideally while the customer is logged into their account. This allows you to link their purchases regardless of the device they used to shop. 

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Example

If a customer spends an average of €40 per month and shops with you for 2 years, they will spend a total of €960 over that period. If you know that acquiring a new customer costs you €80, and that customer brings in €960, it is a sound investment. 

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CPL (Cost Per Lead)

CPL (Cost Per Lead) is the amount you pay to acquire a potential customerwho, for example, fills out a form or registers on your website. This differs from CPC, where you pay for every click, or CPA, where you pay for a specific action.

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Example

Imagine you have an ad that encourages people to fill out a form to get a free e-book. When someone fills out this form and provides their email, they become a lead. If you invested €1,000 in advertising and gained 100 leads, your CPL is €10.

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SEM 

SEM (Search Engine Marketing) is a way to increase the visibility of websites in search engines through both paid (PPC) and organic (SEO) methods. 

• PPC (pay-per-click): Paid search engine ads, such as Google Ads or Microsoft Ads, where you pay for every click on your ad.
• SEO (search engine optimization): Organic methods for improving your website's ranking in search results. This includes editing text, images, and technical website settings, as well as link building.

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SEM combines these two main components to ensure your website is seen by as many people as possible who are searching for what you offer.

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NCA (New Customer Acquisition cost, also known as CAC)

The acronym NCA (new customer acquisition) covers all costs associated with acquiring a new customer. This includes, for example, advertising, discounts, or various promotional campaigns.

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Why is NCA important?

Tracking NCA helps you determine how much it costs to acquire a new customer and whether it is worth it. This allows you to better plan your marketing budget and find ways to reduce these costs.

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Example

You spend €1,000 on advertising and gain 100 new customers. In this case, your NCA is €10. If a new customer brings you more than the €10 invested, your investment has paid off.

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CPM (cost per mille)

CPM (cost per mille) is a payment model that allows you to pay for every 1,000 ad impressions. "Mille" is Latin for thousand, so CPM literally means "cost per thousand." This model is often used in the display network to increase brand awareness by reaching a wide audience.

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CPM focuses on the number of ad impressions, not the number of clicks (CTR). This means that even if the CTR is low, the ad is still shown to a given number of people. A low CTR may indicate that the ad is not interesting to users, but it has no direct impact on the volume of impressions.

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When evaluating campaignsthat use CPM, we are primarily interested in CPA (cost per acquisition), CPC (cost per click), engagement rate, and, if the campaign is not performing well, CTR (click-through rate).

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Quality Score

Quality Score is a Google rating that determines how well your ads and keywords match what people are searching for. This rating ranges from 1 to 10, with 10 being the best.

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What affects Quality Score?

• Expected click-through rate (CTR): How often people click on your ad.
• Ad relevance: How well your ad matches the search terms.
• Landing page experience: How useful and clear the page is that people reach after clicking your ad.

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A higher Quality Score means that your ad is more relevant and usefulto users. However, Quality Score is not an input for the ad auction and does not affect your advertising costs. It is a diagnostic tool that allows you to see how the ads appearing for specific keywords are perceived by potential customers. You can use this metric to improve your ads, landing pages, and keyword selection.

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RLSA 

RLSA (Remarketing Lists for Search Ads) is a Google Ads feature that helps you re-engage visitors to your website and increase the likelihood of converting them into customers.

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How does RLSA work? 

When someone visits your website, Google adds them to a list. If that user later searches on Google for keywords related to your products or services, your ad will be displayed to them.

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Benefits of RLSA:

• Higher sales potential: You target people who have already shown interest in your products or services.
• Cost-effective: You spend your budget on ads aimed at people who are more likely to convert.
• Personalized ads: You can tailor your messaging and offers based on what users did on your website.

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RSA 

RSA (Responsive Search Ads) is a type of Google Ads that allows you to enter up to 15 different headlines and 4 descriptions. Google then automatically combines these elements to select the ones most relevant to the user.

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How do RSAs work?

When creating RSAs, you enter various headline and description options. Google tests different combinations and displays those that perform best. Each ad can show up to 3 headlines and 2 descriptions at once. You also have the option of pinning, where you can "pin" a specific headline or description to a particular position. This ensures that key information always reaches your users. 

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Benefits of RSAs:

• More combinations: You can create many different combinations, which increases the chance of better ad performance.
• Personalization: Google selects the best combinations based on what it knows about the user.
• Time savings: Automatic testing and optimization of combinations save time.

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ROI (Return on Investment)

ROI (Return on Investment) is a metric that measures how much money you have earned or lost compared to how much you have invested. It is expressed as a percentage and helps you determine how effective and profitable your advertising investments are. The higher the ROI, the greater the profit. For example, if you have two campaigns and one has an ROI of 20% and the other 50%, the second campaign is more effective and generates more profit for less money.

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Example

If you invest €1,000 and earn €1,500, your ROI will be 50%. This means that for every euro invested, you earned an additional 50 cents.

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