PPC Glossary: Essential Terms You Need to Know

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 only for actual interest, not just for ad impressions. This allows you to effectively manage your budget and focus on people who are genuinely interested in your products or services.

Where can you find PPC ads? 

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

CPC (Cost Per Click)

CPC (cost per click) is the amount you pay each 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 best return on your investment (ROI).

How it works:

When setting up an ad, you determine the maximum amount you are willing to pay for a single click on your ad. If you set your maximum CPC to 10 CZK, it means you are willing to pay up to 10 CZK for every click on your ad.

Enhanced CPC:

When using Enhanced CPC, the advertising system can increase your CPC bid by up to double your maximum CPC if it determines that a click has a high probability of conversion. For example, if you set your max CPC to 10 CZK, the system may increase the bid up to 20 CZK if it estimates a higher chance of success.

CTR (Click-Through Rate)

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

High CTR? A lot of people saw your ad and clicked on it – great job! Low CTR? The ad didn't resonate with the people who saw it. Try changing the text or the visual.

Conversion

A conversion is counted when a visitor to your website does what you want them to do – whether it's purchasing a product, signing up for a newsletter, filling out a contact form, or another action.

Conversion rate

It is the ratio between clicks and conversions. It shows what percentage of people who clicked on an ad actually performed the action you wanted them to take.

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 a metric that tells you how well your online activities are fulfilling their purpose.

ROAS (return on advertising spend)

ROAS (return on advertising spend) is a metric that tells you how much you earn back for every crown you invest in advertising.

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

How is ROAS calculated?

It is calculated as the ratio between the revenue generated from an advertising campaign and the costs of that campaign. Imagine you spend 1,000 CZK on an ad campaign and earn 3,000 CZK back. Your ROAS is 300%, and every crown invested earned you three more.

Cost-to-revenue ratio

The cost-to-revenue ratio measures what percentage of your total revenue is spent on advertising. The lower the ratio, the more of your revenue remains as profit.

How is the cost-to-revenue ratio calculated?

Divide total costs by total revenue and multiply the result by 100 to get the percentage. For example, if you have a revenue of 1,000,000 CZK and costs of 600,000 CZK, your cost-to-revenue ratio is 60%. This means that 60% of your revenue goes toward covering advertising costs.

KPI (key performance indicator)

A KPI (key performance indicator) is a metric that measures how well you are performing in business or in a specific area. If something isn't going well, KPIs help you spot it quickly. They provide clear data that helps you decide what to do next and what to improve. 

KPI examples

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

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 how much they cost." Once you upload this information to GMC, Google can display it to people searching for exactly what you offer – whether on Google Shopping or directly in search results.

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

CPA (cost per action)

CPA (Cost Per Action) is the amount you pay for each desired action performed by a user. This could be, for example, purchasing a product, signing up for a newsletter, or filling out a form.

Example

Imagine you sell a product for 1,000 CZK and your profit margin is 10%, which is 100 CZK. If you pay 200 CZK for advertising for every completed order (CPA), it means you are spending more to acquire a customer than you are earning. That is why it is important to keep your CPA lower than your profit from a single order.

How to lower CPA

• Lower your bid for ads in campaigns that have a high CPA.
• Review your search query report, find irrelevant words that only increase costs, and exclude them.

CLV (Customer Lifetime Value)

CLV (Customer Lifetime Value) is an estimate of how much money an average customer will bring you throughout the entire time they shop with you. It helps you decide how much money you can spend on marketing to acquire new customers without losing money.

Calculating CLV

To calculate the value correctly, it is necessary to track customer purchases, ideally when the customer is logged into their account. This allows you to link them to their purchases regardless of the device they used to shop.

Example

A customer spends an average of 1,000 CZK per month with you and shops for 2 years. In total, they spend 24,000 CZK over 2 years. If you know that acquiring a new customer costs you 2,000 CZK, and this customer brings you 24,000 CZK, it is a good investment. 

CPL (Cost Per Lead)

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

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 10,000 CZK in advertising and gained 100 leads, your CPL is 100 CZK.

SEM

SEM (Search Engine Marketing) is a way to increase website visibility in search engines through both paid (PPC) and unpaid (SEO) methods. 

• PPC (Pay-Per-Click): Paid advertisements in search engines, such as Google Ads or Sklik, where you pay for every click on your ad.
• SEO (Search Engine Optimization): Unpaid methods for improving your website's ranking in search results. This includes optimizing text, images, and technical website settings, as well as link building.

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.

NCA (new customer acquisition cost)

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

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.

Example

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

CPM (cost per thousand impressions)

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.

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 will still be 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.

When evaluating campaigns that use CPM, we are primarily interested in CPA (cost per acquisition), ROAS (return on ad spend), and, if a campaign is underperforming, CTR (click-through rate).

Quality Score

Quality Score is a rating from Google 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.

What influences 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 on your ad.

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

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.

How does RLSA work?

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

Benefits of RLSA:

• Higher sales potential: You target people who have already shown interest in your products or services.
• Efficient use of budget: You spend money on ads targeted at people who are more likely to convert.
• Personalized ads: You can tailor messages and offers based on what users have done on your website.

RSA

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

How do RSAs work?

When creating RSAs, you enter various headline and description options. Google tests different combinations and displays those that achieve the best results. Each ad can display 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 users. 

Benefits of RLSA:

• Higher sales potential: You target people who have already shown interest in your products or services.
• Personalization: Google selects the best combinations based on what it knows about the user.
• Time savings: Automated testing and optimization of combinations save time.

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 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.

Example

If you invest 10,000 CZK and earn 15,000 CZK, your ROI will be 50%. This means that for every crown invested, you earned an additional 50 hellers.