The ever evolving world of pay-per-click advertising offers incredible opportunities to internet marketers but the level of savvy is directly correlated to the degree of success these marketers achieve. Done poorly, pay-per-click advertising is an easy way to spend all your money without getting anything in return. This article discusses some basic requirements to managing a profitable pay-per-click campaign.

Since Google remains the market leader in this category, we will refer to such programs collectively as the Google Adwords program.

When you first setup your Adwords campaign, the Google platform provides an estimate of the cost per click you can expect from the words or phrases you have chosen. The intent here is obviously good but the actual cost per click once your campaign has launched can be a lot higher than the estimated cost provided at setup. It's very important to spend some time every single day reviewing your actual cost per click.

Long-string word phrases will cost you less than short-string individual words or short 2-word phrases. And when managing an Adwords campaign based on long-string phrases, you're much better off to enter multiple similar but not identical phrases, allowing you to maximize impressions over time. When evaluating your campaign each day, you will quickly notice that some of your phrases are costing you more than others. You will also notice that some phrases prove more successful in getting the user to click on your ad.

The key to a profitable Adwords campaign is calibration, calibration and more calibration. You should constantly test new phrases and delete unproductive ones. Everyday, if possible, see which phrases are pulling your overall campaign down and eliminate them, leaving only the productive ones behind.

Google has a free keyword tool on their Adwords platform that will provide long lists of related searches for every word or phrase you enter. Take your most profitable phrases and enter them into the tool, allowing you to discover other potential winners.

This process will allow you to systematically lower your actual cost per click. That's critically important because it's that cost combined with your conversion ratio that must remain lower than the gross margin on the product you're selling. In other words, if your product has a gross margin of $50 and your actual cost per click is 50¢, your conversion ratio better be better than 1 to 100. If not, you'll be losing money.

Let's consider an example. If your product has a gross margin of $50 and your actual cost per click is 50¢ and your conversion ratio is 1 to 60, it would cost you $30 for each sale. Since each sale leaves you with a $50 gross margin, you would make a $20 profit on each sale. On the other hand, if your actual cost per click was $1, each sale would cost your $60 and you would lose $10 on each unit sold.

There are three variables and each one needs to be managed carefully. A larger gross margin will benefit your bottom line, as will a better conversion ratio or a lower actual cost per click. Monitor each one closely and never stop calibrating your campaign. With a good product and some dedication, you'll find a winning combination that will leave you with a consistent profit.

About the Author

Tactical Execution with Patrick Schwerdtfeger is a strategic company focused on growth marketing and program implementation across business markets.