PPC stands for “pay-per-click.”

This means that you pay only if a user clicks on your ad. (That click, of course, takes the user to your website.) If your ad merely appears on a web page, and no one clicks on it, you pay nothing.

How does the search engine — let’s assume it’s Google — determine how much to charge you for a click?

When you set up your pay-per-click campaign, you set a maximum bid — this tells Google the highest amount you’re willing to pay if someone clicks on your ad.

For this example, let’s say you’re going to set a bid for each keyword in your PPC campaign — there are other ways to set bids, but we’ll examine those in a future post.

Now let’s say that you’re willing to pay $2 for a click on a particular keyword’s ad. Then let’s say that, among your competitors for the same keyword, the next highest bid is $1. If a user clicks on your ad, you will only pay $1, even though you’re willing to pay $2.

In other words, it’s an auction.

For more about keywords, see our earlier post entitled “What’s a Keyword, Anyway?”