When you use PPC, your ad will appear on the very top or very bottom of the Google search results pages (separate from the regular search results). The paid ads show a tiny green "Ad" icon to the left of the website address, to differentiate them from regular listings. Whether your website appears on the top of the page or the bottom, and which page you appear on, depends on how much you spend. Obviously, ads on the top of the page and on Page 1 cost the most.
The cost for each click varies depending on the search terms you want people to find you with, as well as the competition for that key word or phrase. The more popular a search term is, the more competition, and therefore the more it will cost for each click. For instance, if you want people to find your company using the search term "yellow zebra umbrellas", your cost per click will be very low due to very little competition. But if you want to use the term "construction", you will pay much more per click.
The cost per click works almost in an auction format. The PPC program will tell you a range of how much it will cost for each click for that term. If you choose a price higher than the highest price shown, you are more likely to appear closer to the top of the page or closer to Page 1. If you choose a price lower than the lowest price shown, your ad may only appear every, say, 20 searches. Therefore, you are competing with other companies as to how often and where your ad will appear.
With PPC, you can determine the maximum you want to spend per month. So if you choose, say, $100 per month but your cost per click is $5, that will get you only 20 clicks for that month. Once those clicks are reached, your ad will not appear until the next month. But if you choose a cost per click of $1, that will get you 100 clicks for the month, but your ad may not appear for every search. Figuring out how to properly price your PPC ad takes a lot of time and effort.
Because of the time and effort required to run a Google AdWords campaign, there are many third party companies that can do it for you, most notably Dex Media. Because the term "Pay Per Click" can have a negative connotation, third party companies that offer it might use euphemisms like "PPC Advertising" or "Paid Ads". So, why not just let a third party company handle your Google AdWords campaigns for you? Because you're paying a middleman, and those paid clicks will cost more than if you handled them yourself. So if Google wants $2 per click for a particular search term, the third party company may require, say, $5 per click for that same search term.
The Pitfalls of Pay-Per-Click
An obvious pitfall of pay per click is that the system is open to abuse by competitors and the PPC company itself. Google says that it's able to guard against abuse of the system, but it's nearly impossible for them to do so. Every device that logs onto the internet has an IP address (a desktop computer, laptop, tablet, smart phone, etc.) Most companies and households have several different devices. A competitor with 10 computers in their office could click on your ad from every computer, and Google would see the clicks as coming from 10 different computers. Each employee of the company may have several smart devices. Again, each would show up as a different device. And to make things more complicated, most devices these days have dynamic IP addresses. This means that the device's IP address changes once every few days or weeks to thwart hackers. Google will see this new IP address as a completely new device. So your competitor could click on your ads using all of their devices, and then do it again the following week without being detected. You could easily reach your monthly budget in a matter of days or even hours this way. A competitor will click on your PPC ads in the hopes of dissuading you from continuing the ad program, thereby eliminating their competition from the ad program.
Another pitfall of PPC is that clicks do not necessarily generate customers. Just because someone clicks on your ad doesn't mean they are interested in your product or service. They may have even clicked by mistake. Why pay to have someone click on your ad when you can have a free ("organic") listing on the search engine?
And to make matters worse, studies have been done showing that many consumers subconsciously skip ads when using search engines. Think about it. When you do a Google search, how often do you click on the ads in the top three ad spots above the results? Or especially those shown at the bottom of the page? People have been conditioned to skip paid ads because these ads are often not relevant to what they are searching for. For instance, when looking for a local company, ads are often for companies that provide services on a national level.
In summary, pay-per-click may be something you want to try for a few months, at a very low maximum budget, just to see how it works. Often the only company that makes money with PPC is the PPC company! It's far better to practice good SEO, marketing, and promotion techniques for your website to ensure that your site gets listed as close to the top of search engine results as possible.