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Somebody has told you that pay-per-click advertising is simple: you set a budget, you pay when people click, and the more you pay the higher you go. Two thirds of that is true, and the last third is the part that costs money.
So, what is pay per click advertising. It is advertising you are billed for by the click rather than by the appearance, sold through an auction that decides, search by search, whether your ad is shown at all.
This post is about that auction and about the one number that tells you whether to enter it. If you want the formats themselves, the ad types and where they run are a separate post, and the wider set of channels this sits inside is another. If you would rather somebody ran the account for you, that conversation keeps until this one makes sense.
How the auction decides whether your ad appears
Nothing is reserved in advance. Somebody types a search, and in the moment before the page loads the platform holds an auction for the advertising space on it.
Google's own description of the ad auction has a step most advertisers have never heard of. Before anything is ranked, it decides which ads clear a minimum threshold and are eligible to show at all, and ads that do not clear it simply are not there.
That threshold is why an account can run all week, spend almost nothing, and leave its owner convinced the budget was too small. The budget was never reached. The ads were not eligible.
What clears it is not money alone. Google names the components as your bid, the quality of your ads and website, the thresholds themselves, how competitive the auction is, and the context of the person's search.
Why a competitor beats you on a smaller budget
This is the answer to the question most people arrive with, which is why a competitor outranks them while apparently spending less. A better-written ad pointing at a page that matches it can beat a bigger bid, and does, routinely.
How the winning ad's price is then settled is its own arithmetic, and what actually sets the price of one click has the six inputs and the two caps. The thing to take from here is narrower: eligibility comes first, and money is only part of what buys it.
What a click is worth to you
No platform can tell you whether a click is expensive. Expensive is a comparison, and the other half of it lives in your accounts rather than in the advertising account.
The sum has three parts, and you can do it on the back of an envelope. How many of the people who land on your site get in touch, how many of those enquiries turn into work, and what a piece of that work is worth to you.
Work an example through with round numbers, and treat them as an illustration rather than as anybody's real account. A hundred clicks arrive. Ten of those people enquire, three of the ten become customers, and a customer is worth six hundred pounds to you.
That is eighteen hundred pounds from a hundred clicks, so a click was worth eighteen pounds before any costs. Now a four pound click is cheap and a twenty pound click is a loss, and you have a number to argue with instead of a feeling.
The figure moves the moment any of the three inputs does. Doubling the proportion of visitors who enquire is usually cheaper than doubling the budget, which is why the work on the landing page tends to earn more than the work on the bids.
You will need to ask people how they found you
Every one of those numbers depends on knowing where your customers came from, and the tracking will not tell you the whole of it. The oldest method is still the most reliable one, and it came up in a UK thread about exactly this confusion.
You could ask your $8K customer - or indeed every customer - "how did you hear about us?"
A UK business owner, r/smallbusinessuk, July 2025
That reply was the second most upvoted in its thread, which tells you how many other owners recognised the problem. Ask it of everybody for three months and you will have better attribution than most dashboards produce.
What a month of this comes to on the platform is a separate question with its own answer, and what a month of paid search costs covers it properly.
Where the money leaks
Almost every struggling account is losing money in the same four places, and none of them is the bid. They are all versions of paying for attention from somebody who was never going to buy.
| What is leaking | What it looks like in the account | What closes it |
|---|---|---|
| Searches that could never buy | Clicks from people looking for a job, a free version, or the same words in another trade | Read the actual searches that triggered your ads, weekly at first |
| No negative keywords | The same irrelevant search appearing month after month with money against it | Add each one as a negative so it cannot trigger you again |
| One ad for every search | A single generic ad shown against twenty different questions | Group the searches that mean the same thing and write to each group |
| A landing page that does not match | Clicks arriving on a homepage and leaving within seconds | Send the click to the page about the thing the person searched for |
The first two are a reading job rather than a spending decision, and they are usually where the first month's savings come from.
The fix is reading, not spending
Notice what is missing from that last column. Not one of the four is closed by raising a bid, and three of them are closed by somebody sitting down with the list of searches that actually triggered the ads.
The same four leaks run on paid social, with the targeting in place of the search, and what paid social costs is the companion question there. The reading job is the same job.
When pay-per-click advertising is the wrong answer
Sometimes the arithmetic says no, and the honest response is to not sell you any advertising. Two conditions make paid search the wrong purchase, and neither is fixed by better management.
The first is margin. If a customer is worth sixty pounds to you and the clicks in your trade run at six, you need one visitor in every ten to buy, and very little converts at that rate.
When there is nothing yet to amplify
The second condition is that there is no demand for the advertising to work on. Paid search puts you in front of people already looking for what you sell, so where nobody is looking yet it buys attention from strangers at the worst price on the page.
I lost £1k last year on Facebook ads trying to get sales before I had traction - so I speak from experience
A UK business owner, r/smallbusinessuk, June 2024
A neighbouring case is the business that has the demand and does not need to buy any more of it. Plenty of the owners in the UK threads about advertising budgets run no advertising at all, because recommendations and repeat work already fill the diary.
The slower answer in that case is usually earning the listings underneath the ads, which costs time rather than a daily budget. It is also the thing that keeps working on the month you decide to stop paying.
The competition is not imaginary either. UK advertisers put 44% of all digital ad spend into search in 2025, £17.9bn of it, growing 6% year on year, and that is the money bidding against you.
Which means a cheap click in your trade is a fact about your trade rather than a reward for being clever. Nobody negotiates their way to a bargain in an auction that reruns a few billion times a day.
Two numbers to have in front of you
Two figures are worth having in front of you before any card goes in. The first is how much of the audience is on one platform: the Competition and Markets Authority put more than 90% of UK searches on Google when it gave the company strategic market status in search and search advertising.
The second is how many of those searches go anywhere at all. On Similarweb's clickstream panel, 69.5% of UK Google searches ended with no click on any result, paid or free, the highest rate of the six countries measured.
Read together they are not an argument against paid search. They are an argument for knowing your own number first, and it costs nothing to work out what a click is worth in your trade before deciding anything.
The short version is the first line of this post. You pay for clicks, an auction decides whether there are any, and what it weighs is only partly money.