Pay-Per-Click — Buying Status
Pay-per-click programs (PPC’s) allow you to buy a prime position in a search engine by selecting the price you wish to pay for each visitor you receive. This can place you exactly where you want to be in
the listing, or let you decide precisely how much you want to spend on advertising.
The big advantage of PPC’s is that you don’t have to worry about messing with keywords or links or any of that. You can just figure out how much you want to pay for a keyword and buy your position.

In addition, you only pay for people who actually click on your link (for banner ads, you often have to pay when someone sees it.) And you can also get cheap visitors. Bids usually start at around five cents per click. The top three bids though are often promoted across a network of sites so there can be big bonuses for bidding high.

This is how most pay-per-click programs work:
You create your page title, description and link as you want it to appear in the search results.
You enter the keywords and phrases that will prompt your listing to appear.
You enter your keyword bid (the amount you are willing to pay for each click to your site).
Your keyword bid is compared to that of other bidders for the same keyword. The results are returned to the user with the highest bid appearing first.

Show Me the Money!
With PPC’s, the name of the game is profit. You need to be careful not to get carried away with the ranking so that your promotion doesn’t cut into your revenues. This is essential! There’s no point in being top if you’re out of business in a month. You have to figure out what you can afford and
keep to it. Base your decision on your visitor-to-sales-ratio (the number of visitors on average that it takes to generate a sale) and your net profit per sale.

So for example, if you get a sale from every tenth visitor, and you net a profit of $20 from each sale, then you can’t pay more than $2 for each click without operating at a loss (unless you have an effective back-end sales campaign setup as discussed earlier). In practice, you might make one sale for every 100 or so clicks and pay perhaps 15 or 20 cents for each visitor, depending on your market.
It’s absolutely crucial for you to know your visitor-to-sales-ratio.

It’s also important to keep that ratio as high as possible, and that means only bidding on relevant keywords. If you pay for visitors who are looking for something completely different than the services you’re offering, you’re just throwing your money away. They aren’t going to buy, and even at five cents a shot, those wasted nickels soon add up. On the other hand, because you can pay so little, it is worth bidding on as many relevant keywords as possible.
The key is to balance high payments for top keywords with low payments that bring in less traffic.
You should also consider the quality of visitors the site will send you. The more targeted a directory, the better your visitor to sale ratio will be and that might make it worth increasing your bid price.