There are other advertising methods as well: CPL (or cost per lead), where you pay for each "lead" or potential customer you get from the ad, see InfoHub.com for travel site that does this well; and CPA (cost per action), with the action taken by the customer being defined variously as filling out a form or signing up for something. There is also revenue sharing, where the site carrying the ads gets a cut of any purchases made as a result of the ads.
An interesting variant on cost per click is cost per call, a service offered by Yahoo! and AOL that is particularly interesting for very local businesses. In this case, you list not your Web link, but your phone number, and Yahoo! and AOL track the calls you receive through that ad. Obviously, it's also handy for businesses that don't have a Web site at all. How cool is that?
OK, so you pay a cost per click — but what is the cost per click?
Well, that depends on what you're willing to pay, in competition with others. In this market, you are buying the right to have your ad displayed on the search results page generated when somebody has typed a particular keyword or search term into the search engine. Somebody searches on the phrase "life insurance" and, since you sell life insurance, you want your ad to pop up there. So you bid on the term "life insurance" and what you pay depends on what everybody else is bidding.
The minimum bid on Google is 10 cents. On Yahoo! it's 5 cents, but you'll only pay that amount for obscure terms that nobody else wants. Other terms are more expensive — sometimes breathtakingly more expensive: "Delaware incorporation services," for example, costs about $8 per click. The term "merchant accounts" is running about $6 per click at the time of this writing. Certain legal terms and medical terms, linked with diseases that are subjects of class-action lawsuits, can cost as much as $30 per click.
Quite a range! Although none of the major search engines publish averages, the sense of the industry seems to be that typical keyword buyers are paying between a dime and a couple of bucks per click.
Fortunately, you have a lot of control over what you pay. When you bid on keywords, you get a lot of information from Google and Yahoo! about what others are bidding, so you're not bidding blind. You can see which keywords are popular with searchers and which are popular with buyers, and plan accordingly. And of course you can tinker with your keyword purchases to find the best blend of price, response, and final results.