Recently Google was named in a class action lawsuit for $90 million for click fraud and agreed to pay the fine. According to the deal Google will pay advertisers a credit for future clicks, based on improper charges going back to 2002.

Now this may sound like a lot of money, and it is to the average person or small business, but compared to well over ten billion dollars of clicks they've sold since AdWords started, this is spare change. It's less than 1%.

If you've paid much attention to this you see that Google doesn't say very much about it. Why? Because they just can't. If they told everyone what techniques they use to detect it, people who do click fraud would find more ways to get around it.

What we do know is that if someone clicks on your ad twice or more in 30 days, you only get charged one time. The most obvious kinds of click fraud, like your competitor repeatedly clicking on your ad, are easily detected and you don't get charged. Furthermore, AdSense advertisers who get caught for click fraud get clicked out.

Click fraud is a common fear when people are setting up a advertising campaign using Pay Per Click, or PPC, forms of advertising. But how big of a deal is click fraud? First you need to understand how click prices determined in the first place.

A lot of people determine their bid prices by guessing a number and then bidding. But the way people should determine bids is to figure out how much a click is worth in the first place, by tracking conversion of sales or sales leads. Then pay accordingly.

Hopefully if you are running a PPC campaign you are doing that. If you're not, you're losing WAY more money than click fraud would ever cost you.

Not tracking your conversion rates of sale or sales leads it is sort of like a store owner who never takes inventory and then complaining about shoplifters. How do you know if your inventory is stolen if you never count it? In PPC campaigns if you do not know what return you will receive for a visit to your site how do you know that you are not paying too much?

Let me repeat: If you're not tracking conversion of clicks to sales leads or sales, it's costing you WAY more money than click fraud.

Here is an example of how click fraud is not as bad as not tracking your conversion rates and guessing at your bid prices.

Lets say you get a click fraud problem on one certain keyword. For about 3-4 days you receive 3X the normal amount of traffic. You think this is a bad thing right?

Well here is what will happen.

Your Click Thru Rate will go up, your ad will move up in the rankings. A higher location in the rankings will generate you more desired traffic. As you receive more traffic Google will charge you less for clicks because of the high CTR. Since you have determined your click price by accurately tracking your conversion rates you know that each visit to your site is revenue positive. So, as your ad increases in the rankings you can receive more traffic to your site at less cost per click. Since you started with the right bid price you are now receiving more traffic but with lower cost per clicks. As a result of Google's CTR formula they inherently give you discounts for click fraud. Not a total solution, but it does help.

Although click fraud is not healthy for the PPC industry as my example shows it is not the main reason for people loosing money on their PPC campaigns. The bigger culprit is people guessing at their bid values per keyword and not tracking their conversion rates. If you start off with an accurate bid price than click fraud can increase your traffic and decrease your cost per click.