Knowing your CPC (cost per click) helps optimize your advertising and provides valuable insights into your marketing campaign’s performance.
In this article, we’ll answer the question, “What is CPC?” and explain its significance in digital marketing and how it functions as a key performance indicator. Discover how tracking your cost per click in paid advertising can help refine your strategy and improve your results.
- CPC stands for cost-per-click and is a model of online advertising revenue
- In CPC, advertisers pay publishers a fee every time a visitor clicks on their display ad
- Search engines like Google and social media sites like Facebook use pay-per-click (PPC) models
- There are many types of ads involved in CPC ad campaigns, with the platform they’re hosted on determining the type used
- To calculate cost-per-click, divide the cost of your paid ad campaign by the total clicks earned
- Average CPC is what an advertiser spends on average per individual ad click
- Maximum CPC is the highest amount of money you’re willing to pay per click
- Actual CPC is the exact amount payable for each click
- What is CPC?
- How Is CPC Calculated?
- The Importance of Cost-Per-Click Metric
- How to Determine a Good CPC
- CPC and CPM – The Difference
- Final Thoughts
What is CPC?
Cost-per-click (CPC) is an online advertising revenue model used by search engines and social media platforms.
Thanks to display networks like the Google Display Network (think Google Adwords) and Google Search Network, advertisers can bid for ad space on other people’s websites and search engine result pages.
As such, CPC advertising involves advertisers (i.e., companies) paying publishers (i.e., website owners) a fee every time a visitor clicks on their display ad. It’s also called pay-per-click due to the way advertisers pay, i.e., not for the ad placement but for each click.
Platforms that Adopt the CPC Model
Typically, search engines like Google and social media sites like Facebook use pay-per-click (PPC) models. Online marketers of all stripes use Microsoft ads, Pinterest ads, Instagram ads, Facebook ads, and the like to get their advertisements in front of millions of searchers. Some additional platforms include:
The reason why marketers prefer these platforms is that they receive a high amount of website traffic, meaning ad relevance may be the deciding factor in acquiring a new lead or customer.
Aside from the huge tech platforms, smaller niche websites also adopt the CPC model through Google AdWords and other networks like Ezoic.
Ad Types Involved in CPC
There are many types of ads involved in CPC ad campaigns, with the platform they’re hosted on determining the type used. For example, you’ll only find link-based ads on Google’s search engine results pages, while image and video-based ads run as website and social media ads.
Essentially, ads may take at least one of the following forms:
Usually, social media ads appear in a user’s feed as an image or video accompanied by a text caption.
How Is CPC Calculated?
To calculate cost-per-click, divide the cost of your paid ad campaign by the total clicks earned. The formula would look like this:
Cost-per-click = total advertising cost / total clicks
To illustrate, let’s say your ad spend for a particular campaign day was $300, and 50 people clicked on your ad on that day. Given the above formula, your CPC would be $6.
It wouldn’t be right to talk about how to calculate CPC without mentioning related concepts like average CPC, actual CPC, maximum CPC, and cost-per-click bidding strategies.
As the name suggests, the average CPC of a paid campaign is what an advertiser spends on average per individual ad click. You can calculate your average CPC using the formula below:
Average CPC = total cost of clicks / total clicks
For example, if the total cost of your clicks is $6000 and your ad receives 10 clicks in total, your average CPC is $600.
A maximum CPC bid is the highest amount of money you’re willing to pay per click. Notably, the amount you set may not be what you eventually pay when someone clicks on your ad.
Building on the above point, this metric is the exact amount payable for each click. So if you set your maximum CPC as $1 but you’re charged $0.50 for each click, the latter figure is your actual CPC. Google explains the discrepancy in both figures as being a result of the bidding process, i.e., you bidding a higher CPC than your competitors.
Manual CPC Bidding
In contrast to automated bidding strategies, manual CPC bidding involves setting the maximum CPC bid for your campaign manually.
Enhanced CPC is an automated bidding strategy common to Google AdWords. The main objective behind adopting an enhanced CPC strategy is conversion maximization.
The Importance of Cost-Per-Click Metric
There are many reasons why you should factor cost-per-click into your paid advertising strategies. Some of them include:
Helps You Understand Your Return on Ad Spend
When you calculate your CPC in relation to your revenue, you can determine the effect your PPC advertising has had on your bottom line.
If you’re CPC is high but your ad isn’t generating leads or sales, you may need to rethink your campaign.
You Can Use Cost-Per-Click to Set an Advertising Budget
Knowing in advance how much a campaign can potentially cost you will help you plan a budget for your search engine and social media campaigns.
For example, if you set a budget but find out your target keyword has a higher CPC than you initially thought, you can recalculate your budget with the new figure in mind.
Determines Your Ad Rank on Search Engine Result Pages
In relation to search engine PPC ads, the higher you bid, the higher your ad will rank on the SERP. A high ad rank means more visibility in the search results, meaning more traffic.
As already mentioned, your maximum CPC isn’t necessarily the actual amount you’ll pay for each ad click, so you might have to consider bidding higher to outrank your competition.
Helps With A/B Testing
If you have the money for testing, CPC can help you determine which of your ad creatives produces better results.
The rule of thumb to follow is the PPC ad with the higher click-through rate wins, as that’s the one that resonates with your target audience.
How to Determine a Good CPC
There are many factors you need to consider to determine whether a CPC is worth paying. They include:
It makes sense that CPC varies across Industries because the prices of goods and services in industry A may be worth more than the ones in industry B.
For example, you can expect to pay a lower CPC when bidding on keywords related to the children’s toy industry compared to keywords in an industry like finance.
Keyword competitiveness is another factor that determines the final amount payable as your CPC. If you bid on popular keywords other advertisers are targeting, the CPC of the said keywords will be higher. The reason is because of demand and supply. In the case of a high-competition keyword, the demand is higher, thus raising its cost.
The reverse applies as well: low-competition keywords equal a low CPC due to the fact that few advertisers are willing to bid on them.
A person’s search intent can determine how much advertisers are willing to pay as cost-per-click, if at all. Digital marketing and SEO vernacular categorize keywords and content by keyword relevancy. The categories include informational, navigational, commercial, and transactional keywords.
Advertisers are less likely to pay for informational and navigational keywords, whereas they’re more likely to pay for commercial and transactional keywords due to the search intent behind them, i.e., to make a purchase.
Expanding on the above, when a searcher uses a search engine to find your brand, the keyword they enter into the search field (i.e., your brand or business name) is described as “navigational”.
Unless your competition is nefarious, it’s unlikely they’ll be willing to bid on a keyword involving your brand. Therefore, you can expect to pay a lower CPC on these types of keywords due to them having lower competition.
CPC and CPM – The Difference
When running a paid ad strategy on a social media platform, you might see a metric called CPM, which stands for cost-per-mile. What is it, and is it the same thing as CPC?
No. The cost-per-mile metric is another advertising model used by social media sites. Instead of paying per click, advertisers pay per ad impressions. Impressions can be described as the number of chances your ad gets to be seen by your target audience. This metric is counted whether your audience interacts with your ad or not.
As for the difference between CPC and CPM campaigns, the former focuses on traffic and conversions, while the latter focuses on views and reach. Also, you pay per 1000 impressions in a CPM strategy, whereas you pay-per-click in a CPC strategy.
So what is cost-per-click? CPC is what you pay every time a user clicks on their display ad. You can calculate cost per click by dividing your total advertising cost over a specific period by the number of clicks your ad receives.
A good CPC is different for every advertiser due to the keyword’s competitiveness, the search intent behind a keyword, and the industry tied to the keyword.
With the knowledge in this article, you’re armed with everything you need to run a successful cost-per-click campaign.
Karl Barlett is a veteran in the marketing industry with over 9 years of experience in media buying. Karl has been instrumental in developing successful media campaigns for some of the biggest brands in the DTC world with an obsession to get the most out of every marketing dollar spent. Outside work, he enjoys video games and spending time with his dog, Louie.