What Is Cost Per Click (CPC)? via @sejournal, @brookeosmundson

CPC (cost per click) is a common term used in paid advertising.

It is also sometimes referred to as “pay-per-click.”

This comprehensive guide will dive into the basics of CPC, why it’s important, and when to use it.

What Is Cost Per Click?

Cost per click is a bidding model that determines how much advertisers pay for their ads.

The technical definition of cost per click, according to Google:

Cost-per-click (CPC) bidding means that you pay for each click on your ads.

How To Calculate Cost Per Click?

To calculate cost per click, you take your total ad cost divided by the number of clicks received.

For example, if your campaign spent $500 in a day and you received 100 clicks, your calculated CPC would be $5.00.

CPC bidding allows advertisers to set a maximum cost-per-click from a campaign bidding strategy level or down to an individual keyword level.

However, setting a maximum CPC does not mean paying that each time. The final amount charged for a click is called your actual CPC.

In each ad auction, you only pay the minimum required amount to beat the competitor’s Ad Rank right below you.

Why Is Cost Per Click Important?

Cost per click is important for many reasons.

The cost per click metric is a useful KPI to help understand:

As you can see, cost per click provides more insights than just how many clicks you get for your budget.

Concerning ROAS, understanding cost per click can help guide more accurate forecasts.

For example, if you have a high cost per click but a low daily budget, those clicks to your website must work much harder to achieve a target ROAS.

That means the website (or app) user experience needs to be fully optimized to encourage as many sales as possible.

Another reason cost per click is important? It helps you understand how competitive you are in keyword auctions.

If your ads consistently receive a low CTR (click-through rate), a big reason could be that your maximum CPC is less than your competitors.

Cost per click is also a factor that determines ad strength and ad rank.

If you have stellar ad copy and an intuitive user experience, but your ad’s CTR is low, you can narrow down the issue to your maximum CPC.

So, should the CPC metric be your marketing campaign’s main KPI (key performance indicator)? Probably not.

It is a good indicator of present competition and future performance, but there are other KPIs that are key to determining campaign success.

What Is A Good CPC?

The easy way to answer this question is: It depends.

Many factors contribute to understanding what a good CPC should be.

Elements that factor into determining what an ideal cost per click should include:

Let’s address the first factor: Industry. Different industries have shown to have vastly different CPCs.

Based on an early 2022 study from LOCALiQ by Wordstream, Attorneys and Legal Services boasted the highest average CPC of $8.67.

The Real Estate industry was on the lower end of the spectrum, with an average CPC of $1.36.

Competition (or lack of) helps determine a good cost per click.

Typically, the higher the competition on a keyword, the higher the CPC. You might also expect an average CPC to be lower if competition is lower.

Another element to consider when asking what a good cost per click is, “What is the nature of your targeted keyword?”

If someone is searching for your brand, your cost per click should be substantially lower than non-brand keywords.

If you’re bidding on your brand terms, your Ad Rank is highest for those terms. A high Ad Rank helps contribute to those lower CPCs.

Non-branded keywords have higher CPCs because of their competitive nature.

As mentioned above, when competition is high, CPCs for those terms are also naturally higher.

Ad rank is a vital factor that contributes to a good CPC.

Your bidding strategy and maximum CPC are factors that contribute to an ad rank score.

To sum it up, a good cost per click largely depends on the industry, competitiveness, and ad rank of your targeted keywords.

What Ad Platforms Use CPC Bidding?

Most all ad platforms use cost-per-click bidding.

The most common platforms would be Search platforms such as Google and Microsoft Ads.

While cost-per-click bidding is available on these platforms, they offer automated bidding strategies that encompass a maximum CPC bid.

Automated bidding strategies help take the busy work out of managing individual keyword bids.

Bidding strategies such as Maximize Clicks or Enhanced CPC allow you to set a maximum CPC.

Allowing the platforms to use its algorithm enables you to increase or decrease bids automatically based on an individual’s likelihood to click or convert.

Many social ad platforms that allow CPC bidding include:

So, no matter what ad platform you’re looking to test, chances are it has CPC bidding available.

What Are CPC And CPM?

Aside from CPC bidding, CPM bidding is another standard model in advertising.

CPM bidding is a model where advertisers pay per 1,000 impressions on their ads.

Simply put:

The intent behind CPM bidding differs from CPC bidding because it focuses on views and impressions.

When choosing CPM bidding, an advertiser focuses more on ad reach than traffic.

CPM bids are typically lower than some CPCs because they’re mainly used in Display networks or for a broad reach on social platforms.

CPM bidding is a cost-efficient way to reach a large audience while keeping costs low.

So, when should you use CPM bidding instead of CPC bidding?

If the main goal of a campaign is awareness, CPM bidding would be a good choice.

Conclusion

Understanding cost-per-click bidding and what influences it is vital to PPC campaign success.

Additionally, while manual CPC bidding is still available, try testing out automated bid strategies for better efficiencies while still being able to manage your costs.

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