What is cost per click (CPC)?


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

It is also sometimes called โ€œpay per clickโ€.

This comprehensive guide will take you through 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 you pay for every click on your ads.

How to calculate the cost per click?

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

For example, if your campaign spent $500 in one 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 bid strategy level or down to an individual keyword level.

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

In each ad auction, you pay only the minimum amount required to beat the ad rank of the competitor directly below you.

Why is cost per click important?

Cost per click is important for many reasons.

Cost-per-click measurement is a useful KPI to help understand:

  • Relative ROAS (return on ad spend) depending on your budget and CPC.
  • Plan and forecast estimated traffic depending on your budget.
  • Competitive information on how your average CPC compares to the market.
  • Your relative ad strength.

As you can see, cost per click provides more information than the number of clicks you get for your budget.

When it comes to 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 have to work a lot harder to achieve a target ROAS.

This means that the user experience of the website (or app) must be fully optimized to encourage as many sales as possible.

Another reason cost per click matters? It helps you understand how competitive you are in keyword bidding.

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

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

If you have great ad content and an intuitive user experience, but your ad CTR is low, you can limit the problem to your maximum CPC.

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

This is a good indicator of current competition and future performance, but there are other KPIs that are critical in determining campaign success.

What is a good CPC?

The simplest way to answer this question is: it depends.

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

Things to consider when determining what an ideal cost per click should include:

  • Industry.
  • Device type.
  • Keyword match type.
  • Competition.
  • Branded keywords vs non-branded keywords.
  • Ad ranking.

Let’s address the first factor: the industry. It has been shown that different industries have very different CPCs.

Based on a start study 2022 of LOCALiQ by Wordstream, lawyers and legal services had the highest average CPC of $8.67.

The real estate sector was on the lower end of the spectrum, with an average CPC of $1.36.

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

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

Another element to take into account when wondering what a good cost per click is, “What is the nature of your targeted keyword?”

If someone searches for your brand, your cost per click should be significantly lower than for non-branded keywords.

If you bid on your brand terms, your ad ranks highest for those terms. A high ad rank contributes to these lower CPCs.

Unbranded keywords have higher CPCs due to their competitive nature.

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

Ad rank is an essential factor that contributes to a good CPC.

Your bid strategy and maximum CPC are factors that contribute to an ad’s ranking.

To sum 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 advertising platforms use cost-per-click bidding.

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

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

Automated bid strategies make it easier to manage bids for individual keywords.

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

Allowing platforms to use its algorithm allows you to automatically raise or lower bids based on the likelihood of an individual clicking or converting.

Many social ad platforms that allow CPC bidding include:

  • Facebook.
  • Pinterest.
  • Snapchat.
  • ICT Tac.
  • Twitter.
  • LinkedIn.
  • PSD.

So, whatever ad platform you want to test out, chances are it has CPC bidding.

What are CPC and CPM?

Along with CPC bidding, CPM bidding is another standard advertising model.

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

Quite simply:

  • CPC: Pay with a click.
  • CPM: Pay per thousand impressions.

The intent of 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 bidding is typically lower than certain CPCs because it’s mostly used on Display networks or for large audiences on social platforms.

CPM bidding is a cost-effective way to reach large audiences while keeping costs low.

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

If the primary goal of a campaign is awareness, CPM bidding is a good choice.

Conclusion

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

Also, while manual CPC bidding is still available, try experimenting with automated bidding strategies for greater efficiency while still being able to manage your costs.

More resources:


Featured Image: Distribution of Thousands/Shutterstock

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