Cost per click (CPC)
Cost per click (CPC) is a term used in paid online advertising to demonstrate what an advertiser pays every time their ad receives a click.
What is CPC
According to eMarketer, global ad spend is predicted to reach $455.3 billion in 2021, an increase of $77.2 billion from the previous year. CPC forms a sizable portion of that spend and as such is an important metric for marketers to understand.
Let’s look into how CPC compares to some other well-known metrics.
CPC vs. CPM
CPC as we stated above stands for cost per click. CPM on the other hand means cost per mille. Mille is Latin for 1,000, so CPM refers to the cost per 1,000 times your ad is displayed, known as an impression.
CPM is often used when a brand wants to increase awareness and engagement. Therefore it’s less important for the company to focus on specific actions (such as clicks) which carry a higher cost.
Conversely, the CPC pricing model is preferred if the goal is to drive conversions. The publisher may have to serve far more than 1,000 impressions to reach the desired number of clicks.
Clicks have always been a good indicator of the effectiveness of the ad from a creative standpoint, whereas it can be challenging to measure the impact of CPM ads.
CPC vs. CPA
CPA stands for cost per action, or sometimes cost per acquisition. Differentiating between CPC and CPA can get confusing because a click is also considered an action.
True, but there are many other actions that marketers measure. A few examples include:
- Install – which is also classified as an acquisition
- Level passed
- Registration completed
CPA is a target given before the start of a campaign, a pre-determined figure decided by the advertiser and the publisher. Not to be confused with eCPA, which is the effective CPA and a measure of the actual results of the campaign.
So, for example an advertiser has spent $1,000 on their campaign and from that they achieve 250 of the in-app events they classified as actions. The eCPA would be $4. They can then take the CPA that was agreed at the start of the campaign and compare to evaluate the effectiveness of the campaign.
CPC vs. PPC
PPC stands for pay per click. But wait, isn’t that the same thing as CPC?
Well no, let us explain why.
PPC is a marketing campaign strategy. Marketers bid on specific keywords in an attempt to be at the top of a search list. Have you ever noticed that the first few results have a little “Ad” next to them? This means they are part of a paid campaign. If a user clicks on your ad then the advertiser pays for that click.
So how is that different from CPC?
Well, CPC is a monetization model for advertisers and publishers. A website or app owner (publisher) will bill an advertiser for every instance a user clicks on their ad and is then redirected to the advertiser’s website or app.
How to calculate CPC
To calculate your CPC (in essence eCPC — see above) you can use the following formula:
How does this work in reality? It’s pretty simple.
Hotels.com decides to advertise in the British Airways app. Once someone has completed a flight purchase they receive an ad offering them hotel deals in their destination of choice. Hotels.com paid British Airways $5,000 for their ad campaign. Over the course of the campaign they received 20,000 clicks. The CPC was $0.25.
How does it work?
There are two main ways to determine your CPC price. One way is how we described above, i.e. the advertiser and publisher negotiate a fixed price per click in advance.
Alternatively, you can set the price based on a bid. Here the advertiser says the maximum they are willing to pay per click and how many clicks they are looking to achieve.
It then gets a bit more complicated. In Google Ads, for example, CPC is calculated as follows:
Let’s explain these new terms.
Think of your quality score like a credit score. Just like your credit score will affect your ability to apply for a credit card, your quality score will affect your CPC.
Your quality score will depend on many factors including:
- Keywords relevance
- Click-through rate
- Historical performance
- Landing page quality and relevance
The higher the bid and quality score, the more likely your ad will appear in front of the right audience. You CPC will never exceed your maximum bid, it may be equal to, or lower but never more.
Ad rank is used to determine where on a search page your ad will appear (if at all). There are multiple factors that go into the ad rank, for example the quality of your ad at the time of auction, the bid amount, and your position relative to your competitors.
The price per click varies depending on the vertical. For example, keywords for legal services often demand the highest costs. Financial and other professional services like insurance aren’t far behind. That’s because there is a lot of competition for these keywords which are also relatively niche.
The ad rank, quality score and maximum bid combined, determine what the CPC will be.
Pros and cons of CPC
CPC is one of the most used metrics, let’s discuss some of the reasons why.
1. It’s cost effective
As an advertiser you only pay the publisher when your ad is clicked on, which means a user will reach your site or app. As metrics go, CPC delivers some of the best value for money.
2. Easy to understand the performance of your ad
As we mentioned, the advertiser pays the publisher when a user clicks on an ad. Therefore it is easy to see from the number of clicks you receive whether the ad is performing well or not. If you see a low number of click throughs it will be obvious quickly, and you can either change or stop the campaign to avoid further losses.
3. Clicks are a good indicator of engagement
Unlike impressions, clicks show a level of engagement from a user and are therefore a better indicator of intent. If you are receiving a high number of clicks then you should also be seeing a corresponding number of conversions further down the funnel.
However, it’s not all roses and there are some drawbacks.
1. Costs can quickly accumulate
If you manage to run a successful campaign with a high click through rate then you could see a large bill at the end of it. Be sure to keep an eye on your campaign, your conversions, and your daily CPC budgets to make sure you are remaining profitable.
2. Clicks don’t mean conversion
Yes, if your campaign is successful then you may see a high click through rate but that does not guarantee conversions. You need to make sure the content in your app or on your site is top quality. explaining your value proposition so they convert.
What’s an average CPC?
CPC varies hugely across verticals and formats. That being said, the average CPC for Google and other search networks is $2.32 compared to a display network that averages at $0.58.
We mentioned above that keywords for legal and other professional services demand some of the highest rates due to competitiveness and niche. We’re talking $30 and up!
Even among social media platforms the cost can vary significantly. For example the average CPC on Twitter is $0.38 whereas on YouTube it’s nearly 10x that number at $3.21 per click.
There is a reason for this price differential. Users who engage with video ads are 6x more likely to make a purchase. It is therefore very important to consider where your audience will engage with your ad the best and where you are most likely to receive conversions from your clicks.
How to get the most out of your CPC
1. Improve your quality score
The fastest way to lower your CPC and therefore get more out of it is to improve your quality score.
The way many of the search engines work is that higher a quality score receives a lower CPC. Maintaining a quality score of 6 or higher means you may be given discounts of anything from 15-50%. That means, the higher the score the more budget you have for your PPC campaigns.
2. Continually refine your audience and keywords
As with any marketing, but especially with CPC you want to ensure that you are reaching the right audience. After all, the goal of the ad is to have them click through and progress towards converting.
Refining your audience and keywords helps you to be as specific as possible with your targeting. Remember to remove keywords that are no longer relevant or haven’t delivered the desired results.
3. Expand your reach
Through your keyword research try to discover new and valuable avenues for clicks. You can also expand into new target audiences, geo locations or advertising channels to try and expand your reach.
4. Adjust your bids based on key criteria
As part of ensuring your ads are properly targeted you can adjust your bids to focus on specific locations, time periods, and devices. Understand which combination of factors brings the best results and adjust your bids accordingly. In turn this will increase your quality score and further decrease your CPC.
CPC is a term used across digital marketing to demonstrate what an advertiser pays when a user clicks on an ad. Remember that:
- CPC is an extremely cost effective metric for the advertiser as they only pay when a user clicks, which is a good indicator of intent.
- That being said, clicks don’t always lead to conversions so keep an eye on your daily budgets to ensure costs don’t pile up too quickly and you are remaining profitable.
- There are two ways to calculate CPC, the first is for the advertiser and publisher to simply agree on a figure before the start of a campaign. The other uses a combination of an advertiser’s quality score and ad rank. Improving both of these can help lower your CPC.
- Refining your audience and keywords will help to ensure you are targeting the right users, who will click through and progress towards converting.
- The cost of your CPC can be influenced by the vertical, the geo-location, and the device so make sure you properly research the average CPC for your specific campaign.