Cost Per Click (CPC)
What is CPC?
CPC stands for cost per click and is the metric that determines the cost to pay for each click received on a paid advertisement. This measurement is based on the number of times the visitors clicked on the ad compared to the overall budget set for that campaign. CPC is different from CPM, cost per thousand impressions, which is based on views and not clicks.
A factor such as a cost per click is crucial for running a successful online advertising campaign, as return on ad spend is one of the most common goals of advertisers and their marketing strategies overall. The lower the cost per click, the more clicks and traffic one will bring to their business website. Ultimately, more traffic to one's site leads to more chances for conversions, sales and new lasting customers.
How is cost per click calculated?
A CPC is determined by dividing the total ad spend by the number of clicks received on a promotion, such as a banner ad or text ad. For example, an ad that ran with a $100 budget and received 50 clicks yielded a CPC of $2.00.
Cost Per Click (CPC) Formula
CPC = Total amount spent/ total measured clicks
When advertising on PPC platforms such as Google AdWords or Google Adsense, the CPC is determined through a more complex algorithm with a formula within its ad auction.
One of the primary factors used by Google ads to calculate an ad's actual cost per click (CPC) is the maximum bid set, which is the highest amount an advertiser is willing to pay for one click. This bid ensures the CPC paid will never be more expensive than the person agreed to.
Google's auction also takes into account the advertiser's Quality Score and competitor's AdRank. Quality Score assesses how good of a quality the ad and landing page are, while AdRank determines where ads show up on search engine results pages (SERP).
Suppose a competitor is willing to pay a much higher CPC and has a higher AdRank, this will influence one's CPC. After all, it is an auction, and the highest bidder with the best ad performance can be rewarded with a better cost per click and a more visible ad placement.
Google Ads CPC Formula
Competitor AdRank/Your Quality Score + $0.01 = Actual CPC
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3 Easy ways to improve a cost per click
The best way for an advertiser to lower their cost per click is by improving their Quality Score. With a higher Quality Score, Google often rewards the advertiser allowing them to pay a lower CPC. These three methods tend to help improve a Quality Score:
1. Increase the ad’s click-through rate
Google does not want to serve bad ads to its users. To help understand if an ad is of high quality, Google considers the ad's click-through rate (CTR). This metric is a ratio of how many times people click on the ad vs. the number of times it was shown (known as impressions).
If a CTR is very low, Google sees the ad as irrelevant and lowers its Quality Score. One can increase their click-through by writing better headlines in the text and including stronger CTAs that call people to take action and click on the ad.
2. Improve the quality of the landing page
Google wants its advertisers’ end-users to trust their ad platform and the destination of those promotions. Therefore, the user experience on the ad's landing page (where the click takes the user) is also a key component of the Quality Score and cost per click.
To ensure a landing page is seen as high quality, it needs to load quickly and have text that matches the offer being made in the ad. Read more on how to create a powerful landing page and see these landing page templates optimized for promotions.
3. Bid on more relevant keywords
The keywords an advertiser is bidding on is another factor that impacts a Quality Score. If the keywords do not match the promotion's offering closely enough, it can deter people from clicking on the ad. The targeted keywords should be refined and focused on the most related search phrases for the advertiser's brand category.
Assigning "negative keywords" (words an advertiser chooses not to show up for with ads) to the campaign can also help fine-tune the results. Outlining these negative keywords will decrease the chances of serving ads to irrelevant queries and lead to better CTR and relevance.