Cost-per-Click – A guide for beginners guide

The cost-per-click, or CPC, is a measure that shows how much an advertiser pays an ad publisher for each user click.

Marketers frequently set target CPC rates for their campaigns to maximize the return on investment. Marketers frequently establish a maximum CPC for their ads, which is determined by criteria such as relevance, placement on search engine results pages, and the number of competing firms advertising for a given phrase. It’s a widely used statistic for figuring out how pay-per-click ads fit into a bigger marketing strategy.

CPC, as opposed to CPM (cost per thousand impressions), monitors individual ad clicks rather than views. Although CPC is often more expensive than CMP, both provide useful insights into digital marketing initiatives.

What is the significance of CPC in marketing?

Brands need benchmarks to guide expenditure and establish if ads are delivering value for money when planning and budgeting for new ad campaigns. CPC can immediately lead to income because it monitors a specific action—a click on an ad. Marketers use CPC to determine whether the revenue generated by their campaigns is worth the cost of the campaign.

How does CPC work?

The ad publisher—the person that places the adverts on the internet—determines the cost-per-click. It’s usually determined by a formula devised by the publisher or by an auction procedure in which marketers bid on keywords. The higher the CPC, the more competition there is for a certain keyword. Lower CPC means more clicks before the budget is depleted, but it also means a keyword has fewer searches.

At the start of their ad campaigns, brands select budgets that govern how long the campaign will run. When the funds are depleted, the campaign will no longer be visible to users until the following month.
As a marketer, if you know CPC ads, you can estimate the traffic that can be generated with your budget.

Marketers should aim for a balance of cheap cost-per-click and keyword value. Knowing the industry’s average CPC might assist marketers to figure out if they’re overpaying for clicks or if the competition’s keyword approach is lacking. If there are any gaps, marketers can take advantage of them to get a lower-than-average price.

Example of CPC

Assume that a company is creating a new ad campaign to be distributed through a third-party publisher like AdRoll. A cost-per-acquisition of around 20% is regarded optimal, which means that firms should be able to recoup five times their advertising costs in revenue.

This brand offers a variety of products, all of which are priced at $100. First, the marketer would set a target CPC for the campaign based on the average conversion rate, or how often a click results in a sale. In this example, we’ll assume the typical conversion rate for the brand is around 1%. We get $1 if we multiply this percentage by the income earned per sale ($100 in this case). Taking 20% of $1 gives you a target CPC of $0.20.

Because a single conversion can earn a considerably bigger amount of income, firms selling more expensive products can expect to pay a higher cost per click.

The formula for calculating the target cost per click is as follows:
CPC = 20% of (Revenue per Sale x Conversion Rate).

How do you lower the cost-per-click (CPC) in digital campaigns?

A brand expecting to increase ROI and engagement would prefer to budget for a lower CPC for an ad that can generate a good number of website traffic. The lower the cost-per-click (CPC), the more money a company can expect from a campaign.

High-volume keywords, on the other hand, are costly, and without a conversion rate that matches the investment, the campaign will be a financial loss.

Improving the quality of an ad is the most effective strategy to lower the CPC for a keyword or ad. On platforms like Google Adverts, ads with higher quality scores have lower costs, whereas publishers can penalize low-quality ads with higher CPC rates. Focusing on relevant material and adhering to the publisher’s best practices will help you enhance your quality scores.

Refining campaigns to fit more closely with search intent is another technique to enhance or decrease CPC. Negative keywords in a campaign help to filter out low-quality clicks that eat into your budget but are unlikely to generate revenue.

Marketers can use marketing attribution to figure out where their visitors come from and identify advertising that isn’t performing well. Brands can keep their cost-per-click rates low while bringing in higher-quality traffic that is more likely to create revenue by deleting ineffective advertising and focusing on developing campaigns.