What Is Cost per Click (CPC)? Definition and How It Works

Definition and explanation of CPC

Have you ever wondered how businesses determine how much they're willing to pay for one click on their online ads? This is where Cost Per Click (CPC) comes into play. 

CPC, or Cost Per Click, is a common billing method used in online advertising where an advertiser pays each time a user clicks on one of their online ads. It's a way for businesses to buy visits to their website, rather than attempting to earn them organically. 

How Does Cost Per Click (CPC) Advertising Actually Work?

Advertisers choose their maximum CPC, which is the highest amount they're willing to pay for a click on their ad. The actual CPC is then determined by the auction which is based on what competitors are willing to spend and the ad rank of the advertiser compared to other advertisers. It's a competitive process, so higher value keywords will cost more.

How does CPC compare to CPM in terms of cost and effectiveness?

When it comes to online advertising, you're likely to encounter a variety of acronyms, two of which are CPC and CPM. What's the difference, you ask?

CPC (Cost per Click) 

As we've discussed, CPC, or Cost per Click, is a billing method where you pay each time a visit or clicks on your ad. The cost is not tied to the outcome of that click, whether it leads to a sale, a sign-up, or just a browse around your website. The key with CPC is that you're paying for the potential of achieving a desired action. 

CPM (Cost per Mille) 

On the other hand, CPM, or Cost per Mille, refers to the cost of 1,000 (mille) impressions of your ad. Here, you pay for the number of times your ad is displayed, not clicked. This model is typically used for brand awareness campaigns, where the goal is to reach as many people as possible, regardless of whether they engage with the ad. 

So, what's the main difference? 

While CPC focuses on the number of clicks, CPM is all about impressions. In a nutshell, CPC is about engagement, and CPM is about exposure.

How to Calculate Cost per Click (CPC) for Your Ads?

Calculating the cost per click (CPC) is simple, but it will always be a default metric within your advertising platform.

Understanding the CPC Formula 

The cost of your Ad divided by the total number of clicks. This gives you the cost for each individual click, hence the name "Cost Per Click". 

CPC = Ad Spend ÷ Total Clicks

Example of Calculating CPC 

Suppose you spent $1000 on an advertising campaign that generated 500 clicks. Using the CPC formula, we can calculate: 

CPC = $1000 (Ad Spend) ÷ 500 (Total Clicks) = $2

In this scenario, each click made on your ad costs you $2.

What affects your cost per click?

So, you've got a grip on what Cost Per Click (CPC) means and how it operates. Now, you might be wondering about the average cost per click. How much should you expect to pay on average? 

Factors Influencing Average CPC 

Several factors can influence the average CPC in your campaigns: 

• Industry: Some industries have higher competition, leading to a higher average CPC. For example, legal and insurance sectors usually see higher CPCs due to intense competition.
• Keyword competitiveness: More sought-after keywords tend to have higher CPCs. Broad, high-intent keywords often have higher costs associated with them.
• Geographical location: The location of your target audience can also impact CPC. For instance, targeting users in large metropolitan areas may lead to higher CPCs due to increased competition.

Remember, while it's important to have a clear understanding of the average CPC, your focus should be on the return on investment (ROI). Sometimes, a higher CPC might be worthwhile if it translates into higher conversions and revenue. 

How to lower your cost per click

1. Improve your Quality Score: Google uses a Quality Score to measure the relevance and quality of your ad in relation to the targeted keyword and landing page. A higher Quality Score can lead to a lower CPC because Google rewards advertisers who provide a better user experience.
2. Ad Relevance: The quality and relevance of your ad copy to the user's search query play a role in determining CPC. Irrelevant ads may result in higher costs due to lower click-through rates.
3. Improve Landing Page Experience: The quality of your landing page and its relevance to the ad can affect your CPC. A well-optimized and user-friendly landing page can improve your Quality Score and lower your CPC.
4. Use Manual Bidding: You can force lower cost-per-clicks by controlling your bids manually, but it may not serve your ads as much if competitors are willing to spend more per click.

Conclusion

In conclusion, understanding Cost Per Click (CPC) and how it works is crucial to not only manage your advertising budget effectively, but also to maximize your return on investment. By now, you should be aware of the difference between CPC and CPM, how to calculate cost per click, and what constitutes an average cost per click.