Marketing metrics are crucial to understand how well your marketing campaigns are doing. And to do so, you must track the most appropriate metrics. You don’t just need a metric to track marketing performance, but you must use the most suitable marketing metric. Among several others, cost per click (CPC) is one of the key marketing and advertising metrics. What is CPC in marketing, how it is calculated, why it matters, and how to improve it are the key areas covered in this article.
Let’s get started…
What is CPC in Marketing?
Cost per click (CPC) is a bidding model where advertisers and/or marketers pay per click on their ads. It is simply the money you pay for a click on an ad. CPC is used in online advertising platforms such as Google Ads and Facebooks ads. If you have ever run a PPC campaign, you must have heard about CPC.
It is a critical metric as it determines the cost you’ll be paying per click (whether it converts or not). CPC is independent of conversion rate. You only pay for the number of clicks and that’s it.
All the leading ad networks use CPC advertising model including:
- Google Ads
- Facebook and Instagram Ads
- Twitter Ads
Here is how to calculate CPC:
You need the total amount spent on advertising and the total number of clicks received to calculate CPC. For example, if you spend $100 and receive 50 clicks, your CPC will be $2 (100/50).
In reality, you can’t determine the exact CPC before running your ad campaign. CPC is calculated in real-time. Here is how…
How CPC Works
Cost per click is determined by auction. You can set the maximum CPC you are willing to pay when creating an ad campaign with your preferred ad network. For example, if you set $3 as the maximum CPC, you’ll pay between $0.1 to $3 per click.
How does the ad network determine this cost?
Well, it is determined on the basis of several factors such as ad quality, your competitors, maximum CPC, number of bidders, etc.
Here is how Google Ads calculate CPC for its advertisers:
The actual CPC you pay is determined by your ad quality score and the ad rank of your competitor who is just below you. If you want your CPC to be lower, improve your quality score. But this doesn’t guarantee any specific ad rank position.
Imagine an auction where hundreds of advertisers are bidding with their maximum CPCs and quality scores for several ad positions. In such a case, CPCs are calculated and updated in real-time with every second. As soon as a new advertiser bids for a keyword, the CPC and ranking of all the existing advertisers will change.
This is a reason why the actual cost per click is different for every click you receive.
Why CPC Matters
I’m sure you know why CPC is a matter of concern. It is linked to the cost you pay for clicks and is, therefore, a key metric in determining your ROI and ROAS.
A high CPC means you are spending a lot of money per click, conversion, and customer acquisition. It then impacts the return on investment. So, CPC is associated with all the other metrics including conversion rate, customer acquisition cost, ROI, and ROAS.
Anything related to money (or cost) is of high value for stakeholders. You can’t ignore it. Reducing and optimizing CPC is one of the biggest challenges that advertisers and marketers face.
How to Optimize CPC
Most marketers are always concerned about reducing CPC. And they’re only interested in paying less per click as it increases ROI.
Instead of reducing CPC, you must focus on optimizing it.
Optimizing CPC refers to looking at both the cost and value of the click. Paying less per click doesn’t mean you are getting quality traffic that converts. If you have a conversion rate of 1% with $1 average CPC and a conversion rate of 2.4% with an average CPC of $1.7, you should go with the higher CPC.
Low CPC is ideal as long as it is bringing quality traffic. Here are a few best practices to optimize and reduce CPC:
Improve Google Ads Quality Score
The first thing you must do is improve your quality score. When your quality score for Google Ads goes past 6, it decreases your CPC by 50% and cost per action by 80%:
The higher your quality score, the better. How to improve ad quality score?
Google Ads uses three variables to determine quality score:
- Ad CTR
- Ad relevance
- Landing page relevance.
Your ad must be relevant to the search query, your landing page must be relevant to the ad and search query, and your ads must have a higher than normal CTR.
Do these three things to increase quality score and reduce CPC.
Competitor bidding and ranking is a key factor in determining your actual CPC. This means adjusting your bids to reduce competition can help you pay less per click.
For example, you can target specific locations, devices, days of the week, etc. Not all marketers adjust their bids according to these variables. They go with the default settings.
Tweak your ad settings to optimize CPC.
For example, if a location has a high CPC, pause it. And target another location with a low CPC where competition isn’t as fierce. This, of course, requires a lot of testing and tweaking.
Avoid Tracking CPC Alone
Cost per click alone doesn’t show the complete picture. You need to use it with traffic quality and conversion rate. If the value of traffic declines with a decline in CPC, it isn’t worth it.
Getting hundreds of clicks for pennies that don’t convert is a waste of money.
Avoid treating CPC as a standalone metric.
Use it with other metrics to see the whole, clear picture.
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