What Is Cost Per Click (CPC) And How To Calculate CPC

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Cost per click is a pay-per-click bidding model where you pay every time someone clicks on your ad. Your cost per click is how much you pay when someone clicks on your ad, and it gets calculated every time the PPC auction runs.

How Is Cost Per Click Calculated and How Does it Work?

The actual formula for cost per click in Google Ads is:

CPC formula

As an advertiser, your cost per click will always be less than or equal to your maximum bid, as it is an average of bids against a series of competitors over a period of time. Because of how Google’s ad auction works, your actual cost per click is heavily influenced by both you and your closest competitor’s ad rank, maximum bid, and Quality Score.

CPC price

Max CPC = The maximum price that you are willing to pay per click, set in your ads account.
Average CPC = The total cost of all of your clicks divided by the total number of clicks.
Actual CPC = The actual price you pay for a click.

Why is CPC important in marketing and advertising?

In advertising and marketing, CPC is vital because it helps you:

  • Understand what you’re spending to earn clicks on your ads
  • Compare how your ad campaigns perform against competitors
  • Recognize which ads, ad groups, or ad campaigns deliver the best ROI

Essentially, your CPC can serve as a thermometer for gauging the performance of your ads and your ad strategy. If you have an inflated CPC, that means you probably have room for significant improvements, like by improving your Quality Score or adapting your ad targeting.

What Is The Average Cost Per Click in Google Ads?

The CPC formula for calculating your average CPC is:

Total CPC / Total Clicks = Average CPC

Average CPC varies widely by industry and business type, but the average CPC across all industries is about $2. Below you can find average CPC benchmarks for 20 common industries in both search and display on AdWords.

If your average cost per click is higher than these benchmarks, you’re probably paying too much. Enter your CPC into the tool below to quickly see where you stand compared to other advertisers in your industry:

cpc

The Importance of Cost Per Click in Search Advertising

Cost-per click is important because it is the number that is going to determine the financial success of your paid search campaigns, and how much Google Ads will cost for you.

Your return on investment, whether you’re over- or underpaying for each action, will be determined by how much you are paying for clicks, and by what kind of quality you are getting for that investment.

Since the overall ROI of your campaigns is determined by how much you’re paying for clicks and the quality of traffic they’re bringing in, it is important to think about cost per click in terms of both cost and value. You want to identify and target clicks that are both inexpensive and valuable.

Lowering CPC While Maintaining Value

So how do you go about lowering the price you’re paying for each click, while sustaining (or even improving upon) the value of your visits? Two key paths of action come into play here:

Raise Your Quality Score – Google has created an automated system that offers pricing discounts to well-managed PPC campaigns with high Quality Scores. Currently, accounts with quality scores of 6 or higher (the average score today is 5) are granted a 16-50% decrease in CPC, whereas accounts with a 4 or lower Quality Score see a 25-400% increase in CPC!

CPC quality score

Boost your chances of a drastically discounted cost per click by adhering to Quality Score best practices:

  • Increase click-through rates (CTR) by creating compelling, relevant ads.
  • Build out closely related ad groups.
  • Optimize ad text and landing pages that speak to individual search intent.

Expand Your Reach – By discovering new, relevant and valuable clicks, the distribution of your budget will be improved substantially. To do this, you’ll have to find new PPC keywords and search advertising opportunities. But you can’t just expand without also paring back – you need to simultaneously eliminate irrelevant or overpriced clicks from your campaigns.

Refine Your Reach – Continually designating negative keywords in your Google Ads account helps to control your average CPC by filtering out traffic from searchers that are highly unlikely to convert. So as you add new keywords to your Google Ads account, be sure to eliminate the losers. When you target only keywords that perform well and are relevant to your business, it ensures that:

Your spend is protected – Lowering your cost per click isn’t useful if you’re paying low prices for irrelevant clicks. Negative keywords tell your PPC campaigns which terms not to target, therefore reserving your budget for relevant terms only.
Your Quality Score improves – If your keywords are clearly related to your ad text, landing pages, and offering, your click-through rate and other Quality Score factors will be positively affected. This gets you more cost-efficient clicks (remember, up to a 50% decrease in CPC!), and on search terms that are more likely to convert.

The Phasing Out of Cost Per Click in Google and Bing Ads

Historically, advertisers have had full control over the maximum CPC that they pay for ads and most campaigns were set up using a ‘manual CPC’ bidding strategy. However, PPC is no longer based solely on either a CPC or CPM (cost per thousand impressions) model.

We now see many types of different bidding strategies. These are just some of the more common ones, to name a few:

  • Manual CPC (manually setting maximum click costs)
  • Target CPA (bidding based on a target cost-per-acquisition)
  • Enhanced CPC (using smart bidding, Google will decrease or increase your bid based on conversion potential)
  • Target ROAS (bidding based on a target return on ad spend)
  • Maximize Conversion (bidding set to maximize the number of conversions for a budget)
  • Maximize Clicks (bidding set to maximize the number of clicks for a budget)
  • CPM Bidding (paying per thousand impressions)

You can learn more about the different bidding strategies here. It is important to know that you are no longer tied to only manual bidding and that there are a number of alternatives to help you to optimize your campaign costs.

What determines your CPC?

The following factors determine your CPC, whether you advertise on Google or Bing:

Max bid: Your max bid is how much you’re willing to pay when someone clicks on your ad.
Quality Score: Your Quality Score gets sourced from several elements, like your keyword relevancy, landing page quality, and click-through rate (CTR).
Ad Rank: Your Ad Rank comes from factors inside and outside your control, like the context of a person’s search, the quality of your ad at auction time, and your bid amount.

What is a good CPC for Google Ads?

To understand what makes a CPC “good”, it’s helpful to have some industry averages. Luckily, data is available for more than 10 industries, including business-to-business (B2B), ecommerce, and industrial services.

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