Cost per click (CPC), also known as pay per click (PCP) is a term in paid advertising where an advertiser pays a cost to a publisher for every click on an ad. In simpler terms, CPC bidding means that you pay for each click on your ads.
CPC helps determine costs of showing users ads on social media platforms, search engines, AdWords, and more.
Why is CPC so significant? It’s an important factor in coming up with various bidding strategies and conversion bidding types. This helps maximize clicks in addition to a business’s to budget size and target keywords.
How Is CPC Calculated?
Cost per click is calculated by dividing the cost of a paid advertising campaign by the number of clicks. If you want to use a popular online advertising tool like Google AdWords and bid on keywords in order to display paid ads, these tools will often show CPC for target keywords.
A fun formula to make it easy for you to determine is listed below:
Cost per click = Advertising cost / number of clicks
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.
What determines your actual cost per click? In addition to considering your competitors, there are three things to consider:
- Ad rank
- Max bid
- Quality Score
How CPC Works
For CPC bidding campaigns, you set a maximum cost-per-click bid - or simply "max. CPC" - that's the highest amount that you're willing to pay for a click on your ad.
- Your max. CPC is the most you'll typically be charged for a click, but you'll often be charged less. That final amount you're charged for a click is called your actual CPC.
- If you enter a max. CPC bid and someone clicks your ad, that click won't cost you more than the maximum CPC bid amount that you set.
The Importance of Cost Per Click in Search Advertising
CPC is important because it’s the number that is going to determine the financial success of your paid search engine marketing efforts.
How can you determine your ROI? There are two things to consider: 1) how much you are paying for clicks and 2) 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.
Ads Involved In CPC
There are a variety of text, rich-media or social media ads that use CPC as a factor in calculating total paid advertising campaign costs.
Some ad types are only displayed on certain networks, such as the Google Search Network (ads at the top of Google’s search engine result pages) and Display Network (Google-owned or partnered sites like YouTube and Gmail).
CPC is important in ad types including:
- Text ads
- Image ads
- Video ads
- Facebook ads
- Instagram ads
- LinkedIn ads
- And more!
When you measure CPCs, you’re attracting more customers to your site and/or store. You’re contributing to an effective marketing funnel you didn’t even know you had. You’re paying publishers to display ads where your target audience is more likely to visit. You’re also able to compare the cost of paid advertising campaigns to generate revenue or other metrics once you calculate CPC.