What is CPC? (Cost Per Click)

Marketers often set target CPC rates for their campaigns to maximize the ROI of their spending. Likewise, it’s common for marketers to set a maximum CPC for their ads, which can be influenced by factors like relevance, placement on search engine results pages, and how many other brands are advertising for a given keyword. It’s a very common metric that is key to understanding how pay-per-click campaigns fit into a larger marketing strategy.

CPC differs from CPM, or cost per thousand impressions, in that it measures individual ad clicks as opposed to views. CPC is generally more costly than CMP, but both offer valuable perspectives on digital marketing campaigns.

Why is CPC important in marketing?

When planning and budgeting for new ad campaigns, brands need benchmarks to guide spending and determine if campaigns are delivering value against the investment. Because CPC measures a concrete action—a click on an ad—it can also lead directly to revenue. Marketers use CPC to decide if the revenue they see from their campaigns is worth what they’re paying for the campaign.

How does CPC work?

Cost-per-click is defined by the ad publisher—that is, whoever is placing the ads around the internet. Usually, it’s set by a formula the publisher has set or through an auction process in which advertisers bid on keywords. The more competition for a given keyword, the greater the CPC. Lower CPC means more clicks before the budget is spent, but it also may mean that a keyword has less search volume.

Brands set budgets at the start of their ad campaigns that determine how long the campaign will continue. When the funds are exhausted, the campaign will stop appearing for users until the next month. If a marketer knows the CPC of an ad, they can determine how much traffic they can generate with their budget.

Ideally, marketers strike a balance between low cost-per-click and keyword value. Knowing the average CPC within an industry can help marketers understand if they’re overpaying for clicks or if there could be gaps in the competition’s keyword strategy. If there are gaps, marketers could exploit them and achieve a lower-than-average cost.

Example of CPC

Let’s say that a brand is developing a new ad campaign that it plans to distribute through a third-party publisher such as AdRoll. Usually, a cost-per-acquisition in the area of 20% is considered ideal, meaning that brands typically want to make back five times in revenue what they spend on an ad.

This brand sells several variations on a product, all priced at $100. First, the marketer would determine a target CPC for the campaign based on how often, on average, a click turns into a sale, also known as conversion rate. In this case, we’ll say that the brand sees an average conversion rate of about 1%. Multiplying this percentage by the revenue generated per sale ($100 in this case) gives us $1. Taking 20% of that $1 leaves you with a target CPC of $0.20.

Generally, brands selling more expensive products can expect to pay a higher cost per click, since a single conversion can generate a much larger amount of revenue.

Here’s the formula for target cost per click:
CPC = (Revenue per Sale x Conversion Rate) x 20%

How do you decrease CPC in digital campaigns?

Obviously, a brand looking to maximize engagement and ROI would hope to pay a lower CPC for an ad that is capable of generating a sizable amount of web traffic. The lower the CPC, the more revenue a brand can hope to bring in from a campaign.

However, highly competitive keywords are expensive, and without a conversion rate that can match the investment, the campaign will end up losing money.

The most effective way to decrease the CPC on a keyword or ad is to improve the quality of the ad. Ads with higher quality scores on platforms such as Google Ads are assigned lower costs, while publishers can penalize low-quality ads with higher CPC rates. You can improve quality scores by focusing on relevant content and following the publisher’s best practices.

Another way to improve or decrease CPC is by refining campaigns to match more closely with search intent. Designating negative keywords for a campaign will help filter out low-quality clicks that count against your budget without being likely to deliver revenue. Marketing attribution can help marketers determine where their traffic comes from, revealing ads that don’t perform well. By eliminating ineffective ads and focusing on crafting campaigns that are highly relevant to consumers’ desires and search intent, brands can keep their cost-per-click rates low while bringing in higher-quality traffic more likely to generate revenue.