What is Cost-Per-Click (CPC)?

Measuring cost per click is like measuring the cost of gas...

Different cars on the market are going to require different amounts of fuel. When you buy a fuel-efficient car like a Prius, you’re going to get more miles per gallon, and therefore pay less per mile. But if you buy a big pickup truck, you’ll probably pay more to drive it. For someone looking to save money on gas, the miles per gallon is a good metric to pay attention to. Just like saving money on gas, companies running online ads generally want to get the lowest cost per click (CPC) so they get as many clicks as they can for their money.

Cost per click (CPC) is an advertising metric that refers to the amount a company pays for each click on one of its ads. Companies can use this metric to figure out how far their money was able to go on a particular marketing campaign. The lower the CPC, the more clicks an advertiser can get for its money. As a result, the company pays less for each potential customer. CPC often goes hand-in-hand with pay-per-click advertising, which is a model where companies bid on what CPC they’d be willing to pay on their ads and only pay for actual clicks. CPC is the preferred metric to use when a company is running an ad specifically to generate clicks. It’s calculated by dividing the total advertising cost by the number of clicks on the ad.

Google Adsense is a service that allows business owners and content creators to earn money by placing ads on their websites. Website owners can sign up for AdSense, and advertisers bid for ad placement on those sites. The service allows website owners to tailor the ads that appear. For example, a website geared toward youth may prefer to avoid ads for alcohol or dating services. Advertisers can have their ads appear on sites participating in Google AdSense by running campaigns through the Google Display Network, which is the program where companies sign up and pay to run website ads.

Google Ads, formerly known as Google AdWords, is an advertising service where companies can run ads to appear in Google search results. Google Ads runs on a pay-per-click model, meaning companies only pay when a user actually clicks on one of their ads.

Ad campaigns on the Google Ads platform are based on keywords. When someone searches on Google for the keyword an advertiser has specified in its ad campaign, the ad may show up at the top of that person’s search results.

Suppose you recently opened a new taco bar in Madison, Wisconsin, and you want to get the word out. You might run a campaign through Google Ads where you target the keyword, “restaurants in Madison.” That way, when people turn to Google to look for a place to dine out, they’ll come across your ad.

Cost per click (CPC) is the amount an advertiser pays for each click on a particular ad. To figure out the CPC of an ad, advertisers divide the total cost of an ad by the number of clicks the ad received.

CPC = Total Advertising Cost ÷ Clicks Received

Let’s say you run an advertising campaign to drive traffic to your new e-commerce shop. You decide to purchase $1,000 worth of online ads using Google Ads. After one week, 2,000 people clicked on your ad. Using the formula above, you can divide $1,000 by 2,000 clicks to find that your ad’s CPC came to $0.50.

A lower cost per click (CPC) generally means that you’ve spent less money on each click. Suppose you had a $500 budget to spend on search engine advertising. A CPC of $0.50 means 1,000 people clicked your ad. By contrast, a higher CPC of, say, $1.00 means that 500 clicked it. Assuming your conversion rate (meaning the number of visitors who actually buy your product or service) is the same in each instance, you may prefer the lower CPC to maximize the number of clicks you can get for your money.

In advertising, the average cost per click (CPC) is a figure that can vary widely depending on the type of ad and the industry of the company buying it. WordStream, a company that offers online advertising solutions, collected data in 2018 to analyze the average CPC across different industries. They found that the average CPC for search ads (meaning those that show up in search engine results) was considerably higher in each industry than those on the Google Display Network, the program that allows companies to display their ads on websites. According to the 2018 WordStream analysis, the average CPC for search ads was $2.69, while the average CPC for display ads was $0.63.

Search ads ranged depending on the industry, from an average CPC of $1.16 in e-commerce to $6.75 in the legal industry. For ads on the Google Display Network, CPCs ranged from $0.44 in the travel and hospitality sector to $1.49 for dating and personal marketing campaigns. That said, it’s important to take these numbers with a grain of salt. There’s no guarantee that every company will see the same results on their marketing campaign that another did.

Cost per click is one way of measuring the performance of an online marketing campaign by figuring out the total amount a company paid for each click on one ad. Advertisers use a few additional ways to measure an ad’s reach or success:

• Cost per mille (CPM), also known as cost per thousand, is another metric for deciding how cost-effective a marketing campaign was. But rather than referring to the number of people who clicked on an ad, CPM is a result of the number of impressions an ad received. CPM refers to the cost that an advertiser paid for each 1,000 impressions of an ad. An impression is anytime an ad shows up on a screen. Companies might use this metric when they’re trying to compare the cost-effectiveness of different advertising channels or when trying to get their ads in front of as many eyes as possible.
• Pay-per-click (PPC) is a model of online advertising where companies pay for each click they receive on an ad. When companies use this advertising model, they’re able to bid a particular amount they’d be willing to pay for each click. PPC is popular with advertising services such as Google Ads. Companies bid for a particular keyword. When someone types that keyword into Google, that person might see the company’s ad at the top of their search results.

Cost per click (CPC) can give advertisers more control over how much they spend on advertising — They get to decide the most they’re willing to pay for each click on an online ad. If a company is successful at turning their ads into customer sales, then CPC might help them control how much they spend on ads while attracting new revenue.

But the CPC may not always be ideal. First, there’s a level of expertise and hands-on work that often comes with managing pay-per-click ads, which are often the kind companies use when CPC is their primary focus. These ads will be more successful when managed by someone well-versed in online advertising.

CPC can also be a misleading metric to follow without more context, like the number of people who clicked on the ad, and the number of those who went on to buy what was advertised.

It depends on the advertiser’s goal. For some, CPC may be a valuable indicator of a marketing campaign’s performance. That said, CPC may matter less than other ad metrics, like the conversion rate of a campaign (meaning the percentage of people who click the ad and then buy what’s advertised), and the cost per acquisition (the amount a company pays to get each sale).

Suppose you run a marketing campaign with a budget of $500. You get far more clicks through to your webpage than you expected, and thus a lower CPC. But what the CPC doesn’t tell you is how many of those clicks resulted in sales. It’s possible that 1,000 people clicked on your ad, but only two of them made a purchase. In that case, your ad’s CPC might be $0.50, but your cost per acquisition was $250.