Cost-per-click (CPC), often also referred to as pay-per-click (PPC), is a very common term used in paid advertising. It is a bidding model which determines the amount of money that advertisers pay for their ads.
As the name suggests, CPC bidding means paying for each click an ad receives. For a CPC bidding campaign, you can set a maximum CPC bid, which is the highest you are willing to pay for a single click on your ad.
Calculating Cost-Per-Click
Calculating cost per click means dividing your total ad cost by the number of clicks your ad has received. For example, if you spent $500 in a day for 100 clicks, your CPC was $5.
Through CPC bidding, advertisers can set a maximum cost-per-click for individual keywords or from a campaign bidding strategy level. However, setting a maximum cost-per-click doesn’t necessarily mean that that’s the amount you’ll pay for each click. Many times, the amount paid may be lower and the final amount you pay for a click is called an actual CPC. You only ever pay the minimum required amount to beat your competitor’s Ad Rank.
Why Does CPC Matter?
The are many reasons why CPC is important. The CPC metric is a useful KPI that can help you:
- Plan and forecast estimated traffic depending on the budget you have.
- Understand your relative return on ad spend (ROAS) based on the budget you have and your CPC.
- Get insights on how your average cost-per-click compares to the market.
- Understand your relative ad strength.
You can see that CPC offers a lot more insights than just the number of clicks you get on your ads for your budget.
As far as ROAS is concerned, understanding CPC can be great for more accurate forecasts. For example, if your daily budget is low but you have a high CPC, that means that those clicks need to work a lot harder to reach your target ROAS. That means that your website or app UX needs to be optimized as best as possible to encourage more sales.
Another reason CPC is important is because it helps you better understand how competitive you are in keyword auctions. If you’re consistently getting low clickthrough rates (CTR), a main reason could be that the maximum CPC you set is less than your competitors’.
CPC can also influence your ad strength and ad rank. If your ad copy is excellent and your UX is stellar but still have a low CTR, the culprit may be a low maximum cost-per-click.
While it shouldn’t be your marketing campaign’s main KPI, cost-per-click is a great indicator of existing competition and future performance.
Setting a Good CPC
The definition of a good CPC depends on several factors such as:
- device type
- industry
- competition
- keyword match type
- ad rank
- brand vs. non-brand keywords
First off, you need to keep in mind that different industries have different ideal CPCs. For example, an early 2022 study by Wordstream showed that attorneys and legal services had a $8.67 average CPC, the highest among all industries. On the other end of the spectrum, real estate had an average CPC of $1.36.
Competition is a very important factor when determining a good CPC. Normally, the higher the competition on a given keyword, the more you’ll pay for clicks. Conversely, if the competition is low, you can expect to pay less for clicks.
Another thing to consider are whether your targeted keyword is a brand or a non-brand keyword. For example, if someone’s searching for your brand, your CPC should be significantly lower than it is for other, non-brand keywords.
When bidding on your brand, your ad rank should be at its highest, which also contributes to a lower CPC. When bidding on non-branded keywords, it’s natural to have a higher CPC because of the competitiveness of those keywords.
Ad Platforms that Use CPC Bidding
Most ad platforms nowadays use CPC bidding, with the most common being search platforms like Google and Bing.
While these platforms offer CPC bidding, they also have automated bidding strategies which encompass a maximum cost-per-click bid. Automated bidding strategies are great for taking the busy work out of individual keyword bid management.
Using these platforms’ algorithms allows you to increase or decrease your bids automatically based on each keyword’s likelihood to convert users.
Other platforms that offer CPC bidding include:
- Snapchat
- TikTok
CPC vs. CPM
CPM (cost-per-mille or cost-per-thousand impressions) is another standard model in advertising where advertisers pay per 1000 impressions.
CPM bidding differs from CPC bidding because it focuses on views and impressions. With CPM bidding, advertisers are more focused on ad reach instead of traffic.
CPM bids tend to be lower than some CPC bids because they are mostly used in display networks and for a broader reach on social media platforms. CPM bidding is great for keeping costs down but at the same time reaching a large audience.
If your campaign’s main goal is awareness, CPM bidding would be the way to go.
Final Thoughts
Understanding what cost-per-click bidding is and how it works is essential to your PPC campaign’s success.
Furthermore, while manual CPC is always an option, automated bid strategies can significantly improve your ads’ efficiency while still keeping your costs manageable.
