What is CPC?
It’s a common question, and the answer could have a major effect on your ad strategy.
In this article, I’ll explain exactly what CPC is, how it’s determined, and how you can lower your CPC and still maintain quality clicks.
What You’ll Learn:
- What is CPC?
- How CPC is determined by network:
- How to lower your CPC while maintaining value
- Examples of PPC ads and how much it costs to run them
As the world of online business grows, so does the need and industry of online advertisements.
What is CPC?
The term CPC stands for cost per click.
Essentially, it is a method of billing that companies use to place online ads on various sites. However, the definition can be muddled a bit because the term is often used synonymously with PPC.
Therefore, to understand CPC in its fullest, it is best first to know a few things about PPC advertisements and how they work.
When you run an ad in the newspaper, on TV, or a billboard around town, there is a price to take up that space. The same goes for when you put advertisements on websites online; you have to pay for that space.
This is usually done by one of two ways: CPM or PPC.
CPM, or cost per thousands, represents the number of impressions (viewers) in thousands that your ad receives, regardless of how many times it was actually clicked on.
However, with this model, if your ad runs on a well-frequented site, you could be charged thousands without anyone actually paying attention to or clicking on your specific ad.
In contrast, the PPC method only charges you, the advertiser, for how many clicks your ad receives. This is exactly why PPC is so often preferred.
What is CPC: CPC in Detail
The cost per click, or CPC, is the actual price paid each time someone clicks on one of those PPC ads or banners.
Most often it is used when advertisers or companies have a specific budget, usually a daily or monthly one.
For example, let’s say you use a network that charges $1 per click, and your daily budget is set to $1000. That would mean that you could get no more than 1000 clicks per day. After that number has been reached, the website your ad is appearing on will simply remove your ad for the remainder of the day.
Each click is a visit or type of communication with your website, landing page, or company product and shows how much attention your product or site is getting from the public.
When you invest in a PPC campaign of any kind, it is this attention you’re buying. Which means the cost per click is pretty significant. If you’re paying too much, the return on investment (ROI) will not be worth it and cause you to lose money instead.
However, underpaying is possible too. At first, it may seem like that means you are saving money. But just like most things, you get what you pay.
Paying less than average may seem ideal, but it may not be identifying and targeting clicks that are valuable to you. The key is to find clicks that are both of guaranteed quality and inexpensive.
How CPC is Determined and Calculated for each Network
The CPC is the amount that is paid to a website publisher when a paid advertisement is clicked on.
However, most publishers use a third party to match and connect them to advertisers, such as yourself.
These third parties or networks, in contract with the publisher, determine how the CPC is calculated and those networks also get a cut of the CPC.
To fully answer the question of what is CPC, we need to take a look at each network on an individual basis.
Google and quite a few other networks use a bidding process to establish CPC. When you begin advertising with them, you will bid on how much you are willing to pay per click on ads with specific keywords.
Google then matches your ad and that keyword to a publisher. The more valuable the keyword and the higher the amount of traffic a website has, the higher the CPC will be.
Google is, by far, the most widely used search engine in the world.
So, it stands to reason that their ad network Google Ads, which used to be called AdWords, would be at the top of the list when it comes to online advertisements. These ads may cost you more than Bing, but because they are seen more often, the chance of them being clicked on is typically higher.
Google allows you to place ads in search, on private websites, or both. If you run ads on a private site, Google only gets a certain percentage of the CPC. However, if your ad is in search, they get all of it, as there is no publisher or website to pay.
Google Ads uses the following equation to calculate CPC:
Using the formula, if you have a quality score of 6 and the competitor below you in ad rank has a 12, your CPC is $2.01 for that specific ad.
With Bing, the second largest search engine, you can post ads through Bing, Microsoft, Yahoo, and their search partners.
Unlike Google, Bing offers a bit more flexibility when it comes to scheduling, location targeting, and budget. However, it tends to have an older, more intelligent, and wealthier demographic or audience.
Because there isn’t as much competition on the channel, Bing is also able to give better ad positions for a lower CPC and typically have a higher ROI.
Bing also uses your quality score in relation to those who are bidding against you to give you an ad rank, which also determines where on the search results page your ad will appear. Bing then uses that ad rank to calculate your CPC for that specific ad.
Bing uses the following formula:
So, let’s say you have an ad rank of 6 in a particular auction, and the person right behind you in rank has an ad rank of 4. You have bid $2.
If we divide your competitor’s four by your 6 and then multiply that by two, you get a CPC of 1.33. Therefore, you will pay $1.33 every time someone clicks on that ad.
Facebook, as the most popular social media network in the world, is another top place to run PPC ads. It’s also one of the best places to do so if you want to sell products or services based on particular interests or demographics.
Facebook differs slightly from search engines on how they calculate CPC. While they still use an auction process, they do not consider quality scores or ad ranks.
Instead, they focus on the ad’s target audience.
Just like Google’s keywords, some target audiences cost more than others due to their popularity. They also figure in your budget or maximum bid, as well as the duration of the campaign.
Another important aspect of your Facebook Ad CPC is your ad relevancy score. Much like it sounds, this is a score your ad is given based on the relevancy or positive or negative feedback it is expected to receive.
Ads that are expected to be well-liked are given higher scores, as well as rewarded with lower running costs. As more and more people react to your ad, this score will continue to change based on those reactions, which can mean that your CPC is also continually evolving.
Facebook also gives you the option to set your CPC bids manually, instead of having the social media giant recommend or optimize it for you.
These are ads that look as though they part of a blog or private websites, but are actually advertisements. Outbrain and Taboola are a couple of the most popular native ad networks.
Google also has its own native ad entity call AdSense, but it works through Google Ads and runs the same campaigns. The difference is that it is primarily used by publishers to monetize their site, instead of by advertisers looking to sell products.
For most native ad networks, the formula used to calculate CPC is much less complicated than those used by search engines such as Google or Bing.
In most cases, when you begin a new campaign with them, you can simply input your CPC based on how much you want to spend per day or month, depending on how you set up your budget.
However, some networks, like Outbrain, also offer a competitive CPC and budget setting that will automatically change your CPC slightly to be more in line with your overall goals, based on the actual conversions you get and not just the clicks.
With this type of PPC ad, you are in much more control of your own CPC, which means you will need to pay very close attention to it. It’s also where you are more likely to underpay. So be sure to set your CPC high enough that it is competitive and getting the desired amount of traffic to be worth your while.
How to Lower Your CPC and Maintain Value?
As I mentioned above, the key to being successful with your PPC ads is to make sure you are paying the least amount possible per click while maintaining a high quality of clicks.
Here are a few ways to make sure you are doing just that.
Raise Your Quality Score
Some networks such as Google offer discount CPC pricing to PPC campaigns with high-quality scores.
This means your ads are well-managed, have high click-through rates (CTR), include text and landing pages that are specific to search goals, and have closely related ad groups.
Currently, campaigns with quality scores of six or higher can be given anywhere from 16-50% off their CPC. On the flip side, those with a score of four or below can actually be charged more.
For more on how to raise your quality score, read my full article here.
Refine Your Reach
It’s also vital to make sure that the keywords you’re using are not negatively affecting your campaign.
When you notice an ad or ad group using a specific keyword isn’t performing well, make sure to eliminate that word or term from future ads.
You can then add these words to your negative keywords so that traffic that’s unlikely to convert won’t be sent to your ad.
Expand Your Reach
But just as you cut out keywords that could negatively affect your CPC, you must also add new keywords and find new advertising opportunities. Make sure only to include the most relevant and valuable terms.
What is CPC: Examples of PPC Ads and How Much it Costs to Run Them
Now let’s look at a few examples, just to show exactly how much using a specific parameter can matter.
These are all from Google Ads, where the importance lies in the keywords used, as opposed to Facebook, which puts more emphasis on the target audience.
The following are a few good cases of PPC ads and information on how much it costs to run them according to their CPC and keyword.
This PPC ad for paint company BEHR uses the keyword “paint color” and has a CPC of $2.15. And since BEHR has a high ad rank and quality score, their ads can be found on the first page very near to the top, which helps ensure that they get the maximum exposure and number of clicks each month.
According to SpyFu, this ad gets about 68,300 clicks every month, costing BEHR around $147,000 per month.
This ad, in comparison to the one above, is much more expensive to run.
Here SimpliSafe has used the keyword “home security systems.” The ad also shows in the number one ad position above the search results, which means that they have a high ad rank and quality score.
And yet, according to SpyFu, this ad’s CPC is $17.45, significantly more than that of the ad above. This means that the keyword is a trendy one and is in high demand. There are approximately 135,000 searches for this keyword a month.
However, it has a lower click rate than BEHR’s use of paint colors, with only 43,100 actual clicks, costing SimpliSafe about $752,000 a month for this ad campaign.
We also have to keep in mind the industry that it comes from, as home security tends to be a more expensive one compared to paint.
SpyFu also shows that if they use a keyword that is much more company-specific, say a well-known competitor like ADT, the CPC goes way down to about $7.63. But that keyword was searched for nearly five times more.
Harry’s used the keyword “shave club” in this ad.
It placed third on the search results list and had a CPC of $5.48 for a monthly total of 6,670 clicks and $36,600. It was searched for 27,100 times a month as well.
But let’s look at another one of Harry’s other ad campaigns that uses a more limiting keyword:
This one uses “harrys” as the keyword, which will limit the results significantly to their brand.
The use of this keyword places the ad at the very top of the page, as well as lowers its CPC to only $0.92. This keyword was searched for 550,000 times a month and got clicked on 7,870 times, giving it a monthly total of $7,250.
So even though it was searched for more often and had more clicks, Harry’s only paid a fraction of what it did for another keyword.
Once again, the industry is essential to take note of. This one isn’t nearly as lucrative as the former ad’s, and so the average CPC for it is much lower.
You can see from these examples that while the ads all look similar and appear to have high ad ranks and quality score with Google, they can differ significantly in cost to run.
Both industry type and keyword make a great deal of difference to the CPC and therefore, the cost of each campaign.
Wrapping Up What is CPC
Now, that you understand the basics of PPC ad campaigns and how much they can cost you based on the CPC, it’s time to get out there and begin creating advertisements that work for you and your business.
There are a lot of options out there, and only you will be able to fully determine how beneficial they will be.
Just remember, always keep track of your CPC and strive for it to be as low as possible while still being able to maintain high-quality clicks and values.