A Beginner’s Guide to Understanding Cost-Per-Click

Cost-per-click (CPC) is a pricing model used in online advertising where the advertiser pays a fee each time one of their ads is clicked. CPC is a popular pricing model because it aligns the interests of the advertiser and the publisher since the publisher is only paid when a user takes a desired action (clicking on the ad).

When deciding on a CPC campaign, it’s important to understand the potential costs and how to manage them. In this beginner’s guide, we will discuss the basics of CPC and how to effectively use it in your online advertising efforts.

Types of Advertising Pricing Models

First, it’s essential to understand the difference between CPC and other pricing models such as cost-per-impression (CPM) and cost-per-action (CPA).

CPM is a pricing model where the advertiser pays a set fee for every 1,000 times their ad is shown, regardless of whether or not the ad is clicked. On the other hand, CPA is a pricing model where the advertiser pays a set fee for a specific action (such as a sale or lead) generated from their ad.

CPC is generally considered to be the most cost-effective pricing model for advertisers, as they only pay when a user takes a desired action (clicking on the ad). However, it’s important to note that CPC campaigns can be more expensive in the long run if the ad is not optimized for conversions, as the advertiser will continue to pay for clicks even if they don’t result in any desired actions.

Factors that Determine Ads CPC

Using the Eye10 Keyword Planner, you can easily see an aggregated CPC for various keywords, depending on your search.

Looking at the screenshot below, it looks like the CPC is arbitrary, and it might be confounding that “hubspot academy” which has a higher search volume than “content strategy” has a much lower CPC ($4.61) compared with the latter ($61.49).

Does that mean the CPC is arbitrarily determined? Definitely not.

While Eye10 offers you an aggregated score that gives you an idea of what to expect when planning your campaign in Google Ads, creating your ad is a different experience. This is because you will find out that the CPC varies based on a combination of certain factors. And some of these factors are discussed below:

1. Advertiser competition: The more advertisers compete for a specific keyword, the higher the CPC will be.
2. Keyword difficulty: Besides the ad competition, keywords with higher search volumes bring more visibility and therefore, are more difficult to rank for. They also come with higher CPC. The Eye10 Keyword Planner also shows you the monthly search volume for each keyword.
   
3. Keyword relevance: Keywords that are more relevant to a user’s search query will typically have a lower CPC, as they are more likely to result in a click and conversion.
4. Quality Score: Google uses a quality score system to determine the relevance and quality of an ad, landing page, and keyword. Ads with higher quality scores will typically have a lower CPC.
5. Industry and business size: Some industries and businesses will typically have higher CPCs than others. For example, keywords in the legal or insurance industries tend to have a higher CPC than keywords in the retail industry.
6. Ad format: The type of ad format you choose can also affect the CPC. For example, Google Shopping ads tend to have a higher CPC than text ads.
7. Location and language targeting: Ads that are targeted to specific locations or languages will typically have a higher CPC than ads that are not targeted.
8. Ad schedule: The time of day and day of the week when your ads are shown can also affect the CPC. Ads shown during peak hours or on weekends tend to have a higher CPC than ads shown during off-peak hours or on weekdays.
9. Device targeting: Advertisers can also choose to target specific devices, such as desktop or mobile. The CPC will vary depending on the device type.

By understanding these factors, advertisers can make informed decisions about their ad spend, targeting, and bidding strategies to optimize their campaigns for the best ROI.

Additionally, by monitoring and analyzing the performance of their campaigns, advertisers can make adjustments to improve their ad relevance, quality, and targeting to lower CPC and improve the performance of their campaigns.

Managing your CPC Bids and Ad Budget

To effectively manage the costs of a CPC campaign, it’s important to set a budget and track the performance of your ads. This can be done by using tools such as Google Ads and Meta Ads, which allow you to set a daily or monthly budget and track the performance of your ads in real time.

Start with an overall budget for the entire ad campaign and then break it down into individual campaigns for each type of ad for greater effectiveness.

On Google, the two most common types are Search Ads and Display Ads. Search Ads target users who are actively searching for specific keywords, while Display Ads are targeted to users based on their interests and browsing habits. Regardless of which type you are targeting, Google search queries are an important measure of interest in a product or service.

Therefore, before setting your ads, you may research using a tool such as the Google Keyword Planner for relevant keywords that you can then integrate into your social media ad strategy. If you already use Eye10, keyword suggestions from the Google Keyword Planner are integrated into your results at no extra cost.

Moving on, your ad budget should be set to align with the expected return on investment (ROI) from the ad campaign. Advertisers will typically set a CPC bid that is lower than the expected revenue generated from a click, in order to ensure a positive ROI.

Determining the expected return on investment (ROI) from a CPC campaign can be done by calculating the expected revenue generated from a click and comparing it to the cost of the CPC bid. This can be done by using the following formula:

Expected ROI = (Expected Revenue per Click – CPC) / CPC

By the way, to calculate the expected revenue per click, you will need to know the average conversion rate for your website and the average revenue generated from a conversion.

Conclusion 

One effective way to manage the costs of a CPC campaign is to optimize your ads for conversions. This can be done by testing different ad copy, images, and targeting options to see which ones result in the highest click-through rates and conversion rates.

It’s also important to regularly review the performance of your ads and make adjustments as needed. This may include pausing underperforming ads, increasing the budget for high-performing ads, or adjusting targeting options to reach a more relevant audience.

Having a useful tool that generates insights on your ads and keywords remains highly crucial. For only $39/month, you can get started with the Eye10 Keyword Planner to strategize your ad campaign, and you would also get access to other tools for competitor research, monitoring backlinks, on-page SEO, and more.