How To Calculate CPC: What You Need To Know About Paid Search

Posted on December 1, 2023 | Updated on December 1, 2023

When it comes to pay-per-click (PPC) advertising, there are a few things marketers need to pay attention to. One vital component is the cost per click of a campaign. Learn how to calculate CPC, how it works and a few best practices you can follow. Here is everything you need to know about cost-per-click campaigns.

What Is Cost Per Click?

CPC is a concept within paid advertising. It indicates what a marketer paid for a single visitor click. In a PPC campaign, every time a visitor clicks on an ad, the marketer would need to pay a certain amount.

CPC works with an auction system. The advertiser bids on specific keywords their target audience would use and then pays for it as soon as someone clicks on it. This is where the cost per click comes in. It is the amount one click costs the marketer.

As mentioned, the cost per click of a campaign is a key factor advertisers need to pay attention to. It shows them whether their ad is performing well and is worth the investment.

How Much Does a Click Cost?

The exact cost of a click depends on the amount the marketer is willing to pay. While the concept of CPC is very simplistic, there are a few factors that can influence the price. Here is a summary of a few components that can affect CPC:


  • Bid amount: The bid amount is the most apparent component influencing the CPC. How much it affects the CPC depends on a few other things. It is the amount the marketer is willing to pay.

  • Quality score: All ads receive a quality score that affects the CPC. Google calculates the score by looking at landing page experience, ad relevance and click-through rate.

  • Ad rank: Ad rank refers to the position where the ad will be displayed on the page. It is worth mentioning the position of the ad will have a significant impact on the campaign’s click-through rate.

  • Industry difficulty/competitiveness: If the keyword is very competitive and many people want to rank for it, it could affect the CPC price. In other words, if the keywords have a lot of competition, the CPC would be higher.

  • Time of year (The season): Time of year can have a massive impact on CPC. For example, the keyword Christmas will cost more in December times than it would in February.

How To Calculate CPC

How to calculate CPC is an essential part of paid advertising. Calculating CPC is a straightforward process. The formula involves dividing the total cost of an ad by the amount of visitor clicks the campaign received.

Here is a quick summary of calculating CPC:

Formula:
CPC = total cost / total clicks

Example:
A marketer paid $200 for a campaign that obtained 600 clicks. They would take the $200 and divide it by the number of clicks the campaign received — in this case, it was 600. The calculation is as follows: $200/600 = CPC of 0.33 cents.

What Is a Good Cost Per Click to Aim For?

A good CPC depends heavily on the service or product the marketer advertises. The general rule is to look at the return on investment (ROI) you want to receive.

If the ROI the marketer obtains is too low or results in a loss, then the CPC is too high. Most businesses try to reach a revenue-to-ad ratio of 5:1. In other words, every dollar they spend on their advertisement campaign brings in an additional five dollars as profit.

This is an excellent ratio to aim for. It is always a great idea to conduct some research beforehand to see the average CPC of a keyword. Many tools can help with this, such as Google Keyword Planner or SEMrush.

Can You Lower Your CPC?

Yes, you can lower your CPC. Here are a few things you can do to help you achieve this.
The best thing you can do to improve your CPC is to focus on increasing your quality score. As mentioned, Google calculates your quality score and involves three vital components.

  • Ad relevance: It refers to how closely the advertisement matches a user’s search intent. In other words, how closely your ad resembles the concept the visitor was looking for.

  • Click-through rate (CTR): CTR refers to the amount of people who viewed the marker’s ad and decided to click on it.

  • Landing page experience: Generally, this refers to a measurement that showcases how relevant the landing page is to the user who clicks on it.

To effectively increase your quality score you should focus on all three points.

How To Improve Ad Relevance

The main priority with ad relevance is to make your advertisement clearly satisfy user intent. To help with this, consider the keyword match type you use, which can have a massive impact. Generally, it is better not to use broad match types as these might not reflect what the user is looking for.

How To Improve Click-Through Rate

Here are a few factors marketers can focus on to help improve click-through rates:

  • Write compelling copy that matches user intent.
  • Clearly indicate perks in the advertisement. For example, the company provides a 15% discount on select orders or the business offers free shipping.
  • Add additional information and elements to the ad. For example, a button that directly calls the company.
  • When it comes to marketing in general, call-to-action is vital. Add a strong and compelling CTA to your campaigns.

How To Improve a Landing Page

Here are a few factors to consider that can help improve a landing page:

  • Prioritize user experience: Ensure the landing page is well designed and that whatever the visitor seeks, they can find easily.

  • Relevancy: When someone clicks on an ad, they should be directed to a landing page that reflects the topics they are interested in. Focus on relevance and ensure the page you send them to matches their search intent.

  • Strong and easy-to-understand copy: The copy on the landing page needs to explain in basic terms what the site is about. The visitor should not struggle to understand the content on the landing page.

CPC Best Practices

Here are a few best practices marketers can use to get the most out of their cost-per-click campaigns:

  • Perform adequate keyword research: Take your time researching keywords to determine which ones users are searching for that clearly match your ad.

  • Negative keywords: Using negative keywords will better ensure that your ad only shows up for the keywords you are targeting. In other words, it aids with clearly matching the search intent of users and doesn’t display the ad to people that had a similar keyword.

  • The power of longtail keywords: The great thing about long-tail keywords is that they are cheaper and more specific. While the search volume is generally lower, it is less competitive and is an effective way a business can send traffic toward a site.

Learning How To Calculate CPC For Successful Campaigns

Anybody considering going into paid advertising should know how to calculate CPC. It can showcase the effectiveness of their campaign and provide them with an indication of whether it is worth the investment.

To lower the price of the advertisement’s CPC, ensure you focus on improving your quality score, use negative and long-tail keywords. With a well-planned approach, you can obtain the closest CPC that helps your marketing efforts achieve the best results for a successful campaign.


About The Author

Eleanor Hecks is the Editor-in-Chief of Designerly Magazine, an online publication dedicated to providing in-depth content from the design and marketing industries. When she's not designing or writing code, you can find her re-reading the Harry Potter series, burning calories at a local Zumba class, or hanging out with her dogs, Bear and Lucy.

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