What is Cost Per Click in Advertising: CPC Formula and Calculation

On average, companies spend 7-10% of their income on advertising, particularly CPC advertising. If you set up your ad campaign correctly, it can attract many leads in a short period.

Different advertising platforms like Google Ads, Facebook Ads, and Amazon Ads use CPC to charge advertisers. The CPC rates can vary significantly across these platforms and fluctuate over time.

In our article, we will talk about how to get the most out of CPC advertising campaigns.

Note: This post was originally written in 2020 and was completely revised in July 2024 for enhanced clarity and comprehensiveness.

CPC (cost per click) is a type of paid advertising where an advertiser pays for an ad click made by a user. It’s a way to quantify the cost of driving traffic to a website via pay-per-click (PPC) marketing campaigns. Advertisers use CPC to assess the efficiency and cost-effectiveness of their online advertising efforts, optimizing their ad spending to achieve better returns on investment by targeting specific audiences and keywords.

To calculate the cost per click, you divide the total cost of an ad by the total number of clicks. Cost per Click formula: CPC = ad cost/number of clicks

CPC-based ads: If you’re an advertiser, you pay for every click on your ad on another website that guides visitors to your website. For example, you place an ad banner on a popular website or run an ad on a search engine and social networks.

When delving deeper into CPC, several related metrics are essential for advertisers to monitor. The actual cost per click (CPC) is the amount an advertiser is ultimately charged for a click, which is often lower than the maximum bid set. This actual cost depends on factors such as bid amount, ad quality, auction competitiveness, and search intent.

This metric offers a broader view by calculating the mean expense for each click across all ads. It's determined by dividing the total cost of clicks by the total number of clicks received.

Average CPC = Total Cost of Clicks / Total Number of Clicks

Max CPC is the ceiling amount an advertiser is willing to pay for a click. It's a way to control spending, ensuring that the cost for a click never exceeds a predetermined value. While Google might suggest starting with a Max CPC of $1, the ideal amount varies based on the ad's value to the advertiser and the competition for keywords.

This bidding strategy, known as manual CPC bidding, allows advertisers to set their maximum cost per click for individual ads and keywords. It contrasts with automated bidding strategies, offering more control over ad spend but requiring more attention and adjustment based on ad performance.

ECPC represents an automated bidding approach that modifies your manual CPC bids to optimize conversion rates. It's available for ads on Google's Search and Display Networks and aims to offer the best of both worlds: the control of manual CPC with the optimization of automated bidding. ECPC adjusts bids in real-time, increasing them for clicks likely to lead to a conversion and lowering them for those less likely.

Automated bidding in Google Ads uses algorithms to adjust your bids in real-time, enhancing ad performance towards specific goals such as more clicks or conversions. This approach automatically increases bids for competitive keywords to improve ad visibility and potential success, aligning with your campaign objectives efficiently.

CPC, or Cost Per Click, stands as a pivotal metric within digital advertising, directly influencing an advertiser’s budget and the performance of their campaigns. By understanding CPC, advertisers can gauge the cost-effectiveness of their ads, enabling them to allocate their budgets more efficiently. A lower CPC means more clicks for the budget, potentially increasing the campaign’s ROI.

Analyzing CPC helps in assessing the efficiency of ad campaigns and optimizing ad strategies. Additionally, analyzing CPC helps optimize ad strategies, such as refining target keywords and improving ad quality, to achieve better engagement rates and lower costs, ultimately driving more value from advertising efforts.

Cost-per-click (CPC) advertising encompasses a wide array of digital marketing campaigns, leveraging various ad formats to engage audiences across different platforms. CPC is also used to gauge the performance of mobile advertising campaigns across various platforms such as Google Search and Display Ads, Facebook and Instagram Ads, and Amazon Ads. Here’s an elaboration on the types of ads involved in CPC:

1. Text Ads: These are straightforward, text-only advertisements commonly used in search engine results. Despite their simplicity, text ads are highly effective for targeting specific keywords and reaching users actively searching for related information or services.
2. Shopping Ads: Specifically designed for the retail sector, shopping ads showcase product listings directly in search results. This format particularly benefits e-commerce businesses looking to drive direct sales from search engines.
3. Image Ads: Utilizing visual elements, image ads grab attention and can convey a message quickly. They’re versatile, appearing as banners, display ads on websites, or sponsored content on social media platforms.
4. Video Ads: Video advertisements are captivating and can be positioned before, during, or following video content across platforms such as YouTube. They’re effective for storytelling or demonstrating products in action, offering a dynamic way to capture interest.
5. Social Media Ads: Platforms like Twitter, Facebook, Instagram, and LinkedIn offer CPC advertising options tailored to their environments. These can range from promoted tweets on Twitter to sponsored posts on Facebook and LinkedIn, each allowing for targeted campaigns to engage their respective audiences.
6. LinkedIn Ads: Geared towards professionals and enterprises, LinkedIn ads offer targeting options based on job titles, industries, and professional interests. This platform offers various ad formats, including sponsored content and direct InMail messages, suitable for B2B marketing strategies.

Each ad type leverages the CPC model to different extents, offering advertisers flexibility in how they engage with their target audience. Whether through direct product ads, engaging video content, or targeted social media posts, CPC advertising provides a cost-effective way to drive traffic and conversions, paying only when users interact with the ads.

This versatility makes CPC a cornerstone of digital marketing strategies, adaptable to various goals, from increasing brand awareness to driving sales.

CPC advertising operates under two primary models: a fixed price per click and a bid-based price per click. In the fixed-price model, the advertiser and publisher agree on a set price for each click beforehand.

Advertisers can set the maximum CPC and access Quality Score metrics through their Google Ads account. The most popular form is the price per click based on the bid. With this model, the advertiser sets the maximum price for a click he can afford. The higher your bid and the quality score of your landing page are, the more likely your ads will be shown to the audience.

By the way, the average click cost varies by industry and type of business, as it depends on the competition. For example, for companies that promote a product in law, insurance, or financial services, a click costs more because of the competition in these niches.

Each time an ad is shown, the system starts an internal auction and displays ads that have passed quality control and have a sufficiently higher bid.

Then, your ad is displayed each time a user enters a keyword that matches your predefined keyword list. You don’t pay every time an ad is shown; you only pay when the user clicks your ad.

If you prefer to use a banner CPC ad, the principle remains the same. Your ad is displayed, but you only pay when the user clicks on it. It’s an excellent way for companies to control their advertising budget and evaluate the reaction to their advertising campaigns.

Increasing the efficiency of a PPC campaign leads to

1. CTR growth;
2. Lowering of price per click (PPC);
3. ROAS growth.

Cost per click (CPC) is a valuable pricing model for measuring the performance of ad campaigns, especially for conversion campaigns over brand awareness campaigns.

Lowering your Cost Per Click (CPC) is important for maximizing the efficiency and return on investment (ROI) of your pay-per-click (PPC) advertising campaigns. Here’s a more elaborate explanation of strategies to reduce CPC:

1. Improve Your Quality Score: Google assesses a Quality Score for each of your ads, gauging its relevance to the user, expected click-through rate (CTR), and landing page quality. A superior Quality Score may result in reduced CPCs, as Google favors ads offering excellent user experiences. Enhance your Quality Score by ensuring ad relevance to target keywords, crafting compelling ad copy to boost clicks, and optimizing landing pages for relevance and user utility.
2. Utilize Long-Tail Keywords: Long-tail keywords are characterized by their specificity and lower frequency compared to short, broad keywords. They are often less competitive and cheaper to bid on, yet they can attract more qualified traffic. By targeting long-tail keywords, you can lower your CPC while maintaining or even improving the quality of traffic to your site. Use keyword research tools to identify long-tail opportunities that are relevant to your business and audience.
3. Implement Negative Keywords: Negative keywords function to prevent your ads from displaying for searches that lack relevance to your products or services. By carefully selecting negative keywords, you can reduce wasted spend on irrelevant clicks, thereby lowering your overall CPC. Regularly review search query reports, identifying irrelevant terms that trigger your ads and adding them as negative keywords.
4. Ad Scheduling (Dayparting): Ad scheduling permits you to display your ads during particular times throughout the day or on designated days of the week. Analyze your campaign performance to identify when your ads will most likely convert and adjust your ad schedule accordingly. By focusing your budget on these peak times, you can improve your ad efficiency and potentially lower your CPC.
5. Geo-Targeting: Geo-targeting enables you to show your ads to users in specific locations. You can allocate your budget effectively by targeting regions where you know your audience is more engaged or more likely to convert. This targeted approach can lead to a lower CPC by reducing competition and increasing relevance.
6. Keyword Match Types: Experimenting with different keyword match types (broad, phrase, exact) can help you find the most cost-effective approach for your campaign. Broad match keywords offer the widest reach but may include irrelevant traffic, leading to higher CPCs. Phrase and exact match types provide more control, potentially lowering CPC by targeting more qualified searchers.
7. Device Adjustments: Different devices can have varying levels of engagement and conversion rates. By analyzing performance across devices, you can adjust your bids to favor the devices that convert best or offer the lowest CPC. For example, if mobile users are less likely to convert, you might lower your bids for mobile devices to allocate more budget to desktop or tablet users, which could lower your overall CPC.
8. Landing Page Optimization: The experience users have after clicking your ad significantly impacts your Quality Score and CPC. Make certain that your landing pages align closely with your ad copy and keywords, load promptly, and feature a distinct and persuasive call to action (CTA). A well-optimized landing page can improve your ad's performance, leading to a higher Quality Score and lower CPC.

By implementing these strategies, advertisers can work towards lowering their CPC, thereby making their PPC campaigns more cost-effective and improving their overall ROI. Remember, the goal is not just to lower CPC but to do so in a way that maintains or improves the quality of traffic to your website, leading to more conversions and a successful advertising campaign.

To reduce the price per click for your ads campaign, you should try to:

1. Make your ads relevant to your campaign and switch to manual bids: It helps you prioritize keywords that convert better.

2. Use remarketing and segmented lists: Keep those users who have already clicked on your ad. They become interested in your product, and with the help of remarketing, you can bring them directly to the purchase.

3. For maximum coverage, you should adjust bids based on location, devices, and time periods: Every PPC advertiser focuses on lowering the price per click and increasing the number of people who view the ad, click on it, visit the landing page, and convert — and you also have to track everything. Analyze, identify, and focus on what works best.

You should add UTM tags to your ad links and set up cost data import to see campaign information from different advertising services in Google Analytics 4 reports.

After that, you can measure the effectiveness of different advertising channels by comparing their clicks, impressions, costs, CTR, CPC, and ROAS.

Also, you can try cost data import from 15 advertising systems for free, including Facebook, Instagram, AdRoll, Trafmag, Microsoft Ads (formerly Bing Ads), Twitter Ads, Sklik, Outbrain, Yahoo Gemini, and Hotline.