| 6 min read

How to Calculate CPC

Measuring what matters is important for a business. As human beings, we tend to positively influence the things we pay the most attention to. For businesses that advertise online, an important metric to pay attention to is your Cost Per Click (CPC). 

To make sure your ad shows up on relevant search engine results pages (on Google, for example), you participate in an auction and bid on specific target keywords. The amount  you bid is one of the things that determines where your ad will appear in the page results and where you appear influences the number of clicks you get.

Understanding the CPC helps determine whether your ad campaign is profitable for the product or service your selling or is costing you more than it’s worth. Fortunately, calculating Cost Per Click is pretty straightforward.

Cost Per Click Calculation

In a nutshell, the CPC calculation involves dividing the cost of an ad by the number of clicks it gets:

Ad Cost divided by Number of Clicks equals Cost Per Click

There are other CPC metrics you should probably pay attention to though. It’s never quite as simple as it seems. And, since profitability is the goal, you also need to pay attention to:

  • Maximum CPC

  • Average CPC

  • Actual CPC

  • Manual CPC

These metrics will help you determine the best way to bid in the ad auction to make sure you get the type of results you are looking for. With that in mind, let’s consider what these metrics mean and how you can use them in purchasing ads in the auction.

Maximum CPC

When bidding on keywords you set a price range you are willing to pay for each click. The Maximum CPC is the most you are willing to pay. When bidding, set the Maximum CPC a the highest amount you think a click is worth. What you pay in the auction won’t go any higher than that.

Nevertheless, the higher you are willing to bid, the higher you are likely to appear on the search results page. 

Average CPC

If you add up the total cost of all the clicks and divide by the number of clicks, you’ll get  your average cost. This will help you determine how cost effective your bidding strategy is.

Actual CPC

Usually you’ll not be required to pay your maximum bid for every click and will pay something less than that. This is what your Actual CPC is. The bid will only go up as high as is required to beat the competitor whose maximum bid is just below you.

Manual CPC

Manual bidding allows you to set  your maximum CPC for each ad and target specific keywords. If you know exactly what keywords will perform the best for you, this is a good bidding strategy.

Optimizing your CPC by improving your quality score

Because your bid is only one of the factors that determine where your ad shows up on the search results page, there are a few things you can do to make sure you’re the winning bidder. 

The more relevant your ad is to the search term, the experience the user will have on your website, and the Click Through Rate (CTR) of your ad, the higher your quality score. Kind of a vague measure, but it starts with relevance.

  1. Create relevant ads. The more specific to meet the needs of a potential customer the better. For example, red baseball caps instead of baseball caps.

  2. Work on your landing page. Years ago I was searching for a plasma TV. They were a big thing at the time. I searched Sony Plasma TV, but when I landed on the landing page, there were no plasma TVs there. Sony didn’t make plasma TVs. A far better, and more helpful, landing page for me would have included something like, “Looking for a Sony plasma TV? We don’t make them, and this is why.” I likely would have read the copy and bought into Sony’s argument as to why what they had to offer was better. And, it would have positively impacted their quality score.

  3. Improve your CTR. Don’t be vague about what you want people to do. Make it easy, and obvious, to click on the link, pick up the phone, or click through to  your information. Create a sense of urgency so they know they need to take action now, instead of putting it off until later.

You may need an expert

If after looking at this you decide that maybe you need some expert help to maximize the value of  your digital ads and ensure you get the best CPC possible, you may want to find a digital agency that can help you do it. That way, you can leverage your product knowledge with someone with expertise in digital marketing. Maybe even the best of both worlds.

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