In the world of digital marketing, you will probably hear the phrase pay-per-click or PPC frequently, especially when referring to search or social media advertising. The name itself implies that you will only pay when your ad is clicked on, but how is the actual cost per click determined? PPC advertising platforms function similar to an auction, in which advertisers bid on certain keywords, audiences or placements in order for their ads to appear. In this post, we will dive into Google Ads, one of the more popular choices for PPC advertising.
How Is CPC Calculated?
Many factors can affect the actual cost per click (CPC), but because of how these auctions work, your actual cost per click is heavily influenced by your quality scores, your closest competitor’s ad rank and your maximum bid amount. The actual formula for CPC in Google Ads is:
CPC= (Competitor Ad Rank / Your Quality Score) +$ 0.01
Competitor Ad Rank is a combination of how much your competitors are willing to bid on the same keywords and their auction-time ad quality, including expected clickthrough rate, ad relevance, and landing page experience. Quality scores are Google’s way of evaluating overall campaign relevancy. Since Google wants to keep their search results relevant to what users are actually searching for, Google will reward higher quality scores with a lower cost per click in the auction against other competitors who are bidding on the same keyword. So as you can see from the formula above, the actual price you will pay per click will fluctuate based on how much your competitors are willing to bid on that keyword and your overall campaign relevance to that search query. For more information on how to improve your quality score, visit our blog: Solving The Mystery Of Quality Scores.
Why Is Cost Per Click Important?
CPC is the determining factor in your campaign’s financial success. Since the ROI of your campaign is determined by the total cost of clicks and the quality of leads these clicks are producing, you want to ensure that you’re optimizing your campaigns to keep the cost per click low while still targeting valuable keywords to bring in qualified traffic. The last thing you want to do is overpay for invaluable keywords. So how do you go about lowering the price per click while still maintaining the value of site visits? Check out our blog: 4 Ways To Reduce Wasted PPC Spend for more guidance on how to increase campaign efficiency and ultimately lower your CPC.
