Cost Per Click (CPC) is the exact price you pay for every individual click you receive on your paid marketing campaigns. CPC is often used as a key metric when collecting data to measure the success or ROI (Return on Investment) of a Pay Per Click (PPC) campaign.

It can be easy for anyone new to marketing, or paid marketing, to get confused when trying to differentiate Cost Per Click (CPC) and Pay Per Click (PPC). Even though they are quite similar, PPC refers to the type of advertising program you are running. For example, Google Adword is a PPC advertising program.

Whereas Cost Per Click (CPC) refers to the actual cost of the traffic you achieved from your chosen advertising program (PPC). For example, if you pay an average of $0.25 every time someone clicks your Adwords PPC campaign, then your CPC is $0.25.

In simple terms, each time someone clicks on one of your paid PPC ads, you are charged a fee. Each click represents someone expressing interest in your service or solution. The tricky part is determining what sort of customer you want to attract, and how much you’re willing to pay for your ideal customer.

The hidden costs of CPC

CPC is heavily influenced by market demand, keyword quality score, competitor’s ad rank, and maximum competitor bids. The end goal for any successful CPC campaign is to optimize each campaign based in the results, and achieve the best value for your spend. This requires a lot of trial and error before you find your sweet spot. Once you do, it’s time for the hard work to start – converting leads into customers.

Advertisers often have to increase their CPC budgets if their business is in a competitive industry. Industries like finance, insurance, retail, travel and tourism are particularly competitive because both market demand and spend is very high. The higher the demand for traffic via keyword search, the higher the CPC. In most cases, online ad platforms are auction based and you’ll have to bid your way to the top if you want to have a successful campaign.

The best way to get the most out of your CPC campaign is to target specific keywords that are relevant to your business, usually no more than one or two-words. The most expensive one word keywords are: insurance, loans, mortgage, attorney, credit, lawyer, donate, degree, hosting and claim. Some marketers pays as much as $50 per click.

For those who want to target a more specific, or niche audience, you should test out some long tail keywords, usually between two – five words. Customers who click on long tail keyword PPC campaigns know exactly what they are looking for, and in many cases are ready to buy. Generally speaking, long tail keywords are much less competitive, therefore less expensive.

Get familiar with Quality Scores

PPC companies like Google Adwords and Bing Ads use Google’s Quality Score algorithm. Quality Score can significantly affect your CPC, as it determines not only the quality, but also the relevance of your PPC campaigns and the keywords you use. Quality Score is a system used to deter spam advertisers, who could bid their way to the top with irrelevant keywords.

Your Quality Score will determine your CPC, and when you factor in your maximum bid cost, it defines your ad rank. Your overall site score will increase, meaning you will show up on Google search results more frequently. Ultimately, the higher your Quality Score, the better your ad rank and the more cost-effective your CPC campaigns will be.

However this requires a combination of factors, such as good landing pages, consistently good ad performance history, consistent relevant keywords, relevant ad copy and a good click-through rate (CTR). In some cases, you will be able to pay a lower CPC rate, even if a site with a low Quality Score outbids you.

Google Adwords calculates your individual CPC using the following formula:

(Competitor AdRank / Your Quality Score) + .01 = Actual CPC

This indicates that your actual CPC will always be calculated using the ad rank of your competitors, divided by your current Quality Score, plus 1 cent. It’s important to bear in mind that your CPC will be affected by what your competitors are doing, so make sure you keep an eye on their advertising efforts.

CPC is something that you can optimize over time, but it requires some dedicated effort. You should be aware that your industry plays a huge role in your overall budget, as well as your closest competitor’s ad rank. Just like anything in your business, it’s crucial that you keep an eye on the market and your competitors, even just to find out what doesn’t work. Pick up some more useful tips from Baremetrics Business Academy Glossary.