While CPC appears to be the price that you pay for each click that your ad receives, it is much more than that. CPC is one of the most important metrics that you should be measuring and optimizing to ensure a good return on investment. The CPC that you pay plays a huge part in your campaign's profitability.
What is Cost Per Click (CPC?)
Every time someone clicks on one of your PPC (Pay Per Click) ads, you are charged for the click. However, you can set the maximum price that you are willing to pay at the keyword level. This means you can bid higher or lower depending on the intent of the keyword and its value to your business.
The CPC is the actual price that you pay for these clicks based on the keywords that you are bidding on. How much you pay for clicks impacts a number of different areas of your campaign's performance, including:
How many clicks you receive for a set budget.
How visible your ad is and how frequently it is shown.
The ROAS (return on ad spend) of a campaign and its profitability.
Running a successful campaign is all about driving the highest ROI without missing out on opportunities for sales or leads. Set your bids too low and your ads aren't shown frequently enough or they aren't driving conversions. Set your bids too high and you will impact the profitability of your campaign.
How is Cost Per Click Calculated and How Does it Work?
One thing that is important to note is that the max cost per click that you set for a keyword isn't the same as the final price that you pay. In fact, you only pay the minimum amount to clear the Ad Rank thresholds and beat the Ad Rank of the competitor immediately below you.
But let's clear up some confusion. Max CPC and Average CPC aren't the same as the Actual CPC you pay.
Max CPC = The maximum price that you are willing to pay per click, set in your ads account.
Average CPC = The total cost of all of your clicks divided by the total number of clicks.
Actual CPC = The actual price you pay for a click.
Here is how your actual CPC is calculated:
Competitor Ad Rank / Your Quality Score + 0.1 = Actual CPC
There are many other factors that influence your actual CPC, too. And in this guide, we will go over how you can work to reduce your cost per click and optimize your ads.