Cost Per Click (CPC) Explained, With Formula and Alternatives

What Is Cost Per Click (CPC)?

Cost per click (CPC) is an online advertising revenue model that websites use to bill advertisers based on the number of times visitors click on a display ad attached to their sites.

The primary alternative is the cost per mille (CPM) model, which charges 1,000 ad impressions—or views—of the display ad, regardless of whether or not a viewer clicks on the ad.

The cost-per-click model is also known as pay-per-click (PPC),

Understanding Cost Per Click (CPC)

Advertisers commonly use cost per click with a set daily budget for a campaign. When the advertiser's budget is reached, the ad is automatically removed from the website's rotation for the remainder of the billing period. For example, a website with a cost-per-click rate of $.10 would bill an advertiser $100 for 1,000 click-throughs.

Most publishers use a third party to match them with advertisers. The largest such entity is Google Ads, which uses a platform called Google AdSense.

How Much Does a Click Cost?

A click costs no more than you're willing to pay through a bidding system. For example, you could bid a maximum of $1 per click on Google Ads. The system runs through algorithms that evaluate your ads and charges you no more than your bid. However, there are some caveats.

The Google Ads system applies discounts to advertisers with higher ad Quality Scores. This score is determined by the relevance of the ad and the advertiser's content to the search terms used. You'll also be dinged in the position of your ad the lower you bid, again adjusting for the other factors evaluated by the platform.

How Is Cost Per Click Calculated?

A formula may be used to determine the rate you pay per click. One of the most popular ways to calculate your CPC is:

Advertising Campaign Cost / Number of Clicks

Some publishers or platforms like Google Ads use a bidding process to set their rates. For instance, Google Ads asks you to select the maximum amount you're willing to pay per click. Google's platform then uses Ad Rank thresholds to determine the actual cost when your ad is clicked.

This means your cost varies up to your maximum because the platform ranks your bid, ad quality, position, user signals, search topics, and related auctions and sets the cost per click. You can even have Google automate the bids for you to increase your click-through.

The platform then positions your ad based on your maximum amount, with higher maximums achieving a higher placement on the page.

How to Lower Cost Per Click

Because advertising can become very expensive when paying by clicks, you need to have a plan to keep from paying too much per click. This means researching and creating a strategy with keywords to raise your Quality Score, a large measure of how your ads compete with others.

Raise Your Quality Score

Your Quality Score is crucial to increasing your clicks and decreasing your costs. You can improve your Quality Score by making adjustments to your:

• Expected clickthrough rate: You can edit the ad to make it more appealing to your targeted consumer base, highlight features and benefits, and above all, ensure your ad details match your keywords.
• Ad relevance: Your ad should appeal to your audience and their search intent. Look at search results for different phrases and analyze the results.
• Landing page experience: Landing pages should be relevant to the audience that clicks the ad. For instance, an advertisement for a widget shouldn't lead to a landing page featuring gadgets. Additionally, the speed of your landing page loads should be fast enough on mobile devices and computers so that potential customers don't need to wait.

Keyword Research

Keywords drive internet searches, so it makes sense to ensure you have keywords in your ads that lead people to your website. Some techniques you can try are:

• Targeting: You should try to target your audience by matching your ad text with what they are searching for.
• Splitting: You can split your ads into groups with different keywords and match them to other searches.
• Grouping: Grouping involves creating themes for your products and services, which you then make group names for and use keywords that match searches. For instance, if you are marketing headphones, you could group them into over-the-ear and in-ear headphones and target your audience with matching keywords.

Cost Per Click Alternatives

There are plenty of alternatives to Google AdSense, including Media.net, Infolinks, Amazon Advertising, and Bidvertiser, to name a few.

Some specialize in small or large publishers, and some offer a better deal than Google AdSense to stay competitive.

Amazon Advertising is designed to allow Amazon website affiliates to place ads that reach shoppers on and off the website when searching for specific products.

Meta Ads Manager allows advertisers to run campaigns on Facebook and Instagram.

CPC vs. CPM

In the print world, advertisers choose publications that match their customer profiles and place ads in them. They pay more for bigger ads and more prominent placement, but the effectiveness of those ads can usually only be implied by tracking before-and-after sales numbers. Coupons and contests are among the strategies that help them track their ads' effectiveness better.

In the online world, advertisers know how many people are at least interested enough to click on their ads. That has led to two of the primary ways to reach consumers through web advertising:

• Cost per mille (CPM) or cost per thousand is a pricing model that charges advertisers for the number of times their ads were displayed to a consumer.
• CPC charges advertisers only for the number of times a consumer clicks on their ads to get further information on a product.

Advantages and Disadvantages of CPC Advertising

Pros Explained

• Higher value: Cost-per-click advertising is more highly valued than CPM advertising because it indicates that an ad has gotten a prospective customer to take the first step towards taking action, whether it is making a purchase or getting more information.
• Drives website traffic: Cost per click is generally considered more effective because it drives traffic to the advertiser's site.

Cons Explained

• More expensive: CPC is more costly than CPM
• Prices vary widely: Because prices vary due to other factors, you may pay less or more depending on your Quality Score, bidding, sponsorship, and other factors.
• Less effective for brand and product awareness: CPM is better for brand recognition and product awareness, assuming that page visitors at least see the logo and, however unconsciously, absorb the message.

The Bottom Line

Demographic targeting of advertising was created offline, primarily by the print magazine industry. It allowed advertisers to choose a specialty magazine that reached the audience that was most likely to be interested in their product.

The cost-per-click advertising model emerged with the internet. It added an actionable element in the ability to immediately click on a link to get more information, place an order, claim a coupon, or download an app.

The software for creating ads and buying ad space is growing increasingly sophisticated. However, the primary concern of advertisers in using either the cost-per-click or cost-per-impression models is accuracy in reporting the actual numbers that the ad reaches.