Cost per click

Definition

Cost per click (CPC) is a digital advertising metric that represents the amount an advertiser pays each time a user clicks on their online advertisement.

What is cost per click?

It is a common pricing model used in online advertising campaigns, particularly in pay-per-click (PPC) advertising, where advertisers only pay for actual clicks on their ads rather than for the display or impressions.

Key features and aspects of cost per click include:

1. Auction-based systems: Advertisers bid on keywords or placements, and the ad platform determines the ad’s placement based on the bid amount and other factors. The advertiser with the highest bid typically gets a higher ad placement.
2. Bid strategies: Advertisers set a maximum bid amount they are willing to pay for a click. The actual cost per click can be lower than the maximum bid, as the ad platform aims to deliver value to users and encourages competitive bidding.
3. Quality score: Ad platforms often factor in the quality of the ad and the relevance of the landing page to determine the ad’s position and cost per click. A higher-quality ad and landing page experience may result in a lower CPC.
4. Targeting options: Advertisers can use various targeting options to refine their audience and reach specific demographics, locations, or user behaviours. This allows for more precise control over where ads are displayed and who sees them.
5. Conversion tracking: Advertisers often implement conversion tracking to measure the effectiveness of their campaigns. By tracking conversions resulting from ad clicks, advertisers can assess the return on investment of their CPC campaigns.
6. Budget control: Advertisers can set daily or campaign budgets to control overall spending. Once the budget is used, the ads may stop showing until the budget is adjusted.
7. Social media advertising: CPC is also prevalent in social media advertising platforms like Facebook, Instagram, and Twitter. Advertisers can define their target audience and bid for clicks on their ads within the social media environment.

CPC can vary based on factors such as the competitiveness of keywords, industry, geographic location, and the time of day. Some clicks may cost more than others, depending on the demand for the target audience and keywords.

Example of cost per click

ABC Company is running an online advertising campaign to promote its new product. They decide to  pay for each click on their ad. ABC sets a maximum CPC bid of $1.

During the campaign, the ad appears in search results when users type in relevant keywords. If a user clicks on ABC Company’s ad, the advertiser incurs a cost. For instance, if 100 users click on the ad, the total cost would be calculated based on the CPC bid:

$\text{Total cost}=\text{Number of clicks}\times \text{CPC bid}$

So, if there were 100 clicks at a CPC bid of $1:

Total cost = 100 x $1 = $100

In this example, the cost per click is $1. ABC Company pays the search engine a total of $100 for the 100 clicks received during the advertising campaign.