Cost Per Click (CPC) - Learn About Cost-Per-Click Advertising

What is CPC Advertising?

Cost-per click (CPC) refers to the actual price you're paying for each click in your pay-per-click marketing accounts. In CPC advertising, it is in the ad platform's best interest to optimize the amount of ads they serve to the price for each click they expect for each ad bid. The actual CPC formula is:

cost per click equation

Competitor Ad Rank/Your Quality Score +.01 = Actual CPC

As an advertiser, your cost per click will always be less than or equal to your maximum bid as it is an average of bids against a series of competitors over a period of time. Because of how Google's Adwords Auction works, your actual cost per click is heavily influenced by both you and your closest competitor's ad rank, maximum bid, and quality score.

CPC calculation example

Beyond the Cost Per Click Formula

The above is cost-per click in a nut shell. Beyond just being "an amount you pay for every click", this metric is an important measurement of advertising spend.

A "click" represents a visit; an interaction with your company's product or service offering. Every click in a search engine marketing campaign represents attention from a person who is searching for something. Searching for something, and using words you've deemed relevant to your business to do it.

This attention is what you're buying, as an advertiser, so it's important to note two factors:

What type of attention are you buying?
How much is that attention costing you?

The Importance of Cost-per-click In Search

Cost-per click is important because it is the number that is going to determine the financial success of your paid search advertising campaigns.

Your return on investment, whether you're over or under paying for each action, will be determined by how much you are paying for clicks, and by what kind of quality you are getting for that investment.

Thus, it's important to think about cost-per click in terms of both cost and value. You want to identify and target clicks that are both inexpensive and valuable.

Lowering your cost-per-click...while maintaining value

So, how do you go about lowering the price you're paying for each click, while sustaining (or even improving upon) the value of your visits?

Refine and Expand Your Reach - By simultaneously eliminating irrelevant or overpriced clicks, while also continually discovering new relevant and valuable clicks the distribution of your budget will be iteratively improved.
Raise Your Quality Score - The search engines have created automated systems which offer pricing discounts to well-managed PPC campaigns. Proper account structure and adherence to various best practices offers you an opportunity to lower costs on the keywords you're already targeting.
Raising Quality Score and simultaneously refining and expanding your keyword portfolio are not easy tasks in online advertising. Luckily, WordStream is specifically designed to improve Quality Score, while offering tools for keyword expansion and refinement for search engine marketing.

Lower CPC with WordStream

The first means for lowering CPCs while preserving (or increasing) value with WordStream's pay per click software is to raise your Quality Score.

Quality Score (or "Quality Index" as Yahoo calls it) is a grade assigned to your keywords, Ad Groups, and PPC ad campaigns. Achieving a high Quality Score enables you to pay less money per click for a given ad position.

Cut Back While You Expand

The first bullet above talks about refining and expanding your reach. This can be every bit as tricky as it sounds. You have to find new pay-per click keywords and search advertising opportunities while eliminating the losers (those that are already in your account and those that lie in the potential new additions).

WordStream utilizes a unique tool set to help you achieve this keyword acquisition balancing act. The software offers solutions for Keyword Research & Keyword Suggestion:

WordStream's Query Stream feature helps you discover what keywords have driven clicks to your ads. This provides you with an exclusive (exclusive because the data is account-specific) and relevant (relevant because the account in question is yours) list of keywords.

The list is ever growing, because WordStream tracks new keywords driving traffic to your site daily. So we've automated continual relevant keyword expansion. All that's left now is refinement. You can do this with Negative Keyword Tools.

Designating negative keywords helps your AdWords campaign Google CPC by allowing you to target only viable keywords. This insures that:

Your spend is protected - Lowering your cost-per click isn't useful if you're paying low prices for irrelevant clicks.
Your Quality Score improves - If your keywords have to do with your ad text, landing page, and offering your click-through rate and other Quality Score factors benefit (this gets you more cost-efficient clicks...and on terms that are more likely to convert).

Which brings us to the second method for lowering CPC while sustaining value...

CPC, Quality Score, & WordStream

Raising Quality Score happens as the result of a few factors:

Higher click-through rates.
Better, more closely related keyword groupings.
More relevant ad text and landing pages.

WordStream offers sophisticated pay per click tools which enable you to create highly relevant keyword groups quickly in your pay per click advertising campaigns:

The software allows you to create keyword groups by semantic relevance; you're crafting groups based on the actual words in the key phrases.

This offers powerful Quality Score advantages. Consider how it addresses each of the criteria for Quality Score:

Click-Through Rate - Creating compelling pay per click ads that speak to a user's search query makes those ads more likely to be clicked on. Since each ad is assigned to an entire keyword group, it becomes highly probable that those ads will be relevant and compelling when you keep the keyword list closely related, semantically.
Closely Related Keyword Groupings - Again, this is precisely what the tool does. You can simply click on any of those recommended segmentations and instantly create a tightly grouped list of keywords (that you can then instantly publish).
Relevant Ad Text & Landing Pages - It becomes much easier to effectively relate ad text and landing pages to an entire group of keywords when the group has been specifically created to be semantically similar.