With 98% of global consumers shopping online, it pays for brands to focus their advertising budgets on the digital landscape.
The US alone saw more than $190 billion spent on digital ads in 2021, according to Statista. At the same time, internet advertising spending worldwide is expected to keep growing in future years.
Advertisers’ search for different ways to effectively reach their target audiences has given birth to different advertising models. Among the most popular of these is cost per click (CPC), or pay per click (PPC), ads.
What is CPC?
Cost per click (CPC) is an online advertising revenue model where the advertiser pays the publisher based on the number of times visitors click on a display ad.
In other words, CPC is the amount paid for each click on pay per click (PPC) advertising campaigns. From this perspective, the CPC is a very important metric for advertisers.
A low CPC is better, as it will mean that a business will need to invest less money to reach its marketing goals. A high CPC, on the other hand, may affect a campaign's ability to reach a reasonable return on investment (ROI).
What is the Difference Between CPC and PPC?
The cost per click (CPC) model is also known as pay per click (PPC). It might be more accurate to say, however, that CPC and PPC advertising represent two sides of the same coin.
From an advertiser's perspective, PPC represents a paid advertising method and an ad type. CPC, on the other hand, is more often used to imply a financial metric that both publishers and advertisers can use to measure the cost of digital marketing campaigns.
The PPC ad model has been made popular by major ad platforms such as Google Ads, Microsoft Ads, and Amazon Ads.
How to Calculate CPC
Calculating the cost per click (CPC may seem like an easy math task, but things are rarely that straightforward in the world of digital marketing.
From an advertiser's perspective, cost per click (CPC) can be calculated by dividing the total cost of a PPC campaign by the number of clicks it has earned.
CPC = Advertising cost / number of clicks
From a publisher's perspective, calculating the CPC is a different story.
Some publishers and ad networks use bidding processes (click bidding) to set their CPC rates. This means that an automated system works to calculate costs at all times, based on demand and offer. Costs will then vary according to how many advertisers are bidding for ad space from the same publisher at the same time.
Other publishers use a formula. The most common way to calculate CPC is by dividing the cost per impression (CPI) by the percent click-through ratio (%CTR). In short, the formula is:
CPC = CPI / %CPR
However, when using an advertising platform, the actual CPC calculated for an ad campaign is not a "stable" metric. It varies over time and across ads, campaigns, or ad groups.
Calculating Your Average CPC
While you can regularly monitor your cost per click (CPC) and you can verify it at all times, this isn't very efficient. It's easier to look at an average number—that is, an average CPC. This can be calculated for a certain ad, an ad group, or an overall campaign.
You can calculate your average CPC with the following formula:
Total CPC / Total Clicks = Average CPC
What Factors Determine Your CPC?
As we've already pointed out, different publishers have different methods of calculating cost per click (CPC). Many of these calculations happen automatically, depending on various factors.
Especially when advertising on different platforms, such as Google Ads or Bing Ads, several factors will influence your CPC: the maximum CPC bid, the quality score, and ad rank.
The maximum bid represents the maximum cost that an advertiser is willing to pay for a click on an ad. Since this is the maximum investment that an advertiser is willing to make, it is essential in determining the cost per click (CPC).
Of course, in a bidding session, the advertising platform will only take into consideration an ad for auctions that offer an actual CPC lower than an advertiser's maximum bid.
In Google Ads, the quality score is one of the most important attributes of an ad. It essentially describes ad relevancy on the platform.
As Google Ads wants to show high-quality ads, the higher the quality score, the better. The quality score is in turn calculated based on several other ad features, like keyword relevancy, landing page quality, and click-through rate (CTR).
The ad rank is a metric over which an advertiser has limited control. It is also a factor that is meant to determine the quality of an ad.
The ad rank is calculated based on the quality of the ad, the bid amount, but also other external factors—like user intent or the context of a person’s search.
What Types of Ads Are Involved in CPC?
Cost per click (CPC) is used in a variety of digital marketing campaigns. These campaigns can be text ads, image ads, video ads, various forms of ads typical of social media platforms, etc.
Some of these ad types are only displayed on certain networks, while others are used by various publishers.
Here are eight kinds of ads that allow the CPC model:
1. Text Ads
Text ads are based on text alone. No other kind of media is used for these ads. Even though simple in form, these ads are very popular and useful when used for paid search campaigns.
For example, the Google Display Network (GDN) is the best-known network, reaching over 90% of internet users. Google processes over 100,000 searches every second. With these statistics in mind, it makes sense that advertisers are still competing to rank for popular keywords on search engines.
2. Shopping Ads
Google Shopping Ads are a type of ad dedicated to the retail sector. It allows businesses to advertise specific product listings, instead of landing pages.
Shopping ads appear in search results when the user is searching for a specific product. This makes it easy for the retail customers to just click on such an ad result, without going through a longer customer journey.
3. Image Ads
Image ads are commonly used by publishers and networks. These ads use visual elements to attract the users' attention and clicks.
Image ads can contain information about products, businesses, or certain offers. They can be banners, display ads, or social media ads. Image ads that use CPC all contain a link to a landing page.
4. Video Ads
Video ads are played before, during, or after a user is streaming a video. Video ads are available on YouTube, but also on other video-sharing platforms.
These types of ads have become more popular in recent years, as they make it easy for the viewer to engage with the ad. Good video ads have the potential to be very distracting. When used with CPC, the user can click on a link to reach the promoted website.
5. Twitter Ads
Twitter CPC ads are essentially promoted tweets. These ads allow advertisers to promote their tweets to a wider audience, while at the same time leading them to a dedicated landing page.
6. Facebook Ads
Facebook ads come in various formats (boosted posts, image ads, video ads, etc.) and are often used with a pay-per-click (PPC) option.
7. Instagram Ads
Pay per click (PPC) is also a reliable choice for running Instagram ads. In addition to boosted posts, Instagram allows promoting a profile or a story. In the case of a story promotion, accounts that have a sizable following can insert links and lead visitors outside of the platform, on the advertiser's website.
8. LinkedIn Ads
Just like Facebook, the professional social media network LinkedIn also offers the opportunity to run different kinds of social media ads: sponsored content (boosted posts), text ads, dynamic ads, video ads, etc.
LinkedIn allows its advertisers to choose a goal for each of their campaigns. For some of these goals, like getting website traffic, they will pay per click (PPC). These ads can be either LinkedIn text ads or image ads.
There are many options when it comes to cost per click (CPC) ads. The best CPC ad network is, after all, the one that suits your immediate needs.
The CPC model offers many benefits for both publishers and advertisers. For advertisers, it is reassuring to know that they only pay for each visitor click. And for publishers, it offers a lucrative revenue model and a steady income.
Publift helps digital publishers get the most out of the ads on their websites. Publift has helped its clients realize an average 55% uplift in ad revenue since 2015, through the use of cutting-edge programmatic advertising technology paired with impartial and ethical guidance.
Contact us today to learn more about how Publift can help boost your ad revenue and grow your business!