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How to Determine Cost Per Click (CPC) for Ads

How do you determine the cost per click (CPC) for your ads?

One of the most frequently asked questions. In general, you need to understand how much money you have ...

"And yet," you ask...

This article will give you the answer.

For you to understand, it will not be possible to determine this quite accurately, because. Every business has its own nuances. So in advance we take the right to an error.

In this article, we'll take a look at how you can determine the cost per click of your online ad campaigns and beyond.

ROI (return on investment) formula

You are in business to make money. To do this, you need to make sure that the money you invest creates positive cash flow.

To understand how this happens, you will need to calculate the ROI (return on investment).

Simply put, ROI answers the question, “Am I making more money than I put into my business?”

Beyond that, ROI will also tell you the amount of positive (or negative) return on investment. That is, how much money you make (or lose) in relation to your investment.

Let's look at an example.

Let's say you buy $1,000 worth of shares. Two months later, you sell the same shares of stock for $1,300.

What was your return on investment?

Here is the ROI formula:

ROI=(profit - cost)/amount of investment*100%

Now with numbers. The return on investment is $1,300 (share sale) and the investment value is $1,000 (share cost).

ROI = ($1300 - $1000) / $1000 = 0.3 or 30%

Got 30%. This is because ROI is always measured as a percentage.

If the return on investment is positive (as in this case), then the investment is profitable. Because you get more money than you put in.

If the return on investment is negative, then the investment is not profitable.

Let's look at an example of a negative ROI.

Let's say you buy shares of stock for $1,000. And forced to sell them for $700.

ROI = (700 - $1000) / 1000 = -0.3 or -30%.

You spent 30% on this investment.

It's important to keep the ROI formula in mind when you're calculating cost per click.

CPC

Many platforms where you can advertise follow this model. This means that you only get paid for someone clicking on your ad.

And if your ad appears a million times and no one clicks on it, then you pay nothing. Of course, this is a signal that you need to work on the quality of your ad..

By the way, CPC is one of the reasons online advertising is so attractive. You only pay for your ad when potential customers click on it and explore your offer.

How much is each click worth? Differently.

The rate depends on the demand. The more people who want to bid for a particular keyword, the higher the cost per click.

It all depends on the current demand and the popularity of the keywords you are targeting.

What is your conversion rate?

Then you need to understand what your conversion rate is. This is the percentage of people who click on your ad and make a purchase..

Unfortunately, not everyone who clicks on your ad will buy your product or service.

This means that cost per click is not the same as cost per sale.

Example.

Let's say you're selling shoes, the ad cost is $1.25 per click. It would seem that this is an affordable price to pay per click, because you already have a profit margin of $17 for every pair of shoes you sell.

Not always.

You need to take a look at conversion rate. If only one out of every ten people who click on your ad buys shoes, then you are really paying $12.50 (1.25 x 10) per sale.

Now calculate again. It's $17 - $12.50. This leaves you with a smaller profit of $4.50.

Can you afford it?

This is a question that you will have to answer for yourself.

Your Conversion rate and cost per click are directly related to your return on investment (ROI).

Google AdWords Average CPC by Industry

It is also important to understand that AdWords offers both search (contextual) advertising and display network advertising (banners).

The average cost per click across all areas is $2.32 for contextual advertising and $0.58 for media (banners).

Let's take a look at the industry averages for Google AdWords cost per click.

Lawyer services - $1.72 (contextual) and $0.32 (banners)

Auto - $1.43 (contextual) and $0.39 (banners)

B2B - $1.64 (search) and $0.37 (banners)

Consumer Services - $3.77 (contextual) and $0.69 (banners)

Dating sites - $ 0.19 (contextual) and $ 0.18 (banners)

E-commerce - $.88 (search) and $0.29 (banners)

Education - $1.74 (contextual) and $0.40 (banners)

Employment services - $0.20 (contextual) and $1.66 (banners)

Finance & Insurance - $3.72 (contextual) and $0.72 (banners)

Health and Medicine - $3.17 (contextual) and $0.70 (banners)

Products – $3.19 (contextual) and $0.70 (banners)

Industrial Services - $2.00 (contextual) and $0.60 (banners)

Right - $5.88 (contextual) and $0.60 (banners)

Real Estate – $1.81 (contextual) and $0.88 (banners)

Tech – $1.78 (search) and $0.20 (banners)

Travel & Hospitality - $1.55 (contextual) and $0.24 (banners)

Display ads tend to cost a lot less than search ads. Why is this?

This is because search ads can be used for people when they are on the verge of making a purchase. So the price is higher.

For example if you're selling cameras, you'll probably want to run an ad for keyword"cheap cameras"

For what? Because anyone looking for "cheap cameras" is almost certainly interested in making a purchase.

On the other hand, display ads (banners) appear when people view a page and are not necessarily interested in buying right away.

It often happens that display ads are used for retargeting (or for people who have already interacted with the brand).

Average cost per click on Facebook by industry

Another great option when it comes to online advertising is Facebook. This is because you can target ads to people based on demographics and interests.

The average cost per click on Facebook is $1.72.

CPC in online advertising

What is CPC in advertising - this question will surely interest a webmaster who is faced with the need to monetize his site for the first time. The term "CPC" is an abbreviation of the English expression "Cost Per Click", which means "cost per click". In other words, CPC is the money that the advertiser pays for the visitor's transfer to the owner of the web resource on which the link or banner is placed.

It's interesting! You can't say about CPC what it is good way monetization of young sites or blogs. Keep in mind that the cost per click is usually a few cents. To get a solid income, you need to have a web resource with a lot of traffic.

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What determines the average CPC

There are several criteria that affect the cost per click. The most significant factor is the theme of the site. Commercial projects dedicated to investment, finance, construction, etc., bring their owners much more profit than entertainment or "female" sites. In addition to the thematic affiliation of the web site, the following criteria influence the CPC indicator:

Times of Day;
geographical location of the Internet user;
key phrase;
the authority of the web resource in the system.

What does CPC advertising bring to the advertiser and webmaster?

Using this promotion tool, the advertiser receives the following benefits:

possibility of flexible budget allocation;
the advertising campaign can be stopped at any time;
payment is made only for actual transitions to the promoted site;
It is possible to quickly evaluate the effectiveness of an advertising campaign.

It must be taken into account that networks contextual advertising impose certain requirements in relation to the accepted sites. First of all, the web resource must comply with the rules affiliate program and not violate the law. Restrictions can also be set on site traffic, on its subject matter. Sites about gambling, pharmacology, etc. usually fall into the “forbidden” category.

The income of the site depends not only on the cost of a click, but also on the CTR value (the number of visitor transitions per 1000 ad impressions). To improve CTR, you can experiment with the placement of ad units and their visual characteristics.

When planning to organize contextual or display advertising on the Internet, advertisers provide a certain budget for these companies. Hence, they want to see where their money is being spent.
Even more important for an advertiser is to understand how best to invest in an advertising campaign so that it is as effective as possible, money is spent economically, and users are attracted to the site to the maximum.
To understand the reports on the conducted advertising campaigns, as well as their planning, there are such parameters for measuring advertising strategies as CPM, CTR and CPC indicators.
CPM and CPC are professional terms for pricing models, payment options for online advertising. CTR is an indicator of the effectiveness of advertising on the Internet.

What is CPM?

CPM ("cost Per Thousand Impression" or "cost per mile") is an indicator in online advertising, indicating the cost per 1000 banner impressions or

ads. That is, exactly how much money the advertiser will pay to the owner of the site where the banner or ad is supposed to be placed in order for the advertisement to be shown to the target audience 1,000 times.
Features of the CPM-indicator:

Each impression is counted and summarized. Whether the user wants to click on the ad and follow the link to the advertiser's site - there are no guarantees.
When you pay for impressions, clicks are free.
Possibility of displaying advertising exclusively in front of the target audience, having previously studied the attendance of the site. If the platform site assumes the possibility of collecting data about visitors (for example, gender, age, profession, geography at the time of registration), then the employer can set parameters according to which his advertisement will be shown only to the most promising visitors from his point of view. This means that the budget will be spent more rationally.
When choosing a payment method for impressions, you should take into account the activity of the audience on the donor site. The more active users are, the more often the same ad is shown to them, therefore, money is spent faster, and the reach of “viewers” is smaller.

What is CPS?

CPC ("cost per click") is the cost of each click on an advertisement along with the subsequent transition of the user to the advertiser's website.
Features of the CPC indicator:

in 90%, really interested users click on the ad block. And this means that paying for clicks allows you to get a more loyal audience.
when paying for each visit of users to the site, there is always a risk of abuse of this opportunity (for example, empty “clicking” of the budget by competitors). Most donor sites protect advertisers' money from such cases (they block funds if the same user is too "interested" in advertising), but no one has yet managed to solve the problem of idle curiosity.
when paying per click, donor sites provide statistical information about each user who clicked on an advertising link. Thus, the advertiser has the opportunity to understand which audience is interested in his advertising. Of course, statistical data is limited only to the information that each user has left about himself on the site.

What is CTR?

CTR ("click-through ratio" or "click through rate") is the percentage of the total number of clicks by users of the donor site on advertisements, banners, teasers or text links, to the number of their impressions. The higher this indicator, the more promising the platform for advertising.
CTR is an assessment of the effectiveness of an advertising campaign as a whole, each donor site and each advertisement separately.
Knowing the CTR of each individual advertising platform (what users do there more often - they watch or click), you can calculate the costs, draw up a preliminary advertising estimate and decide on a pricing model.

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As in any professional activity, in Internet marketing there are a lot of terms and definitions that help specialists quickly navigate their work, make calculations and conduct promotion analytics. For users without experience, many terms are not always obvious, which is why, in our today's article, we will decipher the basic definitions and formulas of Internet marketers, and tell you where they can and should be applied.

For your convenience, we have divided our article into blocks:

Terms and formulas for calculating costs

Now let's introduce you to the terms:

CTR (click through rate)- click-through rate of advertisements. Calculated as a percentage of the number of clicks to the number of ad impressions. CTR determines the effectiveness of an advertising campaign.

Formula: CTR = (clicks/impressions)*100%

CPC (costperclick) - the cost that the advertiser pays for a click on an advertisement with a subsequent transition to the site. CPC helps us evaluate the effectiveness of an advertising campaign, as well as adjust bids. Several factors affect the CPC rate - the ad itself, its Quality Score (СR), display region, time, competitors showing ads for the same keywords.

CPA (costperaction)– the cost of an action on the advertiser's website. In this case, the advertiser himself decides what to accept as a useful action. This could be "Visiting the contact page" or "Submitting a form feedback". This term can also be used to define CPL (costperlead) is the cost for potential client who left their contacts or contacted the advertiser in another convenient way.

For correct tracking of useful actions, it is necessary to set the goal in Google Analytics or another analytics system, where the data will be counted.

There are also services for automatically calculating the CPA indicator - such as K-50, Roistat, and others.

CPS (costper sale) - the cost of 1 paid order of goods / services from advertising sources. CPS calculation is convenient for online stores with online payment. For the rest, an end-to-end analytics system with CRM integration is required. CPS will help you adjust your advertising budgets as well as increase its effectiveness.

CPO (cost per order)- cost of 1 order of goods/services. The difference is that, as a rule, all orders, including those not paid, are taken into account in CPO.

CPM (Cost per Millennium) – cost per 1000 impressions, a definition for those advertisers who care about delivering an advertising message to the end user, while not focusing on ad clicks, and paying only every 1000 impressions.

Formula: CPM = cost of placing an ad / number of prospective contacts * 1000

CPI (cost per install)- the cost for installing a mobile application. CPI calculation is useful for advertisers whose product is mobile applications. CPI measures the cost per app install.

The above terms will help you track the effectiveness of your advertising campaigns, choose the best promotion models for you, as well as control and adjust your advertising budget.

Terms and formulas for calculating profit

When the costs are calculated, the most interesting part for every entrepreneur comes - calculating the profit. Below you will find for yourself formulas and definitions that will become your faithful assistants.

Ad Costs to Sales (A/S)- Determining the effectiveness of advertising. Using a simple A/S formula, you can calculate the profit from the promoted product / service, minus the costs that go to support this product / service. As a rule, the indicator is calculated for the annual period or the reporting period of the company.

Return on Ad Spend (ROAS)- a definition that helps us calculate how much profit you received from advertising campaigns. For example, you made a profit of 100,000 rubles from advertising, while spending 30,000 rubles on advertising. We consider: 100,000/30,000 = 3.3 rubles. you received from each spent 1 ruble for advertising.

Formula: ROAS = profit/expenditure on advertising channels

ROI (Return on Investment) And ROMI (Return on marketing investment) differ from ROAS by the size of the cost part. In ROMI (ROI), all marketing costs are taken into account as costs, not only for advertising channels (for example, creating a website, developing a new creative for media advertising etc.).

Formula: ROMI (ROI) = profit/marketing expenses

Ad Costs to Margin (A/M)- another definition that helps to evaluate the profitability of advertising, but not costs in relation to profit, but costs in relation to profit, minus the cost of the product / service, that is net profit from investments.

EPC (Earnings Per Click)- an indicator similar to the CPC indicator, the difference is that CPC is the cost per click, and EPC is the profit from 100 or 1000 clicks.

Formula: EPS = (Profit generated/Number of clicks) * 100 (or 1000)

LTV (Lifetime Value)- this is the total profit of the company received from one client for the entire time of working with him. The indicator gives a clear understanding of the return on investment per attracted client.

Formula: LTV = income from 1 client for the entire period of cooperation - the cost of attracting and retaining a client.

KPI- This key indicator, which allows you to evaluate the effectiveness of work in order to achieve goals. KPI is determined individually with the specialist and the advertiser, in accordance with the current and desired indicators.

In this article, we tried to tell in as much detail as possible about the basic terms and formulas used in Internet marketing, so that you can evaluate current situation your advertising campaigns, as well as understand the language of marketing experts. High scores to you!

See you soon!