CPC Definition

CPC also known as cost per click means that advertisers will pay when their ad is clicked on by a user. The advertisement can be in the form of a text link or image. Once it is clicked, the user is directed to the advertiser’s website. The price of the click is billed to the advertiser[1].

Are you wondering how much a click costs? The advertiser is paying based on the price of the keyword. Most advertisers will set a budget to help manage CPC costs. It all depends on the keyword or phrase the advertiser is trying to target. A less competitive niche keyword may only cost $0.05 a click, whereas a popular term may cost $10 a click. This is why it is important to know your target audience and to bid on keywords that will draw the best traffic. Remember, the goal is to gain traffic and convert this traffic to a subscriber or buyer.

Note: You may see PPC (pay per click) used interchangeably with CPC (cost per click). Pay per click means to pay for every click of an advertisement.

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Bidding Process

To better understand this concept, I want you to think about when you are searching for a phrase in Google. Google is not the only search engine, but for this example I want to use a search engine most people are familiar with using. Once you enter your keyword or keyword phrase, you will see your search results plus ads displayed on the right hand side for example. These are the ads made by the advertiser in Google Adwords. The placement of their ad in the margins is what the advertiser is bidding on for that keyword or phrase.

To begin the bidding process, the advertiser must bid (make an offer) on how much they want to pay for a click on their ad. If the advertiser's offer is higher than a competitor, they can outrank them on the results page. This means they will have a chance of getter a better spot on the search results page.

Let's look at this example: A person has a weekly budget of $100 and the CPC rate of their keyword is $1. The ad gets 100 clicks in week one of the campaign. So, the total amount billed is $1 x 100 = $100 for that week. Once the advertiser meets their budget, the ad goes out of rotation, meaning it is not displayed for the moment. The advertiser has control over the costs and budget. They are allowed to tweak campaigns to fit their needs. They can  increase or decrease a budget when testing different campaigns.

CPI and CTR are two other terms you should be familiar with when analyzing your CPC costs. CPI means the advertiser is paying everytime the ad is displayed (the impression). CTR is one measure used to determine the success of the campaign. It is the number of clicks divided by the number of impressions (how many times the ad was shown). If an ad got 100 impressions and one click, then the click through rate for that ad would be 1%[2].

How to Start Google Adwords Pay Per Click Advertisement

The cost of a PPC campaign can be expensive, especially if your overall budget is small. High competition may wipe out your marketing efforts. More may be spent testing campaigns, which can lead to a loss in profits. Focusing on a target audience and making ads relevant to the user is the best strategy[3]. Remember, a well written ad in the right position can generate a mass amount of traffic to a website that will lead to more conversions and profits.