What Is Cost per Click (CPC)? Definition and How It Works (2023)

Whether your goal is driving traffic, raising awareness, or generating sales, it’s important to get the most out of your ad spend. 

In the world of digital marketing, businesses often turn to PPC (pay per click) and CPC (cost per click) advertising strategies to maximize cost efficiency. PPC campaigns grant users precise control over target keywords, demographics, and maximum spend. Using the CPC pricing model, advertisers only pay for the traffic they receive. 

What is cost per click (CPC)?

In online advertising, CPC is a pricing model in which companies pay for their ad placements based on the amount of traffic (or number of clicks) they receive. The CPC pricing model works across many different types of advertising, including ads displayed in search results, banner ads, and social media ads. 

Understanding CPC advertising and calculating the specific cost per click can help your company forecast traffic, assess the strength of your ads, and understand your general return on ad spend (ROAS). Marketing teams strive to attract high-quality traffic while maintaining a low CPC relative to their competitors. 

Average CPC can vary widely across industries. Many ad platforms, including Google Ads and Microsoft Ads, use a bidding system to determine the cost of a click. 

How does CPC work?

CPC advertising works through CPC bidding systems where advertisers enter the maximum cost per click they are willing to pay. Auctions run automatically whenever an ad opportunity is triggered, like when a user visits a website in the ad platform’s display network or enters a targeted keyword into a search engine. 

The auction performs an ad rank calculation to determine where and if the ad will be placed. Placing a higher maximum CPC bid can increase your chance of receiving an ad placement, but it’s not a guarantee. Factors such as ad quality and relevancy also affect click cost. It’s important for advertisers to monitor their success during click bidding. If an ad isn’t receiving placement, you have the option to increase your budget and make bid adjustments. 

There are several different cost-per-click bidding strategies, including manual CPC bidding and enhanced CPC bidding. In manual bidding, advertisers manually set the maximum cost for each ad bid. This strategy gives users complete control over their bid adjustments for individual keywords and ad groups. Enhanced bidding is an automated bidding strategy—advertisers select their maximum bid and the platform’s algorithm automatically makes bid adjustments to optimize conversions. Enhanced bidding can help lower your CPC.

How to calculate CPC

To calculate your CPC, divide the total amount spent on an ad campaign by the total number of clicks that the ad received. If an ad cost $100 and received 50 clicks, the price per click would be $2.

Your final CPC is not necessarily the same as your maximum bid—it’s often quite less. The final cost is determined in part by your chosen platforms, bidding strategies, and quality score. 

5 tips for lowering your CPC

Lowering CPC can help brands operate efficiently and get the most out of their advertising budget. These are some strategies that may help lower costs: 

• Improve your ad quality score. Ad quality scores are calculated based on factors like performance history, formats, ad relevance, and landing page experience. To improve your ad quality score, make sure that your ad content aligns closely with your target keywords, the associated user search intent, and the content of the landing page that the ad drives to. Strive to create compelling ads that resonate with your target audience and lead to a smooth customer journey. 
• Adjust your target keywords. Choosing highly specific keywords with lower competition can lead to lower CPC. To identify the most effective terms, use keyword research tools. 
• Refine your campaign settings. Narrowing the focus of your ad campaign can help eliminate unnecessary spending. Consider optimizing your scheduling, location, and device settings. If data show that your customers tend to make most of their purchases on Sundays in southern Illinois while using mobile devices, you can schedule ads to target those areas and forgo other markets. 
• Conduct A/B testing. A/B testing can help you create effective advertising campaigns and optimize ad performance. Brands use A/B testing to run different versions of the same ad with slight adjustments to imagery or ad text to identify the strongest performing content. 
• Monitor success. Keeping track of campaign performance and ad click-through rates can help reduce costs. Use campaign data to identify and eliminate underperforming keywords and targeting criteria. The budget associated with those terms can then be redistributed to higher-performing segments. 

CPC vs. CPM: What’s the difference?

CPM (cost per mille) is an alternative pricing model used in online advertising. In CPM, the advertiser pays a certain amount for every 1,000 ad impressions—even if the viewer does not click the ad. For CPM campaigns, divide the total amount spent on the campaign by the number (in thousands) of times the ad was viewed to calculate cost. 

CPM ad campaigns can be a way to reach a large audience and generate brand awareness. They’re commonly used in programmatic and display advertising. 

CPC advertising, on the other hand, is often used when the goal is to drive conversions or generate traffic. Brands choose between CPM and CPC advertising based on their campaign objectives, specific goals, and available budget.