How to Calculate CPC in Marketing
Learn how to calculate CPC using this free marketing calculator. Cost Per Click (CPC) is used by marketers to understand the cost of advertising spend.
Definition: Cost Per Click (CPC)
Cost Per Click (CPC) is calculated by first taking the sum of all advertising spend (Ad Spend). Next, sum all clicks across the campaign or advertising being measured (Clicks). Finally, calculate CPC by dividing Ad Spend by Clicks to return the CPC. Generally, a low CPC is typically better, though there can be advantages to pursuing higher CPCs, such as higher yielding sales results.
Formula to Calculate CPC
To calculate CPC, sum all ad spend for the campaign or advertising being measured. (Call this Ad Spend.)
Next, sum all clicks for the particular campaign, ad placement, or whatever is being measured. (Call this Clicks.)
Finally, divide Ad Spend by Clicks. The final result is the Cost Per Click (CPC). It is typically represented as a currency figure, such as dollars and cents per single click.
CPC Formula and Example
CPC = Ad Spend / Clicks
Example:
$0.50 CPC = $5.00 Ad Spend / 10 Clicks
In the above example, the advertiser has spent $5 in advertising for the measured advertising efforts, and 10 clicks were able to be attributed back to the Ad Spend. In order to generate 1 click, the brand could expect to pay $0.50 in similar scenarios.
Why is CPC Important?
Understanding how to calculate CPC is important in marketing because it tells marketers how expensive their advertising efforts are. When CPCs are kept low, it allows a brand to purchase more traffic (clicks), which has potential to generate greater sales opportunity.
With constrained marketing budgets, it’s especially important to know when CPCs are effectively driving results. For instance, when partnered with ROAS metrics, marketers can optimize for keywords or other bidding in spots with lowest CPCs and highest ROAS. This allows marketers to make the most of their budgets.
Are Lower CPCs Always Best?
The goal in marketing is typically to reduce costs while increasing sales with the maximum efficiency. This would seemingly suggest lower CPCs are always better. However, when considering lower CPCs, don’t forget that winning bid prices are based on market demand.
It’s always possible the market is overvaluing or over competing for certain keywords. In fact, it happens routinely. Value must always be a consideration when determining willingness to pay.
Consider the low CPC option. In this case, it’s possible a keyword or opportunity exists which the market competition hasn’t discovered yet. That’s great! However, there are also cases where CPCs are low as a result of their returns. When the return on ad spend is so low that it doesn’t make sense to spend the low CPC, competition will diminish.
Consider the high low CPC option. In this case, it’s possible the market may be targeting a well known brand or trend on similar keywords. This can force CPCs upwards in price, diminishing returns. However, where a trend is taking place, there may (not always) be greater sales opportunity, as more customers may have entered the buying stage of the funnel. In this case, spending more might make sense.
How Do I Know If the CPC Is Competitive?
Like many things in the world, it’s hard to know what works or doesn’t until it’s tested. Each brand and situation will have its own unique results, so the recommendation is to test with smaller budgets and scale up to additional spend where the brand is seeing success.
Remember: CPCs are based live auctions typically. They change with the trends. Don’t assume what’s true today will remain true in a year. A healthy strategy is one that constantly tests, learns, and adapts to the current market.
