CPC – what is it, and what do you need it for?

How do you calculate CPC?

You calculate your CPC by dividing your ad spend by the number of visitors to the website.

For example: DKK 50,000 in ad spend / 2,500 visitors = a CPC of DKK 20.

CPC is a qualitative metric that can be used to evaluate whether the price you paid for traffic was too high or too low.

For example, if you spent DKK 10,000 on a campaign, it may seem like a lot of money, but if you got 1,000 visitors to your website for that amount, then de facto you have only paid DKK 10 per visitor to your website, which puts the quality of your campaign in a completely different light.

What determines CPC?

Cost per click is defined by two parameters, which together determine what you pay for a given ad impression.

• Competition
• Your relevance

Competition is the most decisive factor. Your CPC depends largely on demand for the target audience or the keywords you are targeting. Who gets the ad impression is decided by an auction—yes, you heard correctly; an auction.

Whether you use social media or Google advertising, an auction is held—but instead of the auction house Bruun Rasmussen, the auction is run by an algorithm. In this auction, you bid against all the competitors who want the attention of the target audience or keywords you have chosen.

These auctions happen in a millisecond, and millions of auctions are carried out daily.

In short: the higher the competition around the target audience, the higher the CPC.

Your relevance to the target audience or keyword ultimately determines the price you pay. You are rated on a scale from 1 to 10, where the algorithm looks at three parameters:

• Ad content
• Target audience
• Expected click-through rate

If you are highly relevant, you actually receive a percentage discount. Conversely, if you are irrelevant, you have to pay a percentage more than the second-place bid. That is simply the penalty for being irrelevant. 😉

How high should your CPC be?

As nice as it would be to have a definitive answer to this question, there isn’t one—and trust me, you are not the first to ask.

What the price per click should be depends, quite simply, on what the traffic is worth to you. So to get as close as possible to your optimal CPC figure, you need to calculate a mini business case.

You need to know the following figures:

• The value of an average customer
• The conversion rate from lead to customer
• The conversion rate from website visitor to customer

Once you have these figures, you can fill in the formula. See the example below:

• An average customer is worth DKK 50.000
• 30% of all leads become customers = average lead value of DKK 15,000
• 1.5% of website visitors become a lead = an average visitor is worth DKK 225
• Your ad budget should be approx. 20% of the revenue from the campaign = a click should have a CPC of DKK 45

In other words, your CPC depends on your business case.

A low CPC is not the goal

I often see CPC being reported as if “the lower, the better”—but the answer is not binary.

We have just learned that demand and competition increase CPC. The increased demand comes from there being value to be gained in the target audience you are addressing. So high CPCs can be a sign that the target audience or keywords have strong commercial potential, because your competitors are willing to pay for that traffic.

At the same time, a high CPC is not the goal either—that goes without saying.

The goal is to pay the price per click that allows you to afford to buy as much relevant traffic as possible, without paying too much for irrelevant traffic.

I recommend using my small formula above, and then using the CPC you arrive at as a benchmark for what your CPC should be.

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Simon Lübiç Hedegård

Tracking Lead & partner

[email protected]

+45 92 44 93 83