Online Marketing Formulas You Need to Know, Part 1

Cory-Cozad

Cory Cozad

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Cost Per Click – Insights and Limitations

One of the greatest challenges to marketing is understanding what is working and what is not.

In response, over the next several months, Stamats will be presenting a handful of formulas and calculations that will help you gain a better understanding of how well your marketing dollars are performing.

This week we are going to look at determining CPC, or cost-per-click; one of the most basic elements of any online pay-per-click campaign.

While CPC is not used nearly as often as it once was, it is still important to understand how it works because it is the building block to other, more complex calculations.

First, a little background.

Almost every business has, as one of its chief components, the use of Google’s search engine marketing platform which is part of a larger array of services called Google Ads.

Launched some 18 years ago, Google Ads gives organizations the ability to purchase keywords that are searchable by their respective audiences. You can choose words based on common choice characteristics used by prospects, or you can target keywords that relate directly to your specific industry. When a prospect searches for these keywords, and clicks on your ad, they are directed to a landing page. In most cases, you only pay when a user clicks on your ad.

For a pay-per-click campaign, you can set the maximum amount you’re willing to spend for each of those clicks. You can also adjust your bid for key words up or down based the time of day, which device they are using, or where they are physically located, or other variables.

Cost per Click (CPC)

Cost per click, or CPC, is the amount you pay for each click on that someone makes on platforms such as Google AdWords or Bing Ads.

The formula looks like this:

Total spend/Total number of clicks

Let’s run through a demo.

Suppose you invested $1,000 in a pay per click campaign and received 8,200 clicks.

Your average CPC, or cost per click, would be 12 cents.  

The good thing about this calculation is that it is easy to conceptualize and perform.

The challenge, of course, is that it doesn’t tell you the full story and may, in fact, be misleading.

What It Means

The danger is comparing one campaign with a CPC of 12 cents with another campaign that has a CPC of 48 cents.

The unformed might think the lower CPC of the first campaign means that it was more effective.

What is missing, however, is understanding how many of those “clicks” converted to become students or other customers.

If the more expensive campaign did a better job landing customers, it might actually prove to be more cost effective than the campaign that had the lower initial CPC.

The key, as with all measures of marketing performance, is actual (ROAS) return on ad spend, or cost per acquisition (CPA) rather than initial cost.

Understanding how CPC works, and explaining its limitations, will guide leaders to better marketing decisions.

Read Next: Brand Salience: Beyond Brand Awareness


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