What Is Your CPC & How Is It Affected?
When the marvellous Tess told me it was my turn to write a TGM blog, I leapt with joy… It’s exactly what every busy, data-minded, digital marketer wants to do.
Quick disclaimer, I have a Brummie father and a Cockney mother, needless to say, at times, I am about as eloquent as Ali-G.
That being said, I do have some insights and believe this to be an important topic – and one that is often overlooked.
So, let’s dive in.
In Digital Marketing there are tons of acronyms, especially three-letter acronyms; CPC, CPL, PPC, CTR, CTA, ROI, MER, CPM… but what on earth do they mean?
They are all very useful and depending on the goal of the campaign, some will be more important than others.
However, when it comes to pay-per-click marketing, there is one that regardless of objective, should never be ignored. One that, at times, seems untouchable, deceptive or just damn right mysterious.
And that is, of course, CPC!
Cost Per Click aka ‘CPC’ is the actual amount you pay per click in your marketing campaigns. This dictates how much you’re paying for said interaction and therefore your desired outcome. A ‘Click’ is the virtual step the user takes to get into your online shop/office. It transports the person that is searching for something you offer, into your domain.
That being said, CPC on its own isn’t the full story.
Other factors such as landing page experience and conversion rate also play a part in determining the cost of your campaigns and conversions. However, CPC is an integral part, and due to its sometimes complex and misunderstood nature can just be accepted or worse, forgotten!
Still not sure what it actually is? If you’re a Star Wars fan, then CPC is a bit like ‘the force’, as Digital Marketers, it’s all around us, some learn to control it and become powerful Jedis, others well, they are just Jar Jar Binks.
No one wants to be the Jar Jar of marketing (Google it).
Why is CPC important?
CPC is the bedrock of PPC (say that 10 times after a social), it’s one of the main determining factors towards the cost of your marketing campaign. It represents the individual investment you’re making into getting that person to interact with you.
Say you and one of your competitors receive 1000 clicks each on your PPC ads. They pay 50p per click and you pay £1, no biggy right? It’s only 50p! Wrong! Assuming other variables remain the same you’re paying a total of £500 more than them. Listening now?
How is it calculated?
CPC is calculated using one formula. However, the makeup of the components in that formula are calculated from other formulas, so to truly understand how CPC is calculated, you will need these three formulas:
- Cost Per Click (CPC) = (Ad Rank of the competitor below you / your Quality Score ) + £0.01p
- Ad Rank = Max CPC Bid x Quality Score
- Quality Score = Combination of Ad Relevance, Expected CTR and Landing Page Experience (exact weighting is unknown).
Sounds complicated right? We could spend agessss breaking this down, but we’ll stick to the key takeaways.
CPC is determined by the amount you’re willing to pay (Max Bid), how relevant your ad is (Quality Score), and your performance relative to competitors (Ad Rank positioning).
What affects the CPC?
Some are external which simply means CPC will be higher compared to others (you can still influence how much higher) and some internal that you have the ability to influence entirely.
As you would expect, it’s not quite as black and white. There are a lot of crossovers and they influence each other. Below are, what I would consider the main factors:
Different industries have different benchmarks when it comes to CPC. For example, the average CPC for Google Search in the US for legal services is $5.88. Compare this to the average CPC for an eCommerce business at $0.88, and you can see that even the most powerful marketing Jedi would not be able to get the CPC for his legal client down to that of the average eCommerce business. Rule of thumb, the higher the value of the product or service, the greater the CPC, which makes sense. This factor affects the bid cap part of the equation.
The basic economic rule of supply and demand rings true when it comes to CPC. The greater the number of organisations bidding on a search term, the greater you will have to pay for that click. You can find the competitiveness of a search keyword by using tools such as SEMrush or Google Keyword Planner. SEMrush rates the competition between 0-1 and Keyword Planner rates it using either ‘high’, ‘medium’ and ‘low’. This factor affects the bid cap and Ad Rank position parts of the equation.
This warrants a whole separate blog, so I’ll only touch on it briefly.
Quality Score is a score that Google (other PPC engines have similar quality incentives) gives your ad based upon its perceived quality compared to your competitors. It is rated from 1 to 10 and is itself a great diagnostic tool.
“Thanks, Pete, but what does this have to do with CPC?” You might be asking.
Think about it from Google’s perspective, they want people to use their search engine, therefore, they want to ensure users find relevant and quality information in their search results and PPC ads. To achieve this, Google incentivises advertisers to target the right keywords and create relevant ads by directly relating it to the price they pay (CPC). The lower the quality score the higher your CPC will be. The average QS on Google is 5 however, anything below 6 and you see a percentage increase in CPC, the increase rises with the lower the score. For example, QS of 3 can see up to a 67% increase in CPC with QS 1 resulting in up to 400%!! Conversely, a QS of 10 can result in a decrease in CPC by up to 50%.
Quality score is calculated using three main variables; firstly, Ad Relevance, secondly, Expected CTR and finally, Landing Page Experience.
Seasonality and geographic location both play huge parts in your CPC, this is closely linked to competition.
For example, around Christmas competitors are likely to increase their budgets or new competitors enter the PPC market to reap the benefits, this drives up Max Bid. Similarly, if you are based in a very lucrative location, e.g. London, you have greater competition so CPC will be higher.
Other (often overlooked) factors are keyword intent and specificity. Keywords that imply information searching rather than transactional intent are less competitive as the user is further from purchase and less likely to convert. Again, sticking to the competition theme, keywords that are niche attract less competition and if they are niche to you, will often result in better Quality Scores.
There you have it! Not quite so mysterious anymore.
As you have seen, CPC is an extremely important metric to understand and manage. There are lots of variables that can influence it but equally, lots that you can influence as marketers. When creating or optimising your next PPC campaign, keep the CPC in mind, select keywords carefully, pay attention to your Quality Score and above all don’t just accept it!