Learn What Max CPC You Should Be Using
By Rachel Anderson
When new to pay-per-click advertising, many wonder what normal metrics look like for conversion rate, clicks, click-through rate, and how their stats measure up. Because of how unique this data is to individual industries, you would need a business of similar size and trade to be able to compare results. Even then following a competitor exactly many not yield the same success as things like ad copy, website quality, and quality score, affect sales directly.
One of the most frequent questions I receive from people new to ppc is,
“Does my cost per click seem high/low? What is an average cost per click?”
This metric will fluctuate throughout a business’ ppc history as keyword competition and the advertiser’s quality score change.
(Competitor Ad Rank)/(Your Quality Score) + $0.01= Actual CPC
However, there are tools that show advertisers what they can expect and why.
If you are using Google AdWords, the Google Traffic Estimator can give you a good idea of how much a click will cost on average. Simply enter your keywords, your location and network and how much your max cpc will be.
What should your max cpc be you say? Here’s where taking a little time to juggle some numbers can really pay off. In order to find out the maximum you should ever pay for a click, you need to know how much you’re willing to pay for a sale. This is called cost per acquisition or CPA in pay-per-click advertising.
Here’s an example:
A website sells a product for $299.99. The cost of goods sold was $194. This sale had a margin of $105.99. If they reinvest 30% of the margin, they would have $31.80, which would be their acceptable CPA.
Now this advertiser knows how much they’re willing to spend for this $300 sale, roughly 10% of the sale total, or $30-32.
Next we need to determine the website’s conversion rate, how often a visitor purchases.
If we continue our example and assume that the advertiser had 20 sales from 1000 visitors we could calculate the conversion rate. (20/1000)*100= 2%.
Use the site conversion rate and the acceptable CPA to calculate the max cpc.
(Conversion Rate as Decimal)(Acceptable CPA)=Max CPC
In the PPC world the max cpc you bid is rarely the same cpc you actually pay. You can go as much as 20-40% higher than the calculated bid without going over that amount. In this case, the max cpc would be about $0.75.
Good luck calculating your ideal Max CPC! If you have any questions about how to do this, leave a comment below and I’ll be sure to respond.
Rachel Anderson is a Pay Per Click Advertising Strategist at Netmark.com. She loves helping companies be successful online by defining target markets and creating the most relevant, appealing ads. Off the job she enjoys photography, good food, the outdoors and family time.