Cost Per Click (CPC): Learn What Cost Per Click Means for PPC

Cost Per Click (CPC) refers to the actual price you pay for each click in your pay-per-click (PPC) marketing campaigns. In this lesson you'll learn:

• A more thorough definition of cost per click.
• Why CPC is important to you and your PPC campaigns.
• How to lower your cost per click while maintaining (or even improving) traffic and conversion levels.

Be sure to take the quick quiz at the bottom of this page to test your knowledge before moving on!

A "click" on one of your PPC text ads represents a visit, or an interaction with your company's product or service offering. Every click in a PPC campaign represents attention from a person who is searching for something that you offer. This attention is what you're buying, as an advertiser, so it's important to note two factors:

• What type of attention you’re going after, and
• How much you’re paying for it.

How Is Cost Per Click Calculated?

The actual formula for cost per click in AdWords is:

As an advertiser, your cost per click will always be less than or equal to your maximum bid, as it is an average of bids against a series of competitors over a period of time. Because of how Google's Adwords Auction works, your actual cost per click is heavily influenced by both you and your closest competitor's ad rank, maximum bid, and Quality Score.

The Importance of Cost Per Click in Search Advertising

Cost-per click is important because it is the number that is going to determine the financial success of your paid search campaigns.

Your return on investment, whether you're over- or underpaying for each action, will be determined by how much you are paying for clicks, and by what kind of quality you are getting for that investment.

Since the overall ROI of your campaigns is determined by how much you’re paying for clicks and the quality of traffic they’re bringing in, it is important to think about cost per click in terms of both cost and value. You want to identify and target clicks that are both inexpensive and valuable. 

Lowering CPC While Maintaining Value

So how do you go about lowering the price you're paying for each click, while sustaining (or even improving upon) the value of your visits? Two key paths of action come into play here:

Raise Your Quality Score – Google has created an automated system that offers pricing discounts to well-managed PPC campaigns with high Quality Scores. Currently, accounts with quality scores of 6 or higher (the average score today is 5) are granted a 16-50% decrease in CPC, whereas accounts with a 4 or lower Quality Score see a 25-400% increasein CPC! 

Boost your chances of a drastically discounted cost per click by adhering to Quality Score best practices:

• Increase click-through rates (CTR) by creating compelling, relevant ads.
• Build out closely related ad groups.
• Optimize ad text and landing pages that speak to individual search intent.

Expand Your Reach – By discovering new, relevant and valuable clicks, the distribution of your budget will be improved substantially. To do this, you’ll have to find new PPC keywords and search advertising opportunities. But you can’t just expand without also paring back – you need to simultaneously eliminate irrelevant or overpriced clicks from your campaigns.

Refine Your Reach – Continually designating negative keywords in your AdWords account helps to control your CPC by filtering out traffic from searchers that are highly unlikely to convert. So as you add new keywords to your AdWords account, be sure to eliminate the losers. When you target only keywords that perform well and are relevant to your business, it ensures that:

• Your spend is protected – Lowering your cost per click isn't useful if you're paying low prices for irrelevant clicks. Negative keywords tell your PPC campaigns which terms not to target, therefore reserving your budget for relevant terms only.
• Your Quality Score improves – If your keywords are clearly related to your ad text, landing pages, and offering, your click-through rate and other Quality Score factors will be positively affected. This gets you more cost-efficient clicks (remember, up to a 50% decrease in CPC!), and on search terms that are more likely to convert.

A low cost per click is key to PPC success because it ultimately translates into your cost per conversion. You’ll learn more about that in the next lesson.

Quality Score: What Is Quality Score & How Does it Affect PPC?

If you’re trying to master PPC, you need a solid understanding of Quality Score. That’s because your Quality Scores have enormous influence over the cost and effectiveness of your paid search campaigns. Just as your credit score can affect whether or not you qualify for a loan and how high your interest rate is, Google Quality Score affects how your PPC ads perform and how much you pay for each click.

What is Quality Score? Quality Score is Google's rating of the quality and relevance of both your keywords and PPC ads. It is used to determine your cost per click (CPC) and multiplied by your maximum bid to determine your ad rank in the ad auction process. Your Quality Score depends on multiple factors, including:

• Your click-through rate (CTR).
• The relevance of each keyword to its ad group.
• Landing page quality and relevance.
• The relevance of your ad text.
• Your historical AdWords account performance.

No one outside of Google knows exactly how much each factor “weighs” in the Quality Score algorithm, but we do know that click-through rate is the most important component. When more people who see your ad click it, that’s a strong indication to Google that your ads are relevant and helpful to users. Accordingly, Google rewards you with:

• Higher ad rankings
• Lower costs

Benefits of Improving Google Quality Score

By analyzing thousands of PPC accounts, we know that Quality Score has a direct correlation on your PPC success. Byoptimizing your Quality Scores, you’ll be setting yourself up for higher return on investment (ROI). That’s because higher Quality Scores correlate with lower cost per conversion! Cost per conversion is different from cost per click. It’s not how much you pay for each click, but how much you pay when someone takes the action you want them to take, whether that’s signing up for a free trial or making a product purchase. Since not every click results in a conversion, cost per conversion is generally higher than cost per click.

Luckily, strong Quality Scores lower both your cost per click and your cost per conversion.

Generally speaking, the higher your Quality Score, the lower your cost per conversion. Remember, a high Quality Score is Google's way of saying that your PPC ad meets your potential customers’ needs. The better you are at meeting the prospect’s needs, the less Google will charge you for the ad click.

How Do You Increase Your Quality Score?

Since Quality Score determines where and how often your ads appear, it’s important to boost your ratings by working consistently on your account. This can be achieved by focusing your efforts on several key areas:

• Keyword Research – Discover new, highly relevant keywords to add to your campaigns, including long-tail opportunities that can contribute to the bulk of your overall traffic.  
• Keyword Organization – Split your keywords into tight, organized groups that can be more effectively tied to individual ad campaigns.
• Refining Ad Text – Test out PPC ad copy that is more targeted to your individual ad groups. More effective ads get higher CTR, one of the best ways to improve Quality Score. 
• Optimizing Landing Pages – Follow landing page best practices to create pages that connect directly with your ad groups and provide a cohesive experience for visitors, from keyword to conversion.
• Adding Negative Keywords – Continuously research, identify, and exclude irrelevant search terms that are wasting your budget.

As you can see, Quality Score is primarily a measure of relevance, and improving keyword Quality Score is a matter of structuring your PPC campaigns into small, well-organized, tightly knit groups of keywords. Better keyword research and organization will also naturally improve the quality and specificity of your ads and website content, allowing you to target the exact audience most likely to be searching for your offerings.

Low AdWords Quality Scores are primarily the result of disconnect between keywords, ad groups, ad text, and landing page content. A high Quality Score comes naturally when an AdWords account contains organized keywords in appropriate keyword groups, ad text that corresponds with certain ad groups, and landing pages that connect with the ad text's offer. While there is no easy, foolproof answer to improving your Quality Score formula, paying careful attention to relevance will greatly improve your scores.

More Quality Score Resources

Want to learn more about how Quality Score works and how to increase your ratings? Check out the following resources:

• Quality Score Toolkit – This free toolkit is a Quality Score 101 course all wrapped up in one package. The toolkit includes our "Mastering Quality Score" video, our Quality Score white paper, and a Quality Score Cheat Sheet for quick and easy reference.
• Improving Quality Score: The Value of Being More Relevant – This free white paper takes an in-depth look at how Quality Score is calculated and lays out a strategy for increasing your Quality Scores.
• Understanding and Improving Quality Score – Learn how to improve Quality Scores with this free webinar that helps you understand why you should pay close attention to your quality score. Larry Kim, Founder of WordStream clears up mysteries surrounding the elusive Quality Score.

Click-Through Rate (CTR): Understanding Click-Through Rate for PPC

Achieving a high click-through rate is essential to your PPC success, because it directly affects both your Quality Score and how much you pay every time someone clicks your search ad. Are your click-through rates holding you back, or are they high enough?

Click-through rate (CTR) is a metric that measures the number of clicks advertisers receive on their ads per their number of impressions. In this tutorial you'll learn:

• Exactly how click-through rate is calculated.
• Why click-through rate is important to your pay-per-click marketing account.
• Learn what constitutes a good click-through rate for PPC, and how you can get one.

So What Is Click-Through Rate, Anyway?

As mentioned above, PPC click-through rate is the rate at which your PPC ads are clicked. This number is the percentage of people who view your ad (impressions) and then actually go on to click the ad (clicks). The formula for CTR looks like this:

(Total Clicks on Ad) / (Total Impressions) = Click Through Rate

Generally, you can view your click-thru rate within the dashboard of your PPC account.

Why Do Click-Through Rates Matter?

Click-through rate is important to your account because it directly effects your Quality Score.

Google AdWords and other search marketing platforms offer pricing discounts for ads that offer high relevance (read: make searchers happy). One means for doing this is to offer higher Quality Scores to ads with high AdWords click-through rates:

• High click-through rates lead to high Quality Scores.
• High Quality Scores allow you to improve or maintain ad position for lower costs.

Additionally, if you are advertising on relevant queries, achieving a high click-through rate means that you are driving the highest possible number of people to your offering.

What's A "Good" Click-Through Rate?

This is a hotly debated topic: what constitutes a good click-through rate?

From a purely statistical standpoint, it depends. Take a look at Yahoo's answer to the "what's a good click-through rate" question:

The honest answer to the question is, “It depends.” Click-through rates are naturally going to vary from campaign to campaign, and even from keyword to keyword. Everything involved in the way your ad is displayed plays a part, from your ad copy to the ad’s ranking on the results page.

So while you want to have a "high" click-through rate, there's really no magic number. Average click-through rate will vary by industry, and your expected CTR depends on your ad's position, among other factors. Generally speaking, as we mentioned above, you want as high a click-through rate as possible.

Except when you don't.

When Higher Click-Through Rates Are Actually Bad For Business

If a keyword isn't pertinent to your business or isn't going to generate sales, leads, branding gains, etc. then a high click-through rate for that term is actually bad for business. The reasoning for this is fairly clear:

• You're paying for every click.
• A lot of clicks generate a lot of ad spend.
• Some times you're generating clicks on keywords that are priced too high, and won't turn a profit even if they convert.
• Irrelevant terms and clicks are just spending money without bringing in additional business.

So you don't always want higher click-through rates: what you want are high CTRs on keywords that are:

• Relevant - Have to do with your ad text, your landing page, and your offering.
• Affordable - Keywords that aren't going to be profit-prohibitive.

So, in a nut shell, a good CTR means first targeting the right words, then getting as many people as you can to click onthose ads.

Achieving Strong Click-Through Rates For Your Ads

Achieving strong click-through rates in PPC, then, depends on:

• Targeted keywords to bid on.
• Cost-efficient clicks.
• Tools and methodology for closely integrating keywords with ad text and landing pages.
• The ability to quickly and efficiently segment keyword groups to generate closer targeting.

Remember, the higher your click-through rate, the better your Quality Scores will likely be, and high Quality Scores are one of the single best predictors of success in PPC.

Text Ads: How to Optimize Your Text Ads for PPC

Compelling, targeted text ads are crucial to a high-performance PPC campaign. They're often the first contact that a potential customer has with your site: they search for something related to your business, and your ad shows up in the results. Whether or not they click on your ad and get to your website depends on how powerful your message is and howrelevant it is to what they want.

Since the PPC text ad is so often the "first touch," it's crucial that you get them right. Creating well-written AdWords ads offers some very obvious benefits:

• Improved Click-Through Rate
• Better Quality Scores
• Lower CPA (Cost Per Action)

The most important things to keep in mind when writing ad text are making sure your ad is highly relevant:

• To your product or service
• To the searcher's intent (which can usually be inferred from the keyword and context)
• To your PPC landing page

The simplest possible version of a PPC text ad looks like this:

It consists of a headline, a display URL, and two lines of description. Each line of the ad has a limited character count; there's an art to writing an eye-catching, compelling message that, ideally:

• Contains the relevant keyword at least once.
• Communicates your unique value proposition, i.e., the benefits of your offering and why people should visit your site to learn more.
• Includes a compelling call to action, or a command that tells the searcher what to do and what they'll get when they click on the ad.

Google offers plenty of tools to make your ads more compelling. For example, you can use ad extensions to provide additional links for the user to click on, as well more information about your product. This additional info might include:

• Location and contact information, such as physical address and phone number.
• Images of products in your inventory or other features, like a hotel room.
• An email field so that users can sign up for an email list right from the Google search results page.

You'll learn more about AdWords ad extensions in PPC 102, or you can skip ahead and download our Ultimate Guide to AdWords Ad Extensions (PDF).

The Importance of Regular Ad Text Optimization

Top-performing PPC advertisers are always testing and tweaking their ads to find the most compelling messaging for each keyword group, in order to maximize clicks and Quality Score and ultimately lower cost per action, which equates tohigher ROI.

Now ad optimization is easier than ever with Optimize Ads, an ad authoring tool and alert that’s part of the 20-Minute PPC Work Week. This new feature proactively monitors your ad performance and simplifies the ad writing process so you canoptimize your PPC text ads in as little time as possible.  

Here’s how it works:  

• Cut hours of analysis down to seconds – An alert lets you know when an ad needs improvement, so you don’t have to dig through hundreds or thousands of ads.
• Write highly clickable ads fast by leveraging your best-performing ad text – We help you re-use messaging that’s already working for you, by showing you your best-performing ad in the group.
• Avoid common pitfalls – The software automatically checks to make sure your ad follows best practices, and that you’re not violating any of Google’s quality guidelines.

With Optimize Ads, there are no more excuses for weak, underperforming ads. WordStream Advisor helps you make the most of your ads in just a few minutes per week!

The Value of Better Ad Text

When your ad is more relevant to the searcher, your CTR improves, and high CTR is the single largest component of your Quality Scores. High Quality Scores lift your whole AdWords account and are good for your business. Why? BecauseQuality Score works to improve your ad rankings while lowering your cost per click!

If you spend just a few minutes a week to improve the relevance and CTR of your ads – throw out your worst two ads and replace them with new text, or try out a new ad extension – you’ll be on your way to a better-performing PPC account.

Ad Groups: How to Create More Effective Ad Groups for PPC

Ad Groups are an essential component of pay-per-click marketing. Creating effective Ad Groups can help you to drive more traffic and leads at lower costs, while increasing the number of conversions on your site. This page will teach you:

• What "Ad Group" means in reference to PPC advertising.
• Why Ad Groups are important.
• And, of course, how best to create an effective Ad Group for PPC.

So What's an Ad Group, Anyway?

Basically an Ad Group is the container for your keywords in your search marketing campaigns.

PPC advertising is structured such that you first create an account, then create an ad campaign, which is home to Ad Groups.

Those Ad Groups then house:

• Keywords
• Text ads
• Landing pages

In other words, ad groups are one of the main tools you have for organizing your PPC account into a meaningful hierarchy.

The Importance of Ad Groups

OK, so we now know that Ad Groups are basically a structural component within your PPC account. So why should you bother with them? What makes them important?

Ad Groups contain a lot of important stuff!

Most search engines look to your Ad Group organization to determine:

• Which keywords your ads will show in response to.
• What your ad will say when it runs.
• Where the visitor will be taken when they click on your ad.

You're deciding:

• Who to advertise to.
• What to say to get their attention.
• And how you'll make your final pitch when you set up an Ad Group.

How to Create Ad Groups That Really Work

"Really work" here means Ad Groups that cost less and convert more. Basically, in creating an Ad Group, you want to ensure that you're offering integration and consistency:

• Integration - Create a system where you're consistently creating keyword groups, ad text, and landing pages that are tightly integrated with one another.
• Consistency - This integration should lead to messaging consistency. Your ad text and landing pages should speak directly to the searches users are typing in to reach your site.

There are two central reasons these things are so important to you and to your business:

• Lower Costs - Because of a system known as Quality Score, creating well-aligned Ad Groups means that you'll be paying less money for the same clicks.
• More Conversions - If I search for "graphic design services" and your advertisement talks about your graphic design services, and then you send me to a page about those same graphic design services, I'm much more likely to convert than if your ad text or landing page have nothing to do with one another or aren't well integrated with your keywords.

So what actually goes in your ad groups? Text ads, of course! In our next lesson, we'll learn how PPC text ads work and how you can optimize your text ads for better PPC performance.

Find Complete Structuring of your Adwords Account

• Determine which ads are creating the optimal conversions (like sales or leads) and traffic.
• Monitor changes easily.
• Have better control over budgets and costs.
• Locate specific keywords quickly.
• Manage and edit your campaigns easily.

Good account organization helps you make changes quickly, target your ads effectively, and, ultimately, reach more of your advertising goals. By creating well-structured campaigns by theme or product, you'll get more than just an account that's easy to manage and keep organized: you'll also have sets of ads and keywords that are directly related to each other, which helps improve your Quality Score. With a higher Quality Score, you can get more bang for your buck.

Top three tips for structuring your account

1. Organize your campaign to mirror your website
   A good rule of thumb for creating an effective campaign structure is to mirror your website's structure. By creating campaigns and ad groups around a specific theme or product, you can create keyword lists that directly relate to the corresponding ad text, and ads that link directly to that product's page on your website. You can even add keyword-specific URLs to improve the quality and relevance of your ads in your account.
   For example, a furniture store's website is likely to have different sections for each type of product, like bedroom furniture and dining room furniture. The website might also have separate sections or pages for each specific product, like a certain bed or model of table.
   Here's an example of good account structure:

   Account Furniture store

   Campaign Campaign Tables Beds

   Ad group Ad group Ad group Ad group Coffee tables Dining tables Sofa beds King size beds Ads Ad 1 Ad 2 Ads Ad 1 Ad 2 Ads Ad 1 Ad 2 Ads Ad 1 Ad 2

   This format can be changed to match your business and the scope of your advertising. For example, if you sell many types of beds, you can have a "Beds" campaign with ad group themes like "Bunk beds," "Queen size beds," and "Sofa beds."
   If you also sell tables, you can add a "Tables" campaign and create ad groups organized in a similar way. Or, if you sell only one product or service, you can create a simple campaign structure around that product.
   • The account contains everything relating to the furniture store.
   • The campaigns are organized around broad product areas (like bedroom furniture and dining room furniture).
   • Each campaign contains several ad groups that focus on one specific product (like tables and beds).
2. Create separate campaigns for multi-region advertising
   If your business serves several areas, you might create a separate campaign for each location. For example, if you have a store in France and one in Italy, set up two separate campaigns, each targeting one of these locations. Each campaign should be translated to the local language and should emphasize that your services or products are available in that country. When creating a new campaign by region, be sure to select the correct language during the campaign set-up process.

   Examples

   • The campaigns mentioned above that target Italy and France should have ads in Italian and French, respectively.
   • Local businesses such as real estate developers might create a campaign for each area they want to target, and create different ads for each city or metropolitan area they cover. Even if you target one geographic area, if you're running a promotion in a specific city, you might create a campaign targeting that city only.
3. Use AdWords Editor to manage your campaigns
   AdWords Editor is a free Google application for managing your AdWords ad campaigns. You can use it to make changes to your account quickly and conveniently, whether you're editing one keyword or adding hundreds of text ads.
   Among other benefits, you can:
   • Add, edit, and remove campaigns, ad groups, ads, keywords, and placements.
   • Make large-scale changes quickly.
   • Perform advanced searches and edits.
   • Sort and view performance statistics.
   • Copy or move items between campaigns, ad groups, and accounts.
   • Export a snapshot of your account for archiving or sharing.