What Does CPC (Cost-Per-Click) Mean and How Do Marketers Use It?

What does CPC stand for?

CPC stands for cost per click. The cost per click metric is defined as the average cost to get one click on a digital ad.  

What does CPC mean? 

We said above that CPC stands for cost per click. But what exactly do we mean by a “click”? To get a better understanding of how clicks work, it is useful to consider the difference between a “click” and an “impression”. 

An “impression” occurs when an ad is displayed on a user’s screen. The key word here is displayed. The customer doesn’t have to click the ad, doesn’t have to remember the ad, and doesn’t even need to see the ad. An impression is defined simply as an opportunity to see an ad. A click, on the other hand, is a formal action taken by a user.

The reason we’re clarifying these differences is because marketers purchase online media primarily in two different paradigms—1) by paying for impressions and 2) by paying for clicks. Cost per click is an important metric because it allows marketers to forecast their expected return on ad spend when purchasing media on a per click basis.

What is the CPC formula and how is CPC calculated?

Cost per click is calculated by dividing the total amount of ad spend by the number of clicks the ad spend generates. See the formula below.

Let’s look at an example. Suppose a marketer purchased $10,000 of digital ads. The marketer finds that the ads generated 2,500 clicks over the course of the campaign. Our CPC formula looks like this:

In this example the marketer paid $4 for each ad click.

How do marketers use CPC metrics?  

In our above example, our marketer purchased a specific number of ad impressions for a fixed price—$10,000. Using our CPC formula we were able to determine the average cost per click of this campaign. However, marketers are able to purchase media on a per-click basis instead of a per-impression basis.

Suppose our marketer knows that every visit to his company’s website generates an average of $15 revenue. Instead of buying digital media by the impression, our marketer can purchase clicks that go directly to his company’s website. This method of buying online media removes the uncertainty associated with buying media impressions (where you aren’t guaranteed a certain number of clicks).

Some of the largest advertising platforms utilize a CPC buying paradigm—Google, Facebook and Yelp are a few examples. Interestingly, these companies sell clicks through an auction. Marketers bid on a price they’ll pay for one click.

Note that there are drawbacks to the CPC buying model. For example, the quality of a click is not guaranteed. Poor targeting could send the wrong type of users to your website, resulting in poor sales performance.