Average CPC vs. Average Cost – How to Calculate Avg CPC Using Formula

You have setup a great Google ads search campaign with super effective keywords and now you are looking to get a handle on your advertising expenses? It’s a smart move for any pay-per-click (PPC) marketer, as knowing your actual costs will give you a better idea of what is going on with your campaign.

In Google Ads, it’s easy to get misled by the many metrics, especially as there are two similar ones to consider when you are assessing cost – average cost and average CPC.

In this article, we’re going to explore both so that you understand how pay-per-click advertising works, and how to determine your advertising costs and formula to find Average CPC.

What is Average CPC?

When a user clicks your ad, the platform (i.e. Google Ads) will charge you for that click. The Average CPC (cost-per-click) metric tells us the average cost of a single click. How to calculate Average CPC?

Average CPC Formula:

Total cost of clicks / total number of clicks

For example, if your ad receives two clicks – one at $0.20 and one at $0.40, the total cost is $0.60.

Average CPC = $0.60 / 2 = $0.30

The metric Average CPC in Google Ads will likely differ from the maximum CPC that you set in your campaign – this is the most you are willing to pay for a single click. According to recent research, the Average cost per click in Google Ads across all industries is $2.69 for the search network and $0.63 for the display network.  On average it is a very little hike in average CPC from what it has been a couple of years back. (when the averages were $2.32 and $0.58 respectively). This is good news for PPC advertisers.

Average Cost per click (CPC)

Lowering Average CPC of a Google Ads account has been a challenge for PPC managers and regular account audits can help to get to the level of optimization they need.

Cost per Click (CPC) as a Direct Form of Advertising

As CPC can attract relevant leads, it is one of the most effective methods of direct marketing that PPC advertisers use today. With more leads, the chances of conversion increase.

The logic behind this strategy is that marketers don’t need to go to great expense with mass marketing of their products and services as it is more cost-effective to directly target those people are already interested in what you have to offer.

CPC advertising is very effective in this way, however, there are other core aspects required for it to succeed, such as:

• An optimized website and landing pages
• High-value content that is relevant to your target audience
• Inbound links from other websites that use long-tail keywords as anchor text
• Enticing ad copy with language and offers that are aligned with user intent

Cost per Click (CPC) Makes It Easier to Gauge ROI

In paid advertising, there are few metrics as important as your return on investment (ROI). By focusing on your cost per click, you’ll find it easier to measure the value of your advertising spend. As most CPC traffic tends to be relevant, you are likely to generate more sales.

Consequently, your conversion rate should rise with CPC advertising. Another option worth considering is CPM (Cost per Mille – 1,000 impressions). This a good choice if you have a larger budget for a branding campaign.

That being said, CPC is undoubtedly the more cost-effective strategy, which often yields a better return on your spending in the short term. By continuously analyzing and refining your campaign, you can optimize it to maintain a low average CPC.

How to Lower Your Account Average CPC

So, with the benefits of a low average CPC now clear, the big question looms:

How can you lower it?

In theory, it’s quite simple. You need to bid more for keywords that currently have a low CPC and a good opportunity for impressions. If you want to lower the average CPC in your Google Ads account, follow the steps below to implement this strategy:

• In your account, filter out keywords with a lower CPC than the average CPC – at least 0.01% lower.
• Verify that the impression share of these keywords is less than 100%. This indicates that there still potential impressions available.
• Now you can see keywords that have a cheap CPC and available impression opportunity. By increasing your Max Bid on some of these, you can earn more impressions, and clicks. Most importantly, you’ll do so at a low cost.

What is Average Cost?

Average cost-per-click is not the only cost metric that PPC managers need to be aware of.

The Average Cost metric is the average amount you have paid for user interactions with your ad. It is calculated as follows:

Total cost of ads / total number of interactions

For example, let’s say your ad receives two interactions – one at US$0.30 and one at US$0.40.

Average Cost = ($0.30 + $0.40) / 2 = US$0.35

Interaction Rate Can Help Measure Effectiveness

The Interaction Rate is how often people respond to your ad when they view it. It is calculated as follows:

Number of Interactions / Number of Times the Ad Was Displayed

This is a useful value to track when gauging the efficacy of your advertising. For example, an ad that garners 1,000 impressions and 10 interactions would have an interaction rate of 1% – not a great impact!

Interactions can differ depending on the type of campaign. Imagine you have two campaigns running for the same product, one on video and one on the Search Network.

To measure performance, you can track clicks on the Search Network campaign. That won’t be so useful for measuring the video campaign. The key interaction here is video views.

Cross-Campaign Reporting Columns

Quite often, you’ll find yourself managing several campaign types. By using three cross-campaign reporting columns – Interactions, Interaction Rate, and Average Cost – you can quickly glean insights from the campaigns at a glance.

This makes it easier for PPC managers, data analysts, and even C-Suite members to evaluate campaign performance. The key metrics are presented relevant to each campaign type, and you can gauge how effective the ads are in relation to your advertising goals and objectives.

Average Cost Differs Across Countries

Typically, the countries that share strong economic ties with the US have a few things in common:

• They have a flourishing economy
• They have a high population of English speakers
• Google is the dominant search engine

In fact, Google almost monopolizes the search engine industry in such countries, with little challenge from any other engine.

Consider Both Metrics to Optimize Campaign Spending

When you are actively working on reducing Google Ads costs, it’s important to look at both of these key metrics.

As your marketing efforts grow, you can use the Average Cost metric to assess costs across several campaigns. Think about which countries your target audience is in and you can determine which interactions are worth the expense.

By keeping your average CPC in mind, you can find valuable keywords with a great impression opportunity for a relatively low cost. This enables you to earn cheaper clicks, more leads, and a better ROI.

Ultimately, there is lot to be gained by knowing the right metrics to measure for a successful ad campaign.