Cost per click (CPC)

From The Yaffe Center

Cost Per Click (CPC)

Cost per click - CPC (also known as "Pay-per-click (PPC)") is an internet advertising model used to direct traffic to websites, in which advertisers pay the publisher (typically a website owner) when the ad is clicked.

Google defines CPC as the amount you earn each time a user clicks on your ad. The CPC for any ad is determined by the advertiser; some advertisers may be willing to pay more per click than others, depending on what they're advertising.

With search engines, advertisers typically bid on keyword phrases relevant to their target market. Content sites commonly charge a fixed price per click rather than use a bidding system. CPC "display" advertisements, also known as "banner" ads, are shown on web sites or search engine results with related content that have agreed to show ads.

In contrast to the generalized portal, which seeks to drive a high volume of traffic to one site, CPC implements the so-called affiliate model, which provides purchase opportunities wherever people may be surfing. It does this by offering financial incentives (in the form of a percentage of revenue) to affiliated partner sites. The affiliates provide purchase-point click-through to the merchant. It is a pay-for-performance model: If an affiliate does not generate sales, it represents no cost to the merchant. Variations include banner exchange, pay-per-click, and revenue sharing programs.

Websites that utilize CPC ads will display an advertisement when a keyword query matches an advertiser's keyword list, or when a content site displays relevant content. Such advertisements are called sponsored links or sponsored ads, and appear adjacent to, above, or beneath organic results on search engine results pages, or anywhere a web developer chooses on a content site.[2]

The CPC advertising model is open to abuse through click fraud, although Google and others have implemented automated systems to guard against abusive clicks by competitors or corrupt web developers.

Purpose

Cost per click, along with cost per impression and cost per order, are used to assess the cost effectiveness and profitability of internet marketing. Cost per click has a big advantage over cost per impression in that it tells us something about how effective the advertising was. Clicks are a way to measure attention and interest. Inexpensive ads that few people click on will have a low cost per impression and a high cost per click. If the main purpose of an ad is to generate a click, then cost per click is the preferred metric. Once a certain number of web impressions are achieved, the quality and placement of the advertisement will affect clickthrough rates and the resulting cost per click.

Construction

Cost per click is calculated by dividing the advertising cost by the number of clicks generated by an advertisement. The basic formula is:

   Cost per click ($) = Advertising cost ($) ÷ Ads clicked (#)[1]

There are two primary models for determining cost per click: flat-rate and bid-based. In both cases the advertiser must consider the potential value of a click from a given source. This value is based on the type of individual the advertiser is expecting to receive as a visitor to his or her website, and what the advertiser can gain from that visit, usually revenue, both in the short term as well as in the long term. As with other forms of advertising targeting is key, and factors that often play into PPC campaigns include the target's interest (often defined by a search term they have entered into a search engine, or the content of a page that they are browsing), intent (e.g., to purchase or not), location (for geo targeting), and the day and time that they are browsing.