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Cost-Per-Click Advertising Explained

Cost-Per-Click Advertising Explained

Fact! There is no industry filled with more custom gobbledygook (real word, look it up!) than online advertising. CPM, CTR, native ads, contextual display, negative keywords, day parting…. yada, yada yada. I forgive you in advance for swearing if you are about to ask what the $#!@ does all that jargon mean?!

Two of the terms that cause most confusion in this digital world are those at the heart of the online advertising model:

  • CPM – Cost-per thousand impressions
  • CPC – Cost-per-click

CPM and CPC are the two primary ways of buying or bidding for ads online. There are other ways of course, however those most commonly used by advertising platforms like Google Adwords or Facebook are CPM and CPC. Let me use a metaphor to explain how the two work.

Think about billboards….

In the CPM model, advertisers pay for billboard space based on how many people might see their ad as they drive by, whether those people actually see the ad or not. Using the cost per thousand impressions bidding model (CPM) you set the maximum amount of money you are willing to spend for every thousand people that drive by your billboard.

Cost-per-click (CPC) bidding allows you to set a maximum price on the cost of someone clicking on your ad. So to use the billboard metaphor, this is like only paying for the people that drive right up to your billboard, stop their car, grab their phone out of their pocket and call your business right there and then! What’s more you get to decide how much you are willing to pay for that phone call!

No paying for drive by traffic, jeez you don’t even pay for the tyre kickers that look over your ad but don’t take action.

The CPC bidding method gives you amazing value because you pay only when a viewer is interested enough to click your ad and learn more.

Cost-Per-Click bidding in Google Adwords:

For CPC bidding in Google Adwords, you set a maximum cost-per-click bid – or simply “max CPC” – that’s the highest amount that you are willing to pay Google for a click on your ad. Adwords will only charge you if someone clicks on your ad. If 100 people view your ad and 4 click on it, then you only pay for the 4 clicks – not for the other 96 views.

A real example

If you think it’s worth 50 cents cents to you have someone visit your website, you can set $0.50 as your maximum Cost-Per-Click (CPC). You’ll pay Google a maximum of $0.50 when a person reads your ad and clicks it – you pay nothing at all if they don’t click.

OK so let’s go a bit deeper. Let’s say that you create an ad in Google Adwords and set a maximum CPC bid of $0.50. Seven hundred people see your ad and 34 of them click your ad to visit your site. You only pay for those 34 clicks. Your maximum CPC bid was $0.50, so you’ll pay no more than 34 clicks x $0.50, or $17.

Now here’s the cool part! In almost every case you’ll pay way less than your maximum CPC bid because with the AdWords auction model, the most that you’ll pay is what’s needed to rank higher than the advertiser immediately below you. And, if you’ve done a good job with your ads and a high percentage of people click on them then the actual CPC you are charged could be far less even that those advertisers appearing below you. More on that in a future post!

So if you decide the maximum you are willing to spend on a click, and Google only charge you when someone actually does click on your ad then why the heck would you need an agency to manage your Google ads? Good question….

There are several reasons, but as I’m trying to bring this blog post to a close I’ll leave you with just two….

1. Often it makes sense to spend more on your clicks.

The best keywords are often more expensive and by capping your bid on those phrases you could lose out on a lot of business. At Click Jam we don’t just manage bids based on cost per click, we manage bids based on the potential cost per conversion. Okay, I just blurted more gobbledygook at you.

Basically a good agency will manage your bidding so that you only pay what you need to per click to get the best result. For someone keywords that will be more, for others it will be less, but it will never be an arbitrary amount based on what you think a visit to your website is worth to you. It will be based on real scientific and historical campaign data as to which keyword searches don’t just bring people to your website but convert in to sales. Real cold hard cash!

2. Experts get your clicks converting better

A successful Adwords campaign is not just about getting cheap clicks it’s about getting those clicks to convert. Those in the know (like us here at Click Jam!) create ads that drive clicks and conversions. By carefully matching ad copy to mirror the search being done by the searcher and by creating ads the pre-sell visitors even before they reach your site we get your clicks converting better. A skilled agency who know their stuff should be able to increase the amount of conversions (leads or sales) from your Adwords traffic 2, 3 or even 4 fold, making your budget way, way, way more profitable.

To get your Adwords campaign working 2, 3 or 4X better, or to get started with a brand new campaign contact our PPC specialists here..

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