Definition
Cost per click (CPC) is an internet advertising metric which can be defined simply as “the amount spent to get an advertisement clicked.”
Cost per click is used as a billing mechanism in the pay-per-click advertising model.
Purpose
Cost per click, along with cost per impression and cost per order, are used to assess the cost effectiveness 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 click-through 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 (#)
Marketers often talk about the concept of daily spend on search engines; this is the total amount spent on paid search engine advertising during one day. In order to control spending, search engines allow marketers to specify maximum daily spends. When the maximum is reached, the advertisement receives no preferential treatment. The formula is the multiple of average cost per click and the number of clicks.
Daily spend ($) = Average cost per click ($) x Number of clicks (#)
References
- Farris, Paul W.; Neil T. Bendle; Phillip E. Pfeifer; and David J. Reibstein (2010). Marketing Metrics: The Definitive Guide to Measuring Marketing Performance (Second Edition). Upper Saddle River, New Jersey: Pearson Education, Inc.