Although we should be evaluating our efforts and their results on a regular basis, the end of the year is a particularly good time to look at what we have accomplished over the past several months and determine where we want to be going forward. One aspect that we can consider is our cost-per-click advertising.
Cost-per-click, as the name suggests, is the amount paid by an advertiser every time a potential customer clicks on one of their ads. In most cases, whichever ad platform you are using, you will need to know your target cost-per-click, so what should you be aiming for? What can be considered a good cost per click?
Unfortunately, there is not one cookie-cutter response to that as there are several factors that will influence it. These factors can include such things as the platform that you are using, and the type of advertising employed. Beyond that, there is also the matter of which audience you are trying to appeal to, and the product or service that you are advertising. Even the strategy behind your bidding can have an effect, as will the price of the item being advertised.
The Effect of Product Price on CPC
Assuming that you are advertising on search engines, you will find that the biggest impact on your cost-per-click relates to the actual product or service being advertised.
Given that in most cases you will be dealing with an auction-based platform, you need to set a budget for yourself with a maximum that you are willing to spend. It’s understood that the more you are willing to pay, the more likely you are to outbid others and have your ads place high on a page or appear in news feeds.
With more expensive products, your competitors will be willing to pay a larger amount per click. Why? It comes down to what is probably the most important determinant of good cost-per-click: your expected return on investment (ROI).
Finding A Good CPC based on ROI
This may vary somewhat, but in many cases, a decent return-on-investment would be 5:1for revenue-to-ad. What this means is that one dollar spent should result in 5 dollars earned. This can also be expressed as a percentage: 20% CPA (cost per acquisition).
Imagine that you are advertising an item that sells for $10,000. If you are able to sell one unit for every 200 clicks on your ad (representing 0.5% conversion) then you should normally be willing to pay $10 for each click. That would mean $2,000 for the 200 clicks, giving you a 5:1 return. If your competitor sells an item at $20,000 with the same 1 sale for 200 clicks, he would be able to spend double the amount that you do on advertising.
A simple way to calculate your target CPC is as follows:
CPC= (revenue per sale X conversion rate) x 20%
There is another factor that can be considered when determining your CPC and CPA, however, and that is the lifetime value of your customer. This is the total value of your customers over the course of their entire lifetime. When determining this value, you would simply consider the business that the customer will continue to bring to you, or even refer to you. A customer who makes frequent and continual purchases from you has a much higher value than one who makes a single purchase. Accordingly, you should be willing to pay more to acquire them.
A repeat customer with a sufficiently high lifetime value is likely to be worth an equally high CPA on their first purchase. Indeed, if the value is high enough, you might be willing to go so far as to sell at a loss for their first transaction, knowing that they will bring you greater revenue over time.
This does require confidence in your estimate of their lifetime value.
So, to review, determining a good cost-per-click relies most heavily upon your target Return on Investment, which for many businesses would be a 20% acquisition, or a 5:1 ratio when comparing revenue to ad cost. Once you have set the desired ROI, you can easily calculate the target cost-per-click for your ad campaigns.
If you are still looking for an idea of an average dollar amount being spent, then consider this: taking the average for all business types in the US, the average CPC in Google Ads falls between $1 and $2 on the search network. When looking at the display network, clicks are typically cheaper, with the average falling below $1.
Of course, in more competitive markets, the cost-per-click can be considerably higher.
No Single Answer.
As you can see, when asking “what is a good cost per click?” there is not one definite answer, as it depends on the targets you set for your business. While there is no specific dollar amount, using the information above, you will be able to determine the answer as pertains to your specific business.