Michael Epps Utley 
Are you paying too much for Google Ad clicks?
This guide explains what you must know to achieve an effective cost per click (CPC) for your paid Google marketing efforts.
What Is a Good Cost per Click?
An effective CPC allows you to achieve your goals for a specific marketing campaign. The ideal cost per click for a campaign depends on the return on investment (ROI) you need to achieve maximum profitability.
Based on this, you can determine a good maximum CPC for sales generation using this formula:
Maximum CPC = Average Sale Value X Conversion Rate / 1 + Target ROI
Average sale value: The average amount a customer spends
Conversion rate: The percentage of clicks expected to generate sales
Target ROI: The return on investment you want to generate, expressed as a percentage
Example
Your average value for a sale is $25
Your historical conversion rate is 3 percent
Your target ROI is 400 percent
In this example, a good cost per click is (25 x 0.03) / (1 + 4) = $0.15.
Note: This is only an example of a good cost per click for a single marketing effort. Yours will be different and must be calculated using the formula.
Use this next formula to calculate a good CPC for generating leads:
Maximum CPC = Target CPA X Conversion Rate
Target CPA: The amount you can pay to generate a lead
Conversion rate: The percentage of clicks expected to generate leads, expressed as a percentage
Example
You can afford to pay $60 per lead
Your historical conversion rate is 2 percent
Based on this, a good CPC is 60 x 0.02 = $1.20.
What Impacts CPC?
Your Google Ads CPC is based on a few factors that Google uses to generate a score for your ads. The score, known as Ad Rank, reflects how your ads stack up against those of your competitors. It’s based on factors like your bid, the quality of the ad and landing page content, and more.
Ultimately, Google charges the minimum CPC needed to meet the Ad Rank threshold and beat the next competitor’s Ad Rank.
Another thing to consider is that the following types of keywords come with higher CPCs because they tend to attract more advertisers offering higher bids:
Buyer keywords: These are a category of terms searchers use when they’re ready to purchase
High-volume keywords: These terms get a large number of searches
High-value keywords: These terms typically generate a significant amount of revenue—for example, pricy products or services and those with a high customer lifetime value, such as subscription services
Broad keywords: Terms that are relevant for many businesses
Sometimes, it makes sense to pay more for one of these types of keywords. However, it’s also likely you can identify more niche terms that will get you great results.
How to Achieve a Good Cost per Click
Leverage these tips to achieve a good CPC for your Google Ad campaigns.
1. Determine the CPC That Fits Within Your Profit Margins
If you’ve determined a specific amount or percentage of the profit margin you can afford to put toward advertising, you’re well positioned to not overspend on click costs.
Use this formula to figure out a good cost per click that will fit within your profit margins:
Maximum CPC = Profit Per Conversion X Profit Allocated Per Sale X Conversion Rate
Profit per conversion: The amount your business expects to earn from a sale
Profit allocated to advertising: The portion of profits you can spend on ads
Conversion rate: The percentage of clicks expected to result in sales
Example
You can allocate 20 percent of profits to advertising
You earn $100 in profit per sale
Your conversion rate is one percent
This means you can spend up to $0.20 per click ($100 X 0.2 X 0.01 = $0.20). Anything more will cut into your profits.
2. Research Competitors
Research other similar businesses to find out what keywords they bid on and how much they pay per click. (A tool like Semrush’s Advertising Research app can help to figure this out.) You can leverage what you learn about competitors to inform your advertising efforts.
3. Improve Quality Scores
A higher Quality Score (as described earlier, the metric Google assigns to ads to help you determine their quality) makes it likely you will rank higher and pay lower click costs. One of the best ways to up your quality score is through A/B testing to try out ad and landing page variations and identify combinations that score—and perform—better.
Track Ad Performance
Consistently track ad performance to ensure you are achieving a good CPC.
Monitor:
How much you spend on ads
The number of clicks you earn
The percentage of clicks that convert
The revenue the conversions generate
How much profit you earn from the conversions
You can find much of this information by setting up conversion tracking in Google Ads.
Compare the metrics against the baselines and goals you set. Based on what you find, adjust your campaigns. For instance, you may want to try new creative content, increase your maximum CPC, or identify new keywords to target.
Good Cost per Click: The Bottom Line
As you can see, many factors contribute to earning a good CPC. It may take time to reach your goals. Be patient and adjust your campaigns until you achieve a cost per click that maximizes profitability.
Find out how you can make your pay-per-click marketing efforts more effective.
