CPC does not constitute a business target for advertisers, rather this indicator is more relative to supply and demand forces colliding with each other to determine actual prices for ad placements. It is still useful however, primarily to understand key CPC drivers and how you can leverage CPC bids to make better decisions.
CPC and advertising auction
As a metric, CPC is just the overall campaign budget divided by the number of clicks. It measures how far the money goes on launched campaigns and how many clicks you get on each dollar spent.
As a pricing model, CPC implies that an advertiser is charged and a publisher gets paid each time a user clicks on an ad. This model currently dominates the advertising market because advertisers do not pay for impressions not resulting in clicks, while publishers can earn more compared to the CPM model provided that the ad visibility is high.
The advertising platform uses this pricing model as follows: advertisers prepare creatives, adjust targeting settings, and set their cost-per-click bids, i.e. the price they agree to pay for targeted impressions. Before each ad placement, an internal auction takes place and the impression is granted to the advertiser with the highest bid and likelihood to receive user clicks.
The higher CPC bids, the more auctions your ads will win, therefore, you will receive more impressions and reach a larger audience. A high CPC, however, leads to more money spent, and maximum reach does not equal maximum conversions. How should marketers balance their CPC to achieve optimal coverage?
CPC rates are directly affected, if not dictated, by the level of competition among advertisers to reach this specific audience or get these ad placements. Essentially, these rates are the auction bids, so you win the auction receiving the sought-after impression only when your bid is higher than those set by competitors.
For some traffic sources and geos the level of competition is pretty high; advertisers are ready to pay more for those clicks. For example, the CPC rate in the US or Czech market will always be higher than in Asia. Mobile traffic has similar differences: traffic on iOS is always more expensive. When going after high-spending leads in some niches, you have to be ready to pay more; however, always compare those costs with expected customer lifetime value and conversion rates those clicks are expected to drive.
CPC rates go hand-in-hand with the quality and click-through rates of ad creatives. Click-through rate (CTR) is the percentage of users clicking on an ad divided by the number of given impressions. Naturally, the more engaging and high-quality ad creatives you have, the better they perform, e.g. your ads will have to be shown tens of thousands of times, not hundreds to get a thousand clicks.
The MGID native advertising platform (as well as other platforms) prioritize ads with high CTR. Therefore, interesting and click-worthy creatives help you with auctions and lower your CPC rates. In addition, some publishers do not allow creatives with assigned low ranks; by keeping the quality of your creatives high, your advertisements can participate in more auctions.
So far, if you plan to target a very broad audience or geo with low competition while using high-quality engaging creatives, you can expect your CPC will be fairly low. But what can you do to improve CPC without hurting your campaign reach and business targets?
While setting your primary focus on your end business goals (subscriptions, leads, purchases, etc.), you can also optimize campaigns for a lower CPC. That means to control and improve how far your campaign budget is going on these campaigns, reaching more target audiences with lower CPCs.
At the initial stages, it can be recommended to set the CPC bids slightly higher than expected. This will allow you to get better CTR and have enough inputs for further optimization. Once your ads have competed for all kinds of relevant placements with different levels of competition, you can look at the received conversions (not just clicks) to see what can be improved.
As you crunch testing data to lower CPC, make note of strong and weak points of your campaign. You can turn off low-converting traffic sources or combine them into a separate campaign with a lower CPC. After that, you can increase the CPC for a campaign with effective, high converting traffic.
This is often done according to the following criteria:
- Breakdown campaigns by geo: the competitive landscape for each location is different, so adjust your CPC rates accordingly
- Breakdown campaigns by device: traffic from mobile devices and from PCs can also differ.
As your audience is getting fatigued by seeing the same creatives, and especially images, you should test out and add new creatives on a regular basis. Note that thumbnails usually get burnt out pretty fast, whereas you can use the same headlines for a longer period of time. Depending on the scale you’re running, we recommend updating ad creatives every 1-3 weeks.
Finally, don’t forget about the MGID optimization features, the potential audience reach and rule-based optimization. The first one enables you to see the approximate number of impressions you get with the varied CPCs and targeting settings. Rule-based optimization changes the CPC coefficient to the value specified by you or adjusts it based on the target value of the specified parameter. For example, if the widget conversion rates become higher than X%, the automated rule will increase the CPC coefficient, for example, by making it 1.5 times higher.
Low CPC rates do not equal success, always take into account your ultimate goals which are subscriptions, purchases, etc. Ideally, you would want to compare the price paid for these clicks with the value derived from them, which can be estimated as the rate of conversion multiplied by the average customer lifetime value.
When optimizing your CPC rates, remember that they go hand-in-hand with CTR and the competitiveness of the particular type of traffic you’re targeting. While you cannot control the level of advertisers’ demand in the auction, you can impact CTR by testing several creatives and choosing the most engaging ones. Finally, the CPC bids can be optimized depending on how well particular traffic sources perform, so we recommend taking a look at their individual efficiency or making use of the automated rule-based optimization on our platform.