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Cost per click is an important metric in Google Ads.
By using the cost-per-click (CPC) and return on advertising spend (ROAS), you can measure how successful a digital advertising campaign is.
Many companies search for ways to achieve a low CPC, but getting to that level in the game takes time.
CPC, or cost per click, means that an advertiser only pays for the clicks who actually click on a specific ad.
CPC is important since the costs for those clicks can quickly become pricey.
A high conversion rate means that you can make purchases in fewer clicks which will result in a lower CPA, or cost per action.
Many ecommerce companies are doing it the wrong way, letting their whole budget be controlled by CPC. If you sell a product for 100€ with a good profit margin, it may very well be worth paying a high CPC. By evaluating conversion value over cost, called ROAS (return on ad spend), you will see where you should spend your money.
Read more about ROAS targets and how to include product margins here - The ultimate tools for setting your ROAS Target in Google Ads.
Google Ads has become such an important resource for sales and leads today that many advertisers are willing to pay more per click than what the product they’re selling actually costs. That sounds weird right, but it's a long-term way of retaining your business.
If you have calculated your lifetime value (LTV) and figured out that in the long run, this will be lucrative, then it’s surely the way to go. Learn more about LTV in Google Ads: How to optimize the lifetime value of Google ads.
ROAS
Return on advertising spend (ROAS) measures how successful a digital advertising campaign is, and you need CPC to calculate it. It’s calculated by conversion value/cost (see equation below). This means that if you increase your average order value, you will increase your ROAS.
If you compare the male and female parameter in the table below, due to the fact that the conversion rate is 2.8% for men and the average order value is 1293 SEK, you have the highest ROAS for them - even though the CPC is higher.
So if you would steer your marketing budget on CPC – you will miss out on your best performing opportunity.
The days when you control your whole budget based on merely CPC are gone. You need to measure and analyze data, and use metrics such as ROAS and LTV to make accurate decisions on what CPC is actually profitable for your company.
Articles by Jonas Hagströmer Theodorsson
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