Learn how Google AdWords Charges Through CPC

Cost Per Click (CPC) refers to the price you pay for each click in your Google AdWords account. A "click" represents a visit or an interaction between a potential customer and your website. There are 3 different types of CPCs and they are Max CPC, Actual CPC and Average CPC.

Types of Cost Per Clicks

Max CPC
A maximum cost per click or max CPC is the highest amount you are willing to pay for a click. Max CPC can be set at an ad group level or at a keyword level. It can also be set at a placement level if you are running a managed placement campaign on the content network. The AdWords discounter automatically lowers the max CPC so that the actual CPC you are charged is just one cent more than the minimum necessary to keep your ad in the same position on the page.

Actual CPC
The actual CPC or actual cost per click is the amount you actually pay for a click. This amount is always less than the max CPC you specify for your ad group, keyword or placement. The AdWords discounter takes your keyword quality score into consideration and automatically reduces your actual CPC so you pay the lowest price for a click. After each auction is run and your ad is ranked, the AdWords discounter adjusts your actual CPC so you pay the minimum amount required to exceed the rank of the next ranked ad. How the AdWords Discounter works and how Quality Score actually affects your ad ranking and actual cost per click is explained below.

Consider the following example:

Advertiser   Max.CPC      Q. Score              Rank              Ad Position           Actual CPC

      A             $0.40              8             $0.40 x 8 = 3.2                1                B’s Rank + $0.01 = $0.35
                                                                                                                 A’s Q.Score

      B             $0.65              5             $0.55 x 5 = 2.75               2

From the table above, Advertiser A will pay a lower $0.35 instead of $0.40 for a click on his/her ad. This is because Advertiser A’s Quality Score is higher than Advertiser B. Also even if Advertiser B is bidding more than Advertiser A with a Max CPC of $0.65, Advertiser A still takes the top position due to the higher Quality Score.

This shows the importance of having keywords with high Quality Score in your ad groups. High Quality Score will help you pay less for each click as well as giving your ads a higher ad position.

Average CPC
Average CPC is the total cost of all clicks divided by the total number of clicks, it is therefore the average amount you pay each time someone clicks your ad.

Average Cost Per Click (CPC) =        Total Cost
                                              Total Number of Clicks

For example if you get two clicks at $0.30 and $0.40. Total cost will be $0.70 and average CPC will be $0.70 divided by total clicks which is 2. Therefore average CPC will be $0.35.

Optimising your Cost Per Click

The simplest way to decrease your average CPC is by decreasing your Max CPC. By doing so you can receive more clicks for your allocated budget and at the same time pay less for those clicks. This will help in decreasing the average CPC.

Another way to decrease your average CPC is by improving your Click Through Rate (CTR). This is because an increase in CTR will improve Quality Score which will lead to a lower CPC. There are various ways to improve your CTR. You can either have a negative keyword list in your campaign or write compelling ads to improve CTR.

This article was posted by Manesh Ram. Manesh is Google AdWords certified and SEM Campaign Manager at Traffika. You can follow Manesh on Twitter @maneshram.