Calculating CPC in Google Adwords Management

Google AdWords is an advertising service enabled online to educate online users about a service or product of a website owner which can help to increase traffic. Google displays these ads for a particular search query and places the advertising copy at the top, bottom or beside on the result page.

Actual cost per click is the final amount that is charged for a click which is the amount that you pay every time a user actually clicks your Adwords ad. CPC bidding allows the option of manual bidding where you can choose your own bidding amount and automatic bidding where Adwords management is automatically sets to get many clicks as possible according to the overall budget. However there is no limit on spending requirement where the amount you pay is all up to you to decide and you have the option of changing your CPC anytime you wish.

When you are setting your Adwords management budget, it is important to estimate and decide the value of a click that would be directed to your website. For example if you select $0.15 as max. CPC, you will be paying an amount less than or equal to $0.15 when a person reads your ad and clicks on it. This means that if you are expecting 100 clicks per day your max cost for the day is,

$0.15 x 100 = $15 per day (Cost-per-click x Clicks per day = Daily budget)

You have the option of calculating your monthly budget by multiplying your budget per day by 30.4 (365 divided by 12) which would be in this case,

$15 x 30.4 = $ 456

You can also calculate your cost per click based on your monthly advertising budget where you can calculate your budget per day by simply dividing the monthly budget by 30.4. For example if your monthly budget for CPC is $304, you can calculate your daily budget by

$ 304 / 30.4= $10 (Monthly budget / Average number of days per month = Daily budget)

Although you can set the budget on a monthly basis on Adwords management, you will only be charged when someone clicks on the ad and visits your website and you will not be charged more than your max CPC bid. For example if you created a text ad with a max. CPC bid of $0.25 and if 10 users click the ad among 100 users who saw your ad, you will only be charged maximum $0.25 x 10 which is $ 2.50 which is the actual cost.


How do you reduce your cost per click?

You have the opportunity to lessen the cost by improving your quality score. The quality score is an assessment that Google use to determine the relevancy of your ad, keyword and the landing page to the user that the ad is visible. Each of your keywords includes a quality score that ranges from a scale of 1 to 10 which effects on the ad position of the page. Ad position is the order that your ad is shown up on a page and an ad in the number 1 position is the first ad that appears on a page which will be more visible to customers. The ad position is determined by the ad rank in the auction which is a score based on your cost per click bid and the quality score.

An ad rank is a score that is used to figure out where your ad will be shown on a page. For simplicity, we will exclude the impact of ad extensions which Google recently added to the calculation of Quality Score.

Assume you have a maximum bid of $4 and your quality score is 4 where your ad rank would be 16 ($4 x 4) and if your competitor has a maximum bid of $2 with a quality score of 10, his ad rank would be 20 ($2 x 10) where ultimately his ad would appear on a position above you on the page with a higher ad rank. This way Google determines your actual cost per click by

The ad rank of the competitor below you/ your quality score + $0.01

Therefore it is important that you focus on your quality score to increase the ad position and reduce cost as well. The quality score can be determined on how often a keyword attracted clicks to your ad, how often you received clicks to your display URL, the history of your account, quality of the landing page of the ad, relevancy of the keywords and the searches of the customer, relevancy of the keywords in the ad, geographic targeting and ad’s performance. Hence, it is important to carefully analyze your Adwords management campaign and set a quality ad and achieve a quality score and be entitled to cost effective rates.