$100 CPC? Alright team, move on to the next one.
$50? That’s outrageous. I refuse to pay that much for a single click.
I’m sure you’ve either heard or uttered similar phrases before, right?
I’m guilty of it too.
When running PPC campaigns for clients (years ago), CPC was a big concern for them. Therefore, it was for me, too.
But the truth is that CPC doesn’t mean jack.
It’s a useless metric. And honestly, it’s likely killing your bottom line.
Here’s why CPC is a waste of time and what you should be focusing on instead.
We’ve all been there before: CPCs for a new keyword you (or a client) want to target are outrageously high.
Just take a look at this keyword for attorneys:
Yep, that’s $123.65 per click. You could potentially spend thousands of dollars in one day on just nine clicks.
It’s tempting to look at that CPC and make a run for the hills.
Even worse, it’s tempting to still bid on the keyword and restrict your daily budget to just two clicks (or $247.30). But at standard AdWords conversion rates, it’s going to take you weeks to see a single lead and months to see a fully-converted sale.
Either way, it’s a lose-lose situation.
CPC is Misleading. Here’s What to Focus on Instead.
CPC is the lunchtime bully that prevents you from sitting at the “cool kids’ table.”
But the truth is that CPC shouldn’t be your main focus. In fact, it doesn’t even (and shouldn’t) matter.
It shouldn’t prevent you from bidding on specific terms and potentially losing out on valuable traffic and sales for your business.
There isn’t a set CPC that is automatically unprofitable.
It’s all relative to your industry and what people are willing to pay. You should only discount a keyword as too expensive after you do a proper analysis.
Let me explain.
What’s your customer lifetime value?
In other words, how much does your average customer/client spend with you over their lifetime? How many months/years does the average client or user stay with you?
Take a look at the invoices for your current clients or users. You should quickly be able to tell the average of the lifetime values for your customers.
So, why is this important?
Because it gives you a real idea of how much a single client is worth to your business. And I’d be willing to bet it’s a lot more than you thought.
For instance, let’s say that your average lifetime value for a customer is $10,000 a year.
At standard AdWords conversion rates and CPC, how trivial does paying $300 to acquire a single customer sound now?
If your customers have high lifetime values, you can afford to spend more on acquisition because you know they will spend more.
Instead of focusing on CPC, you should be focusing on your lifetime value and cost per acquisition.
Cost per acquisition is the easy number you can look at compared to LTV to see if you are on the right track.
Cost per acquisition simply means the amount you spend to acquire a sale/lead. And if that number is bigger than your lifetime value, then you can’t bid on it and produce profits unless you increase your average lifetime value.
According to the latest data from Acquisio, here are the average cost per acquisitions for each industry:
But even this can be misleading just like cost per click can be.
According to Capterra, about 7% of your campaign will convert to a lead. Most people on AdWords that aren’t selling eCommerce products are there to generate leads.
But a lead isn’t a sale. Until they buy from you, you aren’t making a return.
Now, Capterra’s research found that only 36% of leads converted to qualified leads. Finally, only 27% of those qualified leads became new clients. Let’s assume that your results are similar.
When you do the math, you can see that your leads drop off dramatically, and your costs can quickly increase.
Correlate this back to your customer lifetime values and how much users spend with you.
Through all of this, your goal is to figure out how high of an acquisition price you can afford to pay while still turning profits with your customers.
If your lifetime value is $10,000 a year, spending $500 on acquisition is very affordable.
Set Up Automated Rules with AdEspresso to Limit Your CPC and CPA
If you’re still concerned with CPC and not willing to pay more despite its potential, I understand.
It’s hard to let expensive clicks come without a guaranteed return.
It’s essentially gambling.
But if you stop letting CPC take a stranglehold on your campaigns and your willingness to bid, you’ll thank yourself later.
Don’t bid blindly, though. There is a limit to what you should pay for each click. Depending on your conversion rates for each campaign, it will differ dramatically.
But again: you can afford any click costs that don’t exceed your lifetime value.
Let me give you a basic scenario to inform your automated rules:
- Your lifetime value is $10,000
- Average CPCs are $130
- Conversion rates are about 5%
Using those three data points, you can infer that it will take about 20 clicks to generate a single lead. That’s $2,600 per lead. Knowing that only 36% of your leads will convert to a sale, you’ll need around three of them for each sale. That’s $2,600 x 3. That means that your total cost per acquisition of a single client in this scenario is $7,800.
Bottom line: you can afford it, but it’s close. It’s not the maximum profit you’d like to generate, but it’s breaking even by a couple thousand.
You can use that CPC as your top limit of what you’re willing to pay.
In the tools section of your AE account, create customized rules where you can pause ads from increasing in CPC when prices reach your top limit:
This automated rule will pause your campaigns on its own when the CPC reaches your limit.
Meaning you don’t have to keep monitoring your accounts and wondering why CPCs skyrocketed overnight, draining your budget.
You can do the same for your CPA, too:
If your cost per acquisition gets too high, pause your campaigns to prevent overspending.
If you like to make edits on the fly, set up status notifications for your account to get emails when these specific rules are met:
For example, if your CPA exceeds $50, you will get an email on Facebook. Then, you can go back into your account and make the necessary changes.
Don’t spend hours each day checking on your campaigns, sifting through keywords and audience metrics.
Instead, set up these notifications. Next time you open your dashboard, you will know exactly where to look to make the right changes that will produce a better return on your investment.
Put Stock into Quality and Relevance Scores Instead of CPC
Ad campaigns that produce a great return on investment aren’t directly focused on CPC as a limiting factor.
Meaning they don’t simply rule out a CPC because it’s XX dollars.
$20 CPC? Too much. Move on.
That’s the thought process of many who run PPC marketing campaigns.
But the truth is that if you focus on creating better ads, landing pages, and experiences that drive conversions, your CPC naturally goes down.
A few key factors make up your quality scores and relevance scores:
- Expected CTR
- Landing pages
- Ad relevance
Nailing these factors can result in lower CPCs even if your competitors are paying more. You could be paying less and taking up higher positions by focusing on improving your campaigns.
Here at AdEspresso, the team found that relevance score is directly correlated to CPC and CTR:
If you hit higher relevance scores by taking into account those three factors, you can improve the click-through rate of your ads, helping to drive down CPC and make campaigns more affordable.
So even if average CPCs are high for a keyword or audience, you shouldn’t count them out. You should instead strive to create a better campaign that drives those costs down.
So how do you do that?
A great place to start is looking at your current audience and keyword targeting. Are they expensive because they “just are” or because you aren’t being specific enough with your targeting?
According to the latest data, 62% of Facebook advertisers don’t reach their audiences, stating that their ads simply don’t work.
If your ads aren’t reaching the right audience, your relevance will decrease greatly, causing massive increases in CPC.
Using lookalike audiences on Facebook and AdWords is a perfect way to combat this issue.
By using your existing customers, you can create a lookalike audience of similar users who haven’t heard of you yet — users who are most likely to resemble your current customers.
On a scale of one to ten for audience size, you can choose how specific you get:
According to AdEspresso research, the more specific you go, the better.
Using a 1% lookalike audience, you can increase ad relevance dramatically. This, in turn, will reduce your CPC and cost per lead, and it will increase your conversions.
Before discounting an audience or keyword due to CPC, try focusing on creating the best campaigns you can.
The better the campaign and targeting, the cheaper your leads will be.
Put your stock and faith into quality and relevance scores.
Bottom Line: Focus on Your Current Customers More
The traditional downfall with PPC advertising is that people focus too much on acquisition.
How can I get more? I want more traffic. More people. More likes. More customers. ASAP.
We live in a world where more (and new) is better.
But what about your existing customers?
Are you doing everything you can to improve their spending with you?
For Pete’s sake, you already acquired them!
Upselling to them costs you zero dollars.
You can easily send them an email with potential improvements and ideas, get them hooked, and approve the extra monthly costs in a day’s time.
It’s way cheaper and even easier to close another sale with current clients than it is to get a sale from a new client.
And, guess what:
When you start focusing on current customers, you open doors for acquisition, allowing you to focus less on CPC and remove it as a limiting factor for your campaigns.
How? Your average customer spend (LTV) is higher.
Meaning you can afford higher CPC and acquisition costs because you know that they will spend more than that in the long run.
Stop focusing on the short game. Focus on long-term tactics.
Are your current campaigns boring? Probably. And it’s due to your limited budget and ability to spend on campaigns.
Imagine having double or triple the budget per campaign, giving you the freedom to run diverse and high-level campaigns.
You could acquire better clients and make bigger impacts.
Focusing on your existing customers brings more opportunity for acquiring new ones like never before.
If you want to create campaigns with higher ROIs where CPC doesn’t force you to skip on top keywords and audiences, then build your current customers to top clients who spend more with you.
This will allow you to spend more on acquisition and demolish your competitors on bidding to keep more clients flooding in. All while driving amazing profits.
When setting up new campaigns or looking at existing performance, it’s easy to see big costs per click and pull the plug too early.
Or worse, to even avoid them completely.
But CPC is a hoax. A fraud. A vanity metric hiding in plain sight.
CPC is all relative to your industry and what you can afford in relation to customer lifetime values.
While a $150 CPC for lawyers might seem high to you, it’s average for them because case values are worth thousands of dollars.
Meaning they can afford it.
So stop fearing CPC. Focus more on CPA and LTV.
Set up automated rules to mitigate spend without worrying about it daily. Put stock into quality and relevance scores to drive your costs down.
And never forget your existing customers. With just a few emails, you can raise their LTV dramatically, giving you more freedom to run expensive campaigns in the future.
CPC is all relative. Don’t let it control your potential.