CPC – Cost Per Click

This is another often mis-understood term.  I’ve seen it quoted as being simply the amount of money you pay each time someone clicks on one of your ads.Using the term this way is the reason most people go broke trying to make money online.  Let me give you the real definition that will allow you to stay in business.

The key word here is cost.   Lets take a simple example and say that you are selling a single product on your website.  The product costs you $12 and you are selling it for $36.  So you are making a profit of $24 each time you sell one of the item.

We all know that not everyone buys each time they visit a sales page.  So, you have to determine your conversion rate.

CONVERSION RATE : The percentage of visitors to your sales page that actually buy what you are selling.

In reality, a good conversion rate is around 4%.  This will vary depending on how well you have targeted your audience and how good your website sales copy is. But that is a whole subject unto itself.

Let’s keep it simple and say that 100 people have clicked on your ad and come to the site.  With a 4% Conversion Rate, that means that 4 people will buy (.04 x 100).

Let’s say that you agreed to pay 45 cents per click for each click on your ad.

Let’s do the math:

.45 x 100     =  $45.00   (.45 for each click x 100 clicks)
$12.00 x 4   = $48.00   ($12 product cost x 4 sales)
———–
TOTAL           = $93.00

So, my REAL CPC is actually 93 cents ($=93.00 cost / 100 clicks).

This is a simple example.  It gets a bit more complicated once you start factoring in multiple ads and multiple products.

The bottom line is to make sure that you are not paying more for your clicks then you are generating in profits!