What is Cost Per Conversion and How to Calculate it?

Pay-Per-Click Sales Advertising

Artem Daniliants

6 min read

Understanding the 2022 digital marketing landscape is one thing. To measure the impact your campaign has and ensure a return on your investment is another. This is where determining your CPC, your cost per conversion is crucial.

Read on to find out what it is - and what it’s not. Understand CPC as a metric, but also how to calculate it and why it is crucial to the success of your business.

What is CPC?

CPC stands for Cost Per Conversion. In short, it tells you the cost, on average, of your online advertisement to achieve the goal of that advertisement, a conversion.

Why is CPC important to my business?

Understanding your ROI, knowing what campaign is running successfully and which one is underperforming is one of your most important marketing tools.

Whether you are a small business outsourcing your marketing and social media presence or a large company with an in-house marketing and communications department, your online marketing effort is a firm part of your budget. As such, costs will need to be accounted for and justified.

Your CPC, alongside other budget items such as material costs, staffing, overheads, etc., is an important metric. It will give you the information to finetune your pricing and ensure your return on investment is maximized.

As a metric, it will give you a necessary report card on each campaign you are running. It also gives you valuable insights into your marketing and communications budget, digital and non-digital, and will support your decision-making as to where to invest your budget in - and where not to.

A note on the difference between Cost-per-Conversion and Cost-per-Click

This can be a bit confusing as both terms seem to be abbreviated as CPC. They are, however, quite different.

When a user clicks on your ad, you will get charged for that click by your platform (i.e. Google Ads, Microsoft Advertising, etc.). So the CPC metric here gives us the average cost for a single click.

A click is great, but it doesn’t necessarily lead to a conversion, a new customer, a sale. However, to work out your cost per conversion, you will need to know your costs per click. For example, according to Wordstream , in Google Ads, it’s $2.69 for search and $0.63 for display across all industries.

And whilst we are talking about costs per click, Microsoft Advertising (formerly BingAds) is reported to be $1.54 across all industries.

What’s the conversion cost formula?

If you want to find out how well your online marketing effort is working and you are reaching your target audience, work out your CPC:

Cost per conversion = total cost of your ad campaign / the number of achieved conversions (customers) within that same timeframe.

For example, if you invested $3,000 into an advertising campaign and got 50 conversions, your CPC rate is $60 ($3,000 / 50 = $60).

What is a good CPC?

Good question! There are a few factors influencing it.

For starters, it really depends on the industry and which country you are in. But to give you a benchmark for Google ads, the average across all industries is $48.96 on the search network and $75.51 on the display network according to Wordstream .

You can also look at it another way: WebStrategies report that a 5:1 revenue-to-ad ratio is acceptable for most businesses. So for every dollar your business spends on an ad campaign, you should expect revenue of $5.

It’s useful to remember here that your CPC amount is also connected to the value of your product and will likely rise - and fall - with it. For a product that is worth $9,000, a $200 conversion cost is still a respectable ratio.

And finally, there’s also a difference in cost and ratio depending on the intended audience. B2B and B2C ads will have different pricing.

Common platforms and their advertising costs

What do online ads cost on the most common platforms and search engines? Unfortunately, we don’t have a straightforward answer for you. It depends on what you want to achieve and the pricing plans they offer.

Google and LinkedIn for example use an auction model where companies bid for keywords. As a result, prices remain somewhat fluid.

A few things to consider when choosing a plan:

What flexibility and power does the plan give you to manage your campaign? Can you make adjustments and stop and start as needed? Will the pricing fit your budget? What is it exactly you are paying for and at what point are you paying?

To help you in your decision-making process, we’ve added the links to pricing information of the most common platforms:

How can I improve my cost per conversion?

A low CPC in line with your industry average indicates you’ve optimized your ad well; it reaches your target market and entices them to take the action you want them to take.

So what about the ad campaigns that are not performing well? If your CPC is too high, you may be targeting the wrong audience or you might need to work on your copy.

Your ads may need a few tweaks here and there.

So here are a few simple steps to reduce your conversion costs while still maintaining a competitive edge:

  • Analyse regularly and trust your data.
  • Check your ad content. It must be 100% relevant to the search terms.
  • Pause all your non-converting keywords!
  • Check your landing pages. They will not all have the same conversion rate.
  • Consider sending more traffic to your best-performing landing page. This should help you increase conversions and, in turn, cut down on your CPC.
  • Refresh your messaging. Sometimes tweaking a phrase or even word here and there can make all the difference. First, double-check your keywords, then change things up a bit.
  • Use negative keywords. Sounds odd? It is not. Negative keywords allow you to make your ads more targeted by excluding specific search terms.
  • Get smart about the timing of your ads. For example, what time of the day do they achieve the most conversions? Running your ads during peak times is another way to make them more targeted.

Where is the advertising market headed in 2022?

According to a recent Forbes article, 2021 saw ad spending climb to a new record globally , and this trend is set to continue in 2022. The US ad market alone is expected to exceed the $300 billion mark. The global ad spend is forecast to be over $700 billion.

While these numbers reflect spending across all ad channels, it’s worth noting that this increase is mainly driven by digital media advertising, specifically social media, search platforms, and video.

Final thoughts

Understanding and calculating your CPC is an essential metric for any business, for sure. A marketing budget can blow out of proportion relatively quickly, so keeping tabs on your CPC is one way to track it.

That said, please remember that your conversions and conversion costs can be affected by various factors. For example, you might measure your cost per website view, per sale, per service, or the person watching a video.

Whatever your metrics are, it is always helpful to work with averages and across a longer timeframe. Especially measuring performance over an extended period will allow any additional factors to even out. That doesn’t mean you shouldn’t be proactive, though and make some adjustments based on the data CPC measurement can give you.

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