There's no doubt that online advertising is one of the most effective ways to connect with your customers. Whether it's through your website, social media, or another virtual platform, it's never been easier to bop your business to the top!
You're probably thinking, how much are these display ads going to cost me? I already have a tight marketing budget, so what platform is right for my brand? Well, my friends, the answer lies within understanding the average Cost Per Click and how it can be used to determine which platforms will work best for your business advertising strategy.
Thankfully, we've got you covered! We've put together a handy guide to review the basics of CPC advertising and the relative costs of using Google, Facebook, and Instagram to make sure you get the best bang for your buck! Let's dive in.
What is CPC Advertising?
Let's start this journey by understanding the basics of CPC advertising. CPC advertising stands for cost-per-click. This type of marketing strategy relies on display ads placed within a social media platform. Each time that a viewer clicks on the ad, the company incurs a cost. Excuse me, what?
Let’s face it – as a society, we're addicted to social media. There’s just something about scrolling through your news feed and getting a glimpse of the lives of people you haven’t spoken to since high school. You know your audience is always online, so why not try and take advantage of that opportunity to generate engaging and effective marketing?
Some of the most popular CPC advertising platforms include Google, Facebook, and Instagram – but we will go into more details on these later on. For now, just know that the advertisers pay every time someone clicks on their ad, and they typically set a daily budget to manage their expenses.
Here’s an example: if a platform charges 5 cents per click and a specific ad was selected 1,000 times that day, the advertiser would receive a bill for $50. If that brand set a daily limit of $50, then the display ad would be deactivated until the next day.
So, the next time you click on a cleverly placed video ad, you will think about how much that brand paid for your attention!
Understanding Average CPC
Now that you understand the basics of CPC advertising, let’s get into how to calculate the average CPC for display ads. Doing this involves delving further into how the cost per click is determined – the ad auction. You might be imagining a crowded room with an auctioneer shouting off numbers and bids - while the process is similar, these auctions happen virtually and on a much larger scale. Let’s just say that even the fastest auctioneer could not keep up with the speed and volume of the bids being thrown around. That's mega fast!
The advertisers decide how much they are willing to pay for every click, and the ones that pay the most will receive better placement for their display ads. Display ads are a pay-to-play space. The more you are willing to pay, the better chance you have that your ad will appear in someone’s newsfeed that matches your target audience.
The cost of your products also plays a role in the CPC for display ads. The pricier your product offering, the more you need to be willing to spend if you want your marketing campaign to succeed. Selling one luxury yacht online will yield you a much higher profit than selling one $5 product!
So, why did we just walk through the auction process if we are just trying to calculate the average CPC? Shouldn’t it just equal the amount you are bidding? The short answer is no because your average cost per click will vary. While your max bid represents the most you are willing to pay per click-through, there is a good chance that your actual spend will be less.
Brace yourself – there is a bit of math involved. To calculate your average CPC, you must divide the total cost of your clicks by the total number of clicks:
Average CPC = Total Cost of Clicks ÷ Total Number of Clicks
As you can see, this figure is based on the amount you are charged per click on your display ad – not what you were willing to bid on it. Don’t worry though, most ad platforms figure out this figure for you, so you can put your calculator away for now.
How Do the Top Platforms Line Up?
As you may have guessed by now, the cost-per-click varies based on the ad platform you choose. Most of them make you set a target CPC for each ad campaign, but this begs the question – what is the average CPC for display ads? How much should you be spending?
Unfortunately, the answer to that is as clear as mud. It will depend on many different factors like the ad platform, the type of ads, your target audience, your industry, and even the strategy you use to set your bids.
It’s still helpful to compare each option though, so let's look at how the top display ad platforms line up:
Placing display ads on Facebook is a great way to boost your exposure and improve your brand awareness. It has some of the best display ad targeting options, so you can focus on a very narrow audience. For instance, you can target specific interests, demographics, behaviours, and more – the goal is to get the most engagement possible for the lowest CPC! Their broad user base and high levels of engagement make it an ideal platform for display ads.
While most advertising costs on Facebook are measured through CPC (since increasing traffic is usually the main goal) marketing objectives like brand awareness can be set up where you pay for every thousand impressions. Facebook display ads are like other platforms because they require you to bid for space. Your ads can range anywhere from $0.50 per click to $10 per click - it all depends on your industry, target audience, and other unique variables.
According to WordStream, the average CPC for a Facebook ad is $1.72. This includes data from all industries though, so some outliers can affect this figure. For example, the finance industry has some of the highest average costs at $3.77 – while retail is much lower at $0.70. So, that mindless accidental click on an ad you didn’t want to watch just cost that company around $2!
Instagram display ads operate very similarly to those on Facebook. This shouldn’t come as a surprise, since the ads are set up through Facebook Business Manager! Again, the ad costs are calculated on a CPC basis, and you can choose to set a daily budget to limit your costs. One feature that is unique to Instagram is that it allows you to set a lifetime budget – rather than capping your spending each day, you can set a total budget for the entire marketing campaign.
This option makes Instagram display ads especially attractive because you can share your content on the cheapest day or time to drive down your expenses. So, how does the CPC on Instagram compare? The average cost per click ranges between $0.70 and $1 on this platform.
It is important to note that certain industries and demographics will have a higher CPC. If your target age group is between 18 and 34 years old, you can expect to pay more for your display ads on Instagram. Think about it – millennials and Gen Z are experts at dodging ads and skipping through marketing plugs. Of course, it’s going to be more expensive to get their attention!
But the trade-off may be worth it. Studies have found that ads on Instagram have some of the highest engagement rates when compared to other platforms – even if you pay a bit more, you may still come out ahead.
Finally, we have Google: the OG display ads platform. Google Ads also relies on an auction system, and this process occurs every time someone types in a query in their search bar. Unlike the other platforms, there are more factors than your bid amount that can affect your performance.
Not only do you need to optimise your bid for specific keywords, but you also have to maintain a high-quality score to get better ad positioning. Your quality score is calculated based on the relevance of your content based on the user’s search intent and their overall experience on your site.
Google Ads is the largest platform for this type of marketing, and it is optimised to find users with purchasing intent. They are not the cheapest, but you are paying for clicks that are more likely to convert into revenue in the long term.
You can broadly focus on keywords along with some demographics, but the targeting features are less advanced when compared to Facebook and Instagram.
The average CPC on Google Ads is $2.69. You’ll notice this figure is higher than the averages for Facebook and Instagram, so this is something to consider when choosing where to place your ads. The platform allows you to control your max CPC so you could always reduce this number, but that may limit your total number of sales.
How to Budget for CPC Advertising
As you get comfortable with calculating the average CPC for display ads, now it’s time for the next dreaded step: budgeting your marketing campaign. One way to do this is to figure out your target ROI, as this metric will help you determine your ideal CPC. If you’re not sure where to start with that equation, consider using the standard revenue-to-ad ratio of 5:1.
A 5:1 revenue-to-ad ratio means that you earn $5 in revenue for each $1 that is spent on display ads. This is a nice, round number to use since it amounts to a 20% cost per acquisition. If this is still too expensive, consider other strategies like cross-selling and up-selling to increase your average customer value.
Get your calculator’s out again because it’s time for more math! Here’s a sample of how you can calculate your target CPC:
Target CPC = Revenue Per Sale x Website Conversion Rate x 20%
If we use this formula and assume you have a 15% conversion rate and an average revenue per sale of $200, your target CPC should be $6. In other words, you should aim to spend no more than $6 per click for your ads! Like we mentioned earlier, the cost of your products will drive your target CPC. If you maintain the standard 5:1 ratio, a brand with the same 15% conversion rate, whose goods cost only $10, you should only plan to spend $0.30 per click. Go figure!
There are many different types of ads and ad networks out there. Some may work better than others for you depending on what type of product and/or service you offer. To make sure you’re getting the value when using an advertisement network reach out to our team at Neighbourhood today and see how we can help grow your business using CPC Advertising effectively.