- October 4, 2013
- 1 comment
The affect of CTR on CPC
If you’re new to the world of Pay per Click (PPC) marketing then the acronyms can be a little daunting at first. Some of the more basic ones, CTR and CPC, are amongst the most important when it comes to controlling your costs and achieving your Return on Investment (ROI) or Cost per Acquisition (CPA) goals. The link between CTR and CPC is Quality score, and we’ll discuss that relationship shortly, but first some definitions:Click Through Rate
When a searcher’s query matches a keyword in your account it causes an ad to be triggered. CTR is the number of clicks your ad receives divided by the number of ad views (impressions). This figure is displayed to you as a percentage in your account interface. Google uses the CTR of your ad as a key indicator of its relevancy to the users search query. If users like your ad, and it satisfies their search then this is going to have a positive effect on your CTR and in turn your Quality Score.Quality Score
Google describes Quality Score as follows: “Quality Score is an estimate of how relevant your ads, keywords, and landing page are to a person seeing your ad.” Quality score is measured on a scale of 1-10, and again it is displayed to you in your account interface on a keyword level. As mentioned the CTR of your search ad is key in determining your quality score, and this affects how much you pay when a searcher clicks on your ad, or the CPC of your keyword.Cost Per Click
CPC is how much you pay when a user clicks on one of your ads in the search results page. When setting up your keywords for the search engine, you specify your maximum CPC, or the maximum amount that you are willing to pay for a click on your ad. However, in many cases you don’t pay your max CPC for a click, you often pay less, which is known as your actual CPC. Okay, so more jargon is being thrown at you than you signed up for, but you’re nearly there, and we will tie it all together soon. Your actual CPC is determined by ad rank, which is calculated by multiplying your Quality Score by your Maximum CPC bid. Quick example:
Ad 1: QS is 10 and Max CPC is €1.00 – then your ad rank is 10
Ad 2: QS is 5 and Max CPC is €1.50 – then your ad rank is 7.5
The ad with the higher ad rank will appear above the ads with a lower ad rank, and will pay only a cent more than the ad below it. So in the example above, for Ad 2 to get a higher rank or position than Ad 1 there are two options available: improve Quality Score, or raise the bid. Raising the bid means you will have to pay more per click, however if Quality score is improved, than a higher position can be achieved at the same or lower cost per click.
In summary, Click Through Rate is one of the main factors that influence your Quality Score. Quality score and maximum CPC determine your ad rank, which, determines how much you pay for a click. A higher quality score means that you end up paying a lower CPC – this means more visitors to your website for the same budget which is definitely a good thing. If you could get a 1,000 extra visitors a week at the same cost, and maintain a conversion rate of 4% for example, that’s 40 extra conversions for the same spend, in other words, an increased ROI or and a lower CPA.
So here we are, no more jargon, and a whistle stop tour of some of the fundamental PPC terms is almost at an end. Any one of these topics could be the subject of an in depth discussion, but for the moment I hope this overview is a good introduction, and future posts will discuss how to optimise your ads to improve CTR and Quality score.