Calculating and setting your maximum cost per click when running your ad campaigns on Google ads, Facebook ads or AdsTargets advertising platform is an important step in getting the right audience and it must be calculated correctly.
This is because your maximum cost per click determines the quality of clicks you are going to get which pretty much impacts your conversion rate and at large your sales.
One thing most advertisers don’t know is that your bidding power is the secret of your ad campaign’s success.
Although your campaign success depends on many factors, max CPC and bidding rate are one of the most important factors to consider when creating or setting up your ad campaign.
Since there are many confusions and questions about how much you should set as your maximum cost per click, we have decided to explain and teach you how to calculate your max CPC for better campaign success.
Here are the steps you need to follow to calculate your Max CPC while creating your advertising campaigns.
Table of Contents
Evaluate Your customer life Value
First, think of the lifetime value of your customers. How much is a customer worth for the duration of their relationship?
Thinking of their worth which basically means how much a converting customer will pay throughout their subscription or purchase duration even if they are paying only once.
Here is an example of how you can understand the lifetime value (LTV) of your customers.
Let’s say you offer digital services with a monthly subscription of $100. On average your customers subscribe three times during their business relationship duration.
This brings the figure to $300 for one customer making their worth $300 including their two times repeated subscriptions.
Technically, your customer lifetime value (LTV) is calculated by multiplying the number of subscriptions or a number of payments by the cost which can be expressed as ($100 × 3 = $300) in our example here.
Once you are able to determine your customer’s LTV, you can move to find your cost per acquisition.
Figure out your Cost per acquisition
Secondly, we need to figure out the cost per acquisition (CPA) we are willing to pay. For the majority of advertising campaigns, the initial CPA is set at 1/3 of the LVT which in our case it will be 33%.
We arrived at 33% by multiplying $300 by 33% which gives us $100 as our cost per acquisition (CPA).
This is not always fixed, for instance, if you have a high lifetime value from your customers, you might want to increase the cost per acquisition in order to get better results.
Here is the Maximum cost per click Calculator
once you understand your average cost per acquisition, the next step would be to figure out your average max cost per click or breakeven cost per click.
Average maximum cost per click
The average cost per click is used here because, in some cases, Ad networks such as Google and Facebook will spend sometimes a bit above or a bit below your actual setting of maximum cost per click.
Here is how your average cost per click is calculated. Take the total number of your visitors for a particular period of time and the total sales for the same particular period of time.
For example, let’s say for the month of January, your total number of visitors was 1,000 and for the same month, you had 80 subscriptions or sales.
This brings your sales to 8% of your total visitors.
In this case, our the average cost per click here is $8. This is calculated by multiplying our $100 (cost per acquisition) by 8%.
we may consider $8 as our breakeven cost per click meaning with each $8 spent on advertising, we should be able to get $100.
But we should not forget that there are variations in every advertising campaign which means this amount could be lower or higher.
Calculating the ideal max CPC amount
You may even go further by setting up a peak adjustment by playing with the figures to arrive at a lower CPC rate while testing your ads.
This can be done by multiplying your average cost per click (AVCP) by a percentage for example 70% of the $8 which is equal to $5.6.
The idea cost per click here will be $5.6 for a start to see how your ad campaign responds to it.
Remember in the real world of advertising, other factors may also have some effect on your campaigns.
It all depends on how frequently you are able to adjust or optimize your ads for better results.
Ideal Max CPC Examples
Here are some of the examples on how to calculate your Ideal Max CPC Examples as shown in the image below.
Advertising cost calculations could be very tricky and confusing for many advertisers. Some advertisers don’t even border to calculate these costs to have a good idea of their maximum cost per click which impacts the quality of clicks they get.
If you are serious about your advertising campaigns and want to achieve great results, it is essential you understand these costs and how to set the right maximum cost per click in your campaigns.
If you have done this before, please share your experience in the comment section so we can learn from you. If you are new to online advertising, we advise you to consider learning about this cost before you can start launching your campaigns.