This is a simple formula to determine how much you should be willing to pay for each click in a cost per click campaign. It's also a helpful way to think about your website traffic and how to monetize it.

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Understanding Cost Per Click
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Understanding Cost Per Click
Cost per click advertising online works by charging you a certain amount of money for
each click on your advertisement. Googleʼs Adwords is the most popular platform for
this type of advertising. Many people can understand the benefit of using Search
Engine Marketing but few seem to be able to understand how much they should be
paying per click. Hereʼs how...
Conversions
The first thing to cover is what a conversion is. A conversion can mean virtually
anything, but it defines an action. A conversion could be that someone submits
an RFP, downloads a White Paper or buys a 10 pack of socks. The Conversion
defines what the outcome you’re hoping for is. If you can assign a dollar value to
that action, you can determine what you should be willing to pay.
The Two Main Factors
To determine the ROI of a cost per click campaign is simple, provided that you have two
pieces of informations.
1) What is your conversion rate? How may leads do you need to close on piece of
business? How many visitors will take the action you want? Do you close once
every ten leads? Is it more like one out of every hundred?
2) What is the value of a conversion. Is a conversion worth $10, $100, $10,000?
If you possess these two pieces of information, you can determine how much you
should be willing to pay for every click.
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The Formula
Cost per click is often determined by the following formula.
v = Value of Conversion - how much is each person who takes an action worth
to you?
r = Conversion Rate - how many clicks do you need to convert?
c = Cost per Click = the price you'd pay per click to break even
v/r=c
If a conversion is worth $100 (v)
It takes 10 clicks to convert (r)
$100/10 = $10
You can pay up to $10 per click.
Anything less is profit, anything more is a loss.
There you go. That’s the easiest way to think of it.
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