Pay-per-click (PPC) advertising can be a highly effective tool for digital marketers. Small and medium-sized businesses make an average of $2 in income for every $1 they spend on Google Ads (source).

But to understand how your pay-per-click (PPC) ads are performing, you’ll first need to know how to track and calculate your PPC costs. In this article, we’ll break down how to calculate PPC costs and highlight the equations that act as practical PPC cost estimators.

How Do You Calculate PPC?

To estimate PPC costs, you’ll need to analyze several different metrics that serve as pieces of a puzzle in your overall costs. While there’s no magic formula that acts as a universal PPC cost estimator, with the help of the formulas below, we can help you to simplify the task.

To begin gauging the costs of your PPC ads, you’ll first need to understand how to calculate the following PPC metrics:

How to Calculate Cost-Per-Click

One of the most crucial calculations you’ll need to use when estimating PPC costs is how much each click costs you. This cost-per-click (CPC) formula calculates the exact price of every ad click:

Total Cost/ Number of Clicks = Cost Per Click

How to Calculate Click-Through-Rate

Your click-through-rate (CTR) can help you understand how enticing your ads were to search engine users. CTR compares how many users saw your ad versus how many actually clicked. The formula to calculate CTR is:

(Number of Clicks/ Number of Impressions) x 100 = Click Through Rate

How to Calculate Cost Per Conversion

Cost per conversion, also referred to as cost per acquisition, goes beyond the CPC calculation to uncover how successful your campaign really was. The metric breaks down exactly how much you spent on your PPC efforts per conversion, rather than overall. Use the following formula to calculate cost per conversion:

Campaign Cost/ Number of Conversions = Cost Per Conversion

How to Calculate PPC Return on Investment

While it’s valuable to understand how much your ads cost you, what you probably really want to know is how much your ads earned you. Return On Investment (ROI) gives you tangible evidence of how effective your PPC campaign actually was. Here is how to calculate return on investment:

[ (Revenue Generated – Campaign Cost) / Campaign Cost ] x 100 = Return on Investment

Return on investment can also help you find the most effective PPC marketing strategy for your business. In addition to calculating the overall ROI of your PPC efforts, it can be beneficial to compare the ROIs of individual campaigns to find your high-converting keywords, ad copy, and landing pages.

ROI on a PPC ad campaign is notoriously difficult to track accurately. You can’t always easily trace a sale back to the ad click that brought them to your site.

How much should you spend on PPC ads?

Estimating how much your business should spend on PPC can be a tricky task. Because keyword prices vary widely, it can be difficult to gauge how much your company should spend. Here are a few factors to calculate into your PPC cost estimations:

Industry

Keywords in certain industries cost more than others, driving up PPC costs by default. The business services vertical— real estate, legal, accounting, insurance, etc.— are typically the most expensive.

Customer Lifecycle

Another variable is how long it takes customers to move through the marketing funnel. For higher-priced items and bigger purchase decisions, users who click on ads are likely in the research stage and are not ready to make a purchase.

Current Advertising Trends

Like everything else in our lives, the cost of PPC advertising has been impacted by the coronavirus pandemic. As consumer behaviour shifts from in-person purchases to online shopping, some industries saw massive changes in their PPC costs.

If your business needs support with its PPC advertising strategy, Asset Digital Communications can offer a simple PPC cost estimator for your small- or medium-sized business.