Setting Maximum Cost-Per-Click Bid (Max CPC)

As PPC marketers, we need to know the cost that we do not want to exceed per click especially when we are on a tight budget campaign. For example, when we are generating leads for someone else’s product or service, we need to watch our maximum CPC because based on a certain conversion rate, if the CPC goes up too much, we can convert, but we end up losing money for every conversion. We are going through two ways on how to calculate max CPC bid. 

 

Based on Agreed Cost per Lead  

• Step 1: Determine profit per sale or lead.  

• Step 2: Find out conversion rate or how many visitors needed to get a conversion.  
• Step 3: Calculate max CPC based on steps 1 and 2.  

We are working backwards and assuming a conversion rate of one percent to calculate our breakeven point.  

For example, if someone is engaging you to generate leads for their business and agree to pay you $50 per qualified lead. You need to figure out how many visitors needed to generate a lead or conversion. Assuming you need 100 visitors (or 100 clicks) to get a lead, which is a conversion rate of one percent, your max CPC is $50 / 100clicks = $0.50!  

From here, we can see that a one percent conversion rate is hardly sustainable, and we really need to fix the conversion rate to make it profitable. In this scenario, if we can increase the conversion rate to five percent – meaning we convert after 20 clicks, the max CPC we can afford will increase to $50 / 20clicks = $2.50!  

Assuming you can achieve a conversion rate of 5%, you can afford to bid a max CPC of $2.50. To stay profitable, you need to achieve as high a Quality Score as possible and Google will likely charge you much lower e.g., $1, and the difference between your max CPC and the actual cost-per-click (i.e., $1.50) becomes your profit.  

 

 

 

Based on Average Ad Position  

• Set an initial max CPC and run the campaign live.  
• Monitor the average ad positions for each keyword.  
• Adjust the max CPC of keywords to increase the average ad position to the top of page.  

In this method, you start with the Google Keyword Planner for the recommended max CPC then run a live campaign with that top of page bid. Assuming a max CPC of $5 can only average around Ad Position 3 and you have already reached the maximum Quality Score, your need to incrementally increase the max CPC bid until your average Ad Position is close to 1.  

Aim for a conversion rate of at least 5% or 1 conversion for every 20 clicks, and it becomes easier to calculate how much to charge your client per lead. For example, if the Keyword Planner is showing $5 for top of page bid, your break-even is ($5 times 20 click) – $100; meaning you cannot charge lower than this per lead to stay profitable.  

In both methods above, it is important to get the best Quality Score and to regularly comb through the Search Terms Report to keep your costs low and profits high as a lead generation specialist.