How do we define Cost Per Click and Cost Per Conversion? What are the differences between Cost Per Click and Cost Per Conversion? I get this question a lot because my company handles a variety of digital marketing needs. From Pay Per Click (PPC) campaigns, to Facebook Ads, Search Engine Optimization, to sales funnels of various lengths and depths. After hearing some of my new clients lack of understanding of these terms, it became apparent that I needed to clear some of this up.
Click Through Rate (CTR)
This is the simplest of the following formulas. It’s still very important in understanding how all of this fits together. The CTR is the percentage of clicks an ad gets to the number of impressions it has. Impressions can be defined by the number of times it was delivered. This metric is important to understand as it is a defining metric to be able to determine the success of any specific ad. Basically, it’s determining that of the x number of people that saw the ad that x number of them actually clicked on it.
Click Through Rate = (Number of Clicks/Number of Views) x 100
Cost Per Click (CPC)
This is the actual cost of someone clicking an ad. Whether a PPC ad or a Facebook Ad. This cost is representative of literally ONLY the cost for that click. The cost is defined as the amount you pay the third party (Facebook or Google) for those clicks.
Cost Per Click = Total Ad Cost / Number of Clicks
Conversion Rate (CR)
This is defined by percentage of people who made it from viewing the ad to following through with the desired conversion. The important part to note is that on an ad you may get a click but not a conversion. The conversion can depend on a lot of factors but the take away is to know before you start, what a conversion is within that specific funnel or ad sequence. Do you define a conversion as having someone sign up to your email list? Or that they purchased from you? You get to define the conversion for each campaign objective.
Conversion Rate = (Number of Conversions / Number of Clicks) x 100
Cost Per Conversion (CPCo)
This is defined by the cost it took to get a conversion. This is a hard thing to determine when your sales funnels become longer and deeper. But to keep it simple, lets say we have a Facebook Ad that leads to an opt-in page for your new program. The potential customer then gets an email that prompts them to buy a product. Then they actually buy the product. The cost from seeing the ad to completion will be the Cost Per Conversion for a funnel. Again, you get to define what the conversion is, whether an email or a purchase, and that will change for every funnel you create.
Cost Per Conversion = (Total Sales Funnel Cost + Total Ad Cost) / Total Number of Conversions
Examples of CPCo, CPC, CR
Now that I’ve completely muddied the waters let’s look at these definitions as they pertain to examples.
Cost Per Click Example
There are Facebook Ads that link to a landing/squeeze page that are meant to collect email addresses. The link clients click on the Facebook Ad to get to the landing page are represented in Facebook Ad Reports as a Cost Per Click. Also in this Facebook Ads report you can get a solid number for your Click Through Rate. In this scenario, you may get ad clicks and no email address. For that reason, the Cost Per Conversion will be different than your Cost Per Click.
Cost Per Conversion Example
Let’s say that your Facebook Ad got 500 clicks. The Click Through Rate was an impressive 8% and you sold 7 products from those 500 clicks. The Conversion Rate is 1.4% which is pretty low. There are times when that Conversion Rate may be good, but generally, only if you have a really high-ticket product to account for such a low Conversion Rate. (If that is the case then your total ad cost also needs to be noted in this situation). Though the 1.4% Conversion Rate is a bit low, it would be important to calculate your total Cost Per Conversion. Then based on the total cost of what you’re trying to sell, determine if the cost of acquisition falls within your margins.
Conversion Rate Example
Let’s say that your Facebook Ad got 40 clicks. You sold 3 products from those 40 clicks. Your CR is 7.5% which is pretty impressive. (This is to illustrate that having a ton of clicks isn’t always the goal- it’s having a targeted campaign and a high conversion rate).
Examples 2 & 3 are to illustrate that all of this is a numbers game. They all fluctuate based on each other. This can seem complicated at first. Ieven seem complicated during the initial testing of an ad or a sales funnel. But ultimately after the tweaking this can mean that you’ll be able to know your target Cost Per Click and your expected Click Through Rate. Which will determine your Conversion Rate and Total Cost Per Conversion.
Something I see happen a lot is that companies are hyper focused on one aspect of these metrics. It’s important to spend time to understand how the above numbers relate to each other. It’s also important to be aware of what we call ‘vanity metrics’ (which are numbers/metrics that don’t carry real digital marketing weight, they just ‘look good’). Don’t become bogged down with things that don’t matter for your business!
This guide is meant as very basic initial step to understanding the difference between Cost Per Click and Cost Per Conversion. There are a ton of other factors that go into what may impact any of these numbers. It’s important to know which ones you can control to manage as many expectations as you can. Have any questions? Leave your questions in the comment section down below!