How to calculate CPC, CPL and CPM
Updated 3 April 2023
We’re going to deep dive into some common paid media acronyms – CPC, CPL and CPM – and explore what they mean, how they work, and why you should care about them.
Cost per Click (CPC)
What is CPC?
CPC (in a paid media context) stands for “cost per click” and is exactly what it sounds like: it’s the price you pay each time a user clicks on one of your ads. Regardless of whether you are charged on a pay-per-click, pay-per-impression or pay-per-lead model you will still have a CPC.
How to calculate cost per click
Calculating your CPC is quite easy, you simply take the amount you’ve been charged, and divide it by the number of clicks you’ve received. For example, if Tom was running a Google Ads campaign and had spent $1000 this week whilst receiving 100 clicks, he would take the $1000 and divide it by 100, this would give him a CPC of $10. Super easy!
Why CPC is important
Knowing your average CPC is important when running paid ads, it doesn't necessarily help you decide if a campaign is profitable or not (the metrics that would be cost, conversions, cost per conversion and ROAS). But if you’ve identified an underperforming campaign, then you’ll definitely need to find out what your CPC is as it can be used to help determine what the issue is. It’s one of those metrics that lives under the hood, as in you generally only need to pay serious attention to it when something is wrong with the campaign output.
There’s generally no issue having either a high CPC or a low CPC (but we’d all obviously prefer a lower CPC), so long as your campaign converts efficiently and is profitable. Having a high CPC might be the price to get more quality users to your site who convert much better than the cheaper CPC users. While you should be aware of your CPC’s, don't let them drive or direct your entire optimisation process.
Read more: Learn the basics of PPC marketing
Cost per Lead (CPL)
What is CPL?
CPL is short for “cost per lead” and is just that, the price that you pay per lead. This can be used interchangeably with CPA (cost per acquisition) or CPC (cost per conversion – but not to be confused with cost per click!) and is without a doubt one of the most important metrics you need to be aware of.
Your cost per lead is one of those top 3 metrics that your clients WILL want to hear about (along with ad spend/cost and number of leads/conversions), even if they don’t care about anything else as it tells them how profitable the campaign is and how much return they’re receiving on their ad spend.
How to calculate CPL
Calculating your cost per lead is very simple, you take the amount of budget that you’ve spent and divide it by the number of leads or conversions that you’ve generated. Let’s follow on from the previous example. Tom has spent $1000, received 100 clicks, and out of all this he received 15 leads. To calculate his CPL, he will divide this spend by the number of leads, so $1000/15 = A $66.66 CPL. So he is basically paying $66.66 for every new lead that comes through to his business.
What is a good cost per lead metric?
As we’ve already discussed this is a very important metric and for most accounts, will be the top metric you are not only reporting on, but also optimising your campaign for. If you can continually decrease and then stabilise your CPL to an acceptable level you’ll have happy clients for many years to come.
Deciding what is an acceptable cost per lead should always be based on how much revenue or profit the average lead generates for a business – you need to know these numbers before you make this call. Spending $1000 on a lead might seem expensive, but not if this is a medical malpractice lead for a lawyer whose average client generates 7 figures of revenue for them. If you run ads for clients, be aware that some businesses might have unrealistic expectations about what CPL to expect (many expect every click to generate a lead), so it’s always important to set these expectations before launching a new account.
Cost per Mille/Thousand (CPM)
What is CPM?
CPM is short for “cost per mille”, which in marketing language means “cost per thousand impressions”, and describes the amount that you’re currently paying for every 1000 impressions that your ad receives. An impression is simply every time your ad shows – whether someone clicks on it or not. Every campaign will have a CPM regardless of whether you are paying per click, per impression or per conversion, and it just gives you an idea of how much exposure you’re receiving for your budget.
How to calculate CPM
To calculate your CPM you’ll need the amount of budget that you have spent, along with the number of impressions your ads have received. From here, you need to divide your spend by your impressions and then multiply by 1000, and this will give you your CPM.
Putting this into practice, let’s use Tom's campaign again. We know Tom has spent $1000, for this he received 100 clicks and 15 conversions. When we look at his impressions count, we see that his campaign received 10,000 of them – meaning his ads were seen 10,000 times. To calculate his CPM (cost per 1000 impressions), Tom will need to take his spend and divide it by the number of impressions. So this would be $1000/10,000 then multiply by 1000 which equals $100. Tom’s CPM is $100, that is, for every 1000 times his ad is seen by a user, he will pay roughly $100.
Now it’s important to mention here that Tom may not be paying per impression, he might be paying per click or paying per lead acquired, so in this case the CPM is more of an observational metric. However, if he was bidding by CPM then it would be much more relevant.
CPM bidding – how it works
The type of campaign being used will generally determine which bidding model is used, and how you are charged. CPM bidding is much more common with display and video campaigns where high reach and exposure (high impressions basically) to a large audience may be more important than number of clicks or direct conversions, and would be more commonly used with larger brands looking to get in front of as many people as possible.
Compare this to a smaller business (such as Tom’s) who may just want conversions for the lowest price, in which case CPMs and CPCs are less relevant (it doesn't matter how high they are, as Tom doesn't want reach or clicks, he wants conversions). So depending on the type of client or business you have – and its goals and needs – will influence how much importance is placed on the CPM metric.
How to choose the best pricing model for paid digital marketing?
Truthfully, there is not just that one paid marketing pricing model that fits everyone. Ultimately it depends heavily on your goals and what you want to achieve using paid media.
A major benefit of CPC, CPL and CPA is that all these metrics are usually calculated automatically in most platforms. But more importantly, you need to know how they’re calculated, what they represent and which of them you need to respond to as they all have differing levels of relevance and importance.
Knowing your way around the paid digital marketing world will help you decide which pricing model to choose for your business or clients. If you are still unsure, we suggest engaging a digital marketing agency that is specialised in paid marketing – like Honest Fox.
Let us know if you need help with your campaigns and our paid specialists can recommend what works best for you.