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There are many ways to determine what CPC amount to set for your campaigns. You can figure this out based on your targets, what you know about your business, or the value of your sales. In this article, we will go through two approaches to calculating your ideal CPC. Whether you have a target cost per acquisition (CPA) or a return on investment target (ROI), you need to know the CPC value to break even; otherwise, your costs will outweigh your profits, resulting in an overall loss.

Before diving into the final formula for calculating your break-even CPC, we will first explain the underlying logic and guide you on how to solve it independently. So let’s begin with the first approach:

Target CPA

To figure out the break-even CPC  based on your target CPA, you need to know two things first:-

• Your target CPA is how much you are willing to pay for a conversion.
• The Conversion rate of your website and is basically how many sessions or clicks you need to have to generate a conversion.

As you may already know, the target CPA can be determined by dividing the cost by the number of conversions:

CPA = Cost / Conversions

In this equation, the cost is represented by the product of the number of clicks and the CPC, while conversions are calculated by multiplying the conversion rate with the number of clicks. Let’s substitute these values into the equation:

CPA = (Clicks * CPC) / (Clicks * Conversion Rate)

To simplify the equation, we can cancel out the clicks from both the numerator and the denominator:

CPA = CPC / Conversion Rate

Now, let’s rearrange the formula to calculate the CPC:

CPC = CPA * Conversion Rate

So, the final formula for determining the CPC is to multiply the target CPA by the conversion rate. Let’s apply this formula to the example given. If the target CPA is $75 and the conversion rate is 0.60%, the CPC would be:

CPC = $75 * 0.60% = $0.45

Target ROI

To decide how much you should bid based on an ROI target, you need a few things before we start:-

• Your target ROI is your return on ad spend.
• Conversion rate of your website and this is basically how many sessions or clicks you need to have to generate a conversion.
• Average order value which is the average value of your conversions.

If you know your target ROI, the number of clicks required to generate a conversion, and the average order value (AOV), you can easily determine the CPC value. Let’s consider an example where the target ROI is 2, AOV is $150, and the conversion rate is 0.60%. Now, let’s derive the formula step by step:

As you already know, ROI is calculated by dividing revenue by cost:

ROI = Revenue / Cost

Revenue is equal to the product of conversions and AOV, while the cost is the result of clicks multiplied by CPC. Let’s substitute these values into the equation:

ROI = (Conversions * AOV) / (Clicks * CPC)

Additionally, conversions can be expressed as the product of clicks and the conversion rate:

ROI = (Clicks * Conversion Rate * AOV) / (Clicks * CPC)

To simplify the equation, we can cancel out the clicks from both the numerator and the denominator:

ROI = (Conversion Rate * AOV) / CPC

Now, let’s rearrange the formula to solve for CPC:

CPC = (Conversion Rate * AOV) / ROI

Finally, to calculate the CPC, divide the product of the conversion rate and AOV by the target ROI. Applying this formula to our previous example:

CPC = (0.60% * $150) / 2 = $0.45

Conclusion

You can’t control how much other advertisers bid but you can place your ads at a level where they will be profitable.  The factors which could be holding back profitably possibly include the conversion rate of your website, your conversion value, or even the quality score. Therefore, you should be smart in determining which bid strategies to go for, in order to be profitable and successful in setting your Google Ads campaigns.