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CPC calculation

Visitor ✭ ✭ ✭
# 1
Visitor ✭ ✭ ✭

Hi, I am trying to work out what my break even CPC should be. It is for insurance. The policy is £300 and my fee is £30. My conversion rate is a constant 5%. How do I calculate this please?  Do I just use my margin of the fee?

1 Expert replyverified_user

Re: CPC calculation

Top Contributor
# 2
Top Contributor

Hi Elizabeth, the equation in this situation is as follows:

 

Maximum CPC is given by the equation CPC = CPA * CVR.

 

Your maximum CPA (cost per acquisition) is £270 (assuming you take your fee as part of the £300).  So, if your conversion rate (CVR) is 5% (0.05), your maximum CPC is:

 

270 * 0.05 = 13.5

 

So, your maximum CPC should be set to £13.50.  

 

Of course, if you're able to bring that CPC down and retain the same CVR, you can increase your profit.

 

Jon

AdWords Top Contributor Google+ Profile | Partner Profile | AdWords Audits

Re: CPC calculation

Visitor ✭ ✭ ✭
# 3
Visitor ✭ ✭ ✭
Hi Jon, thanks for your help. Sorry I am just a bit confused on why you use which numbers.
So the £270 would not be my money, I am the broker so that money goes to the insurer. I keep the £30 as that is my fee. Is that still correct. Many thanks, Lizzie

Re: CPC calculation

Top Contributor
# 4
Top Contributor

Hi Elizabeth,

 

If your net profit is only £30, then the calculation would be:

 

30 * 0.05 = 1.50

 

Though, of course, this will actually leave you with 0 profit, so to provide just £5 per conversion, you'd need to look at:

 

25 * 0.05 = 1.25

 

and I have to say that £1.25 as a CPC for the insurance industry, is almost certainly not going to be anywhere near enough for your Ads to compete reasonably, although it may depend upon the particular type of insurance.

 

Jon

AdWords Top Contributor Google+ Profile | Partner Profile | AdWords Audits