Does CPC Matter for Ad Performance?

Hey friend,

There was a pretty nasty mud-slinging match going on over on DTC Twitter recently. The debate was about whether CPCs (cost per clicks) 'matter' when optimising your Meta Ad Campaigns.

The answer is nuanced, not black and white like some of the marketing bros were trying to argue.

Here is what I think about CPC? Let’s dig in!

What is the most important metric to judge your campaigns?

You need a metric that tells you whether things are working or not, a North Star to follow.

The most popular tends to be ROAS because it tells you how much money you are generating from every $1 you put in.

The other common one is CAC (customer acquisition cost) - it’s basically the total spent divided by the number of (new) customers.

I usually suggest CAC unless you are looking for short-term cashflow, in which case ROAS is better.

To keep things simple let’s just use CAC as the best proxy for campaign health.

Does CPC impact your CAC?

The answer is, in the words of Zuck, ‘it’s complicated’.

Your CAC (cost per acquisition) is always a factor of two things: Traffic cost and conversion rate.

If your Meta CAC gets too high - the first metrics to check at the campaign level are:

1. Conversion rate - purchases divided by link clicks

2. Ad cost - ad cost can be assessed via CPC or CPM.

If your CAC is down - now time to look at which one of these two is off - conversion rate or Ad cost?

This will tell you if this is likely to be a website problem, or a creative/traffic problem.

If your conversion rate is suddenly down, and nothing else has changed, then it's time to go and check what's going on with your website or landing page.

If your traffic cost has gone up - this more likely points to a creative problem - since traffic cost is usually a combination of the popularity of your ad (CTR and interactions) as well as how much Meta is prioritising your ad in the auction.

So CPC can be useful to help you know what you need fix. CPC is a good diagnostic to help you find the root of the real problem.

But - here is where it gets tricky

Because we are dealing with auction-based media-buying, the traffic cost partially depends on how valuable that traffic is to you and your competitors.

High-value traffic might convert at twice the rate of low-value traffic, and Meta places your ads where they are most likely to succeed, trying to hit your ultimate goal of more conversions.

To further complicate things - your conversion rate being down might not just be your website’s fault - it could ALSO be a sign of problems with your creative not just your website - the creative might be attracting the wrong audience, or not convincing them of the right things.

And remember - your CPC could go up even when you are hitting your CAC goal, Meta might be going after more expensive, higher quality audiences. So you would never turn off an ad or campaign just because of CPC, that would be crazy.

The most important metric?

Ultimately - the most important metric is CAC (or ROAS depending on your business), and whether you are hitting it.

If you aren't - the other metrics like CPM, CPC, CTR and CVR and their relationship to one another are all there to help diagnose why your performance is off, and what you might need to fix.

Spoiler alert - it's usually your landing page or your creative that is your problem.

SO yes - CPCs matter but never in isolation, and you don't optimise based on CPC, you use it to diagnose. What do you guys think?

SO yes - CPCs matter but never in isolation, and you don't optimise based on CPC, you use it to diagnose.

What do you guys think?

Have a great week!

Jessie

ps.

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