Even if someone is buying on a CPC most traffic sources back everything out to a CPM. Like Facebook sells on a CPC but really their algorithm is all based on CPM. Why does this matter you’re asking? Well it directly affects your click cost and volume. The higher you can make your CTR the less your clicks cost because they sell the inventory in a bidding type system based on CPM. I know some of you know that if you get better CTR’s your click cost comes down. Well now you know why.
That was on the buying side of the equation now lets talk about the selling side.
On the selling side EPC is the primary metric we test success with. Again EPC is earnings per click. What this means is every click to the offer what is that earning you? You say I’m getting paid on a CPA, cost per acquisition which is what you’re earn for each conversion, not a CPC, that’s right but we do a little math to figure out what an EPC is based on the conversion rate and the CPA.
EPC = Conversion Rate * CPA
When we look at a offer that pays $20 to us for each conversion and we converts at 20% that means it takes 5 visitors or clicks to get a sale. Which means are making $4 for every click or an EPC of $4.
Where does conversion rate derive from? It’s the number of conversion divided by the number of clicks.
Number of Conversions / Number of Clicks = Conversion Rate %
Where does the CPA derive from? Most likely the person paying the CPA has a similar model on their end. Then they pay based on how much margin they want to make.
Lets do some math and calculate out some EPC.
Again conversion rate is typically expressed as a %. So we need to shift those decimal 2 places to the left to do the math.
That’s all there is to it.