So many people have turned to AdWords as a way to drive traffic to their websites in an affordable way, but there are a lot of different cost considerations that must be taken into account. While some people will set a predetermined budget and run their campaign until the allocated amount has been spent, this is not the best way in which to analyze your impact or your return on investment. The reality is that several different costs for AdWords can be extracted from your performance, which will help you understand whether your campaign is merely reaching an audience or is truly excelling. Below, we will discuss the actual costs of AdWords campaigns and how you can determine this through several different metrics.

Cost Per Click

This is one of the most common forms of cost measurement associated with AdWords and is designed to encourage ad placement to yield direct traffic over simple impressions. The average website or business determines the appropriate amount that it is willing to pay for a click or visitor and incorporates this number into their AdWords campaigns. Cost per click campaigns are fairly straightforward in terms of cost evaluation and can be compared with Analytics data to determine how many of those clicks have resulted in valuable business or leads. To calculate the true cost, simply divide the amount spent by the number of clicks.

Cost Per Thousand Impressions

Perhaps the second most common type of AdWords campaign, CPM bills users for each 1,000 impressions made. This contrasts with the CPC campaigns that bill only whenever an advertisement is clicked. The rate for each individual impression is far lower than the cost per click method above, but a properly utilized AdWords CPM campaign will be pinging servers at approximately the same overall cost as a CPC campaign. In order to determine your CPC campaign’s cost, divide your budget by the number of impressions and then multiple by one thousand.

Click-through Rates

Some people can get so wrapped up in the cost of their campaigns at the base level that they forget to analyze what their click-through rates are in the process. This is hugely important – a high click-through rate suggests that your ads have reached their target audiences and are designed properly in terms of appeal and substance. This measurement will tell you how many people have interacted with your brand relative to the number of people who have seen your advertisements. In order to determine click-through rate, divide the total number of clicks by the total number of impressions.

Conversion Rates

Conversion rates can be inspected to determine how often a clicked ad results in a particular action being initiated via your website. For example, those who want to monitor how many ad clicks have resulted in an email subscription can create a unique piece of code for use within AdWords that will provide this information. This will in turn start pinging servers on AdWords and your website to correlate this information. To determine the cost of this figure, divide your total number of conversions by the total number of clicks and then multiple by one thousand.