cost per click

Also called cost-per-response, direct-marketing technique for setting Internet advertising rates as well as for computing the cost effectiveness of advertising on an Internet service (such as the World Wide Web). The technique relates the cost of an advertisement to the number of people, or users, who click on it. It is computed by dividing the cost of designing and placing the advertisement by the number of page views of the advertisement. The fallacy of the technique is that it assumes that those who click on an advertisement are actually interested in more information. However, some users may simply be interested in the graphics or other aspects of the handiwork of the advertisement. The typical Internet advertisement is displayed in two parts: the first is a banner placed on a World Wide Web site with a brief advertising message, and the second part is a link to more information elsewhere. In order to view the second part, the user must respond to the first part by clicking on the link, hence cost-per-response. Often users will click on the link because they are more interested in the transition process than they are in the information displayed.

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A website that uses CPCs would bill by the number of times a visitor clicks on a banner instead of by the number of impressions. Cost per click is often used when advertisers have a set daily budget. When the advertiser's budget is hit, the ad is removed from the rotation for the remainder of the period.

Investopedia Says:
For example, a website that has a CPC rate of $0.10 and provides 1,000 click-throughs would bill $100 ($0.10 x 1000).

The amount that an advertiser pays for a click is usually set either by formula or through a bidding process. The formula used is often cost per impression (CPI) divided by percent click-through ratio (%CTR).

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