If you find yourself in a place where you know you’re willing to pay a certain amount for a sign up (CPA), but don’t know how much to bid on your keywords (CPC), have no fear! All you have to do is remember a simple formula.
The only other variable that you need to know is how frequently new visitors sign up (CVR). If you don’t have any history on what your conversion rate will be, then you’ll have to estimate. In my experience, a Conversion Rate of 3% is average, however is your site is built really well for Conversion Optimization, you could be getting much, much higher!
CPA = Cost Per Acquisition = cost / aquisitions
CVR = Conversion Rate = acquisitions / clicks
CPC = Cost Per Click = cost / clicks
Ultimately, the better your Conversion Rate, the more you are willing to pay for your Cost Per Click.
Remember, CVR will be different for each keyword you target. For example, if someone came through on a branded search, they are going to be more likely to sign up than if they came through on a generic term. Make sure you set the appropriate CPC for each keyword to get to your target CPA.
Finally, put your bid into AdWords at roughly 10% higher than your target CPC. Since it is an auction, Google won’t cost you the full bid price every time. I’ve found 10% to be a good enough figure to estimate.
There are many other things to consider when determining target CPC, such as competitiveness of the space, match type, time of day, and more. This is just a helpful formula to get you moving in the right direction.