For many years there has been speculation about the performance of Google Search Text Ads and whether this ad format was becoming ineffective. Advertisers complained that Google Search was not as effective as a medium as it had been advertised. In many cases, this resulted from user and set up errors, more often than the short comings of the platform itself. Especially with the growth in popularity of Google Local Services Ads, many expected Google Search Text Ads to slowly go by the wayside. However, the rising CPCs (cost-per-click) across industries signals that this is entirely not the case.
Auction Bidding System
Google Ads is an auction based advertising system. This means that the cost-per-click is determined by what all of the advertisers in the auctions are willing to pay. Google does weight each bid by their quality score metrics, but this simply alters the weight of each bid. If the cost-per-click has increased 19%, this means that advertisers much be willing to pay 19% more than they were during Q4 of 2022.
Why are Advertisers Bidding Higher?
The next logical question to ask when examining the cost-per-click increase is; why are advertising bidding higher for each click? There are two sides of the coin to examine and both answer can be partly true. The optimistic view point would be that advertisers are willing to pay more because they know which portion of their marketing are effective and are raising bids to more heavily penetrate that audience. While cost-per-click on the whole is up, the report did not say another about the total volume of money spent on Google Ads, or the total amount of clicks which occurred during the same time period. It could be that overall clicks and spend were down (from a total volume), yet cost-per-click increased because advertisers are better focusing their campaigns to the audiences and targets which provide the most end results.
The pessimistic view point would be to theorize that cost-per-clicks are increasing because clicks to Google Ads on the whole are decreasing. If you have heard our Managing Partner, Michael Burdsall, discuss Google Ads bidding strategies; you know that they are becoming more and more automated. In total, automated bidding strategies are a massive benefit to marketers. However, they are only as effective as parameters provided to them.
What this means in this case is that if clicks are decreasing, yet advertiser budgets are remaining the same; these automated bidding strategies will begin raising their bids. This happens because the total volume decrease in clicks will reduce the total amount of budget used. When the automated bidding strategy sees there is additional unused budget it will begin to bid more to capture additional results within that given budget.
If this is occurring in an auction ecosystem in which multiple automated bidding strategies are competing with each other; with little manual intervention, cost-per-clicks could skyrocket.
What Does This Mean for My Google Ads Campaigns?
This report should mean absolutely nothing to your Google Ads campaigns! While reports like this may be interesting brain teasers for experienced marketers like Results Guaranteed, there is little information of value which can be applied to individual ad campaigns. Cost-per-click should never be a KPI of your Google Ads campaigns. Cost-per-click is an indicator metrics, but not that which should be main determinant of campaign success.
For all advertisers, in all industries, the most important aspects of effective Google Ads management is the setting of clear goals. Before beginning always ask yourself, what do I want to get out of this? Is it email subscriptions, phone calls, sales or brand awareness? From there determining the action on your website which most closely aligns with that goal is important. Tracking this action and attributing to the correct campaign gives a much better judge of campaign performance and efficiency. After all, a $10 cost-per-click on a 10% conversion rate is a much more expensive lead than a $20 click on a 25% conversion rate. If you have more questions about what you should be tracking to judge your campaigns success, just reach out to Results Guaranteed Digital Marketing!