It stands to reason that when you’re running pay-per-click ads on Google, you want to know the price that you’re paying for those clicks. Here’s an important consideration, though: Average CPC is often not the price you’re paying for each of your clicks.
This sounds more obvious than it actually is, but average CPC is only the average of what you’re paying. There are a whole bunch of other considerations that go into the actual price you pay across each of those clicks, depending on factors like the user’s exact query, their device, their location and the time of day.
Whether it’s for brand terms — keywords that you bid on in AdWords that resemble or incorporate your brand name — or more generic keywords regarding products or services you offer, it’s important to understand some of the different factors that go into average CPC.
If you’ve ever tried to explain how AdWords works to someone, you can attest to exactly how dynamic the auction is. There are a lot of moving pieces and plenty of reasons your averages might be shifting at any one time — including seasonality, changes in consumer behavior and competition. And that’s without considering changes to the results page or improvements to the ads quality system.
It might sound like marketing mumbo-jumbo when we say, “We’re always making improvements to ads quality so that users have a great experience when they search,” but it’s true. As a result, even for advertisers that don’t experience a lot of seasonality or competition, it’s not unusual for CPC to change over time.
Awareness is always a great place to start, so be aware of your average CPC and how it compares historically to your account’s performance. Notice that average CPC should only be the starting point for your diagnosis process. Averages can hide a whole lot of insight, so here are some ways to unpack what’s going on:
Year-over-year can often be a really effective comparison range, but it can also be confounded by actual events. For example, if you were doing a year-over-year analysis from this summer to last, could something like the World Cup have affected performance? In order to avoid big events like those throwing off your analysis, you may be better off looking at trends over multiple years to calibrate appropriately. If your account has extensive history, use it. Understand what current trends look like in a more detailed context by varying the time periods of your analysis.
If your absolute numbers are small enough, percentages can greatly overstate changes you might be seeing. If your average CPC for a term is $0.02, going up a single cent will lead to an increase of 50%. I’m not saying that you shouldn’t care about large percentage changes in performance — what I am saying, though, is that you should temper your analyses.
Your average CPC could be very different from what you see as an actual CPC from one click to another. Check out this simple example:
|Max CPC||Total Clicks||Clicks @ $0.01||Clicks @ $0.11||Avg CPC|
In this case, an 18% decrease in bid would result in an average CPC drop of 50%, but clicks would only drop 10%. And this example contains small numbers, so the actual effects you see might be even greater.
A great way to get insight into this behavior is by segmenting your different reports. Top vs. other can be particularly meaningful. Days of the week, devices and geography can also help you get a more nuanced look at average CPC. These segments should help you find any outliers, and once you find them, you can reduce bids or bid adjustments as needed.
As far as I can tell, people tend to think about average CPC most often when that average changes in a significant way. There are different reasons that change might be upsetting, though. See if any of these positions sounds like you:
How changes feel: Some people just like things to stay the way they’ve always been. It’s not about profitability or performance, it’s about consistency. There’s a definite appeal to consistency, and I (and plenty of other Tennessee Volunteers football fans) can attest to the dangers of too much change too fast.
How to cope: Recognize that the AdWords auction, as we mentioned above, is dynamic: End user preferences and behavior are ever-changing, advertisers are ever optimizing performance, and Google is ever making improvements to the system. Even if your business doesn’t have a lot of seasonality or competition, you should still expect to see changes over time. This can be a good thing, too: Positive changes like improved quality can reduce your CPCs..
How changes feel: Things continue to be profitable even after average CPC increases, but they aren’t as profitable as they’ve been before. Your really great value has recently downgraded to simply great value, and you want to return back to those pre-existing levels.
How to cope: You always have full control over your bids. If your return on investment dips due to a change in average CPC, you can make changes to bring things back in line. Remember, however, that there’s always going to be a trade-off with volume and efficiency. The goal should be to maximize your profits, not your marginal costs.
How changes feel: There may be cases where you’re bidding more than a term’s actual value, and that’s basically subsidized by a very low average CPC on some other term, like a brand term, or lower CPCs in an emerging market. An increase in average CPC can reduce your overall account margin and cut into the efficacy of paid search as an entire channel.
How to cope: Re-evaluate the balance between brand and non-brand spend, but keep in mind that sometimes non-brand terms drive downstream purchase and consideration. You can use Attribution reports to find out about those downstream activities for yourself. Ultimately, if you’re bidding more than a term’s actual value, you should reduce your bid.
Here are some straightforward safeguards that can ensure you’re not paying more than you want to pay:
1. Monitor the value you get from clicks relative to your bids.
This is especially necessary if you have a high variance between your max CPC and what you’re actually paying. I’ve heard of advertisers with a bid of $10.00 that really want to stick close to $0.05 per click. Don’t let that one $10 click throw off your average CPC for the entire month. Cap your bid closer to what you are actually comfortable paying. Too much headroom on your bids can leave you open for the types of variance I’ve described above.
2. Improve your Ad Rank in ways other than your bid.
If you’ve identified places where the CPC is too rich for your blood, it doesn’t mean you’re out of luck. It only means you have to work a bit harder to get those impressions. Improve the quality of your ads, and implement great ad extensions. A bid is only one part of the Ad Rank equation, and by working on all of the parts of that equation, you can keep your impression share as high as possible.
3. Ensure that your bid modifiers are in line with the value you receive from those segments.
Your max CPC can be affected by multiple modifiers that may be active in your account — geo, device, time or RLSA audiences. Once you have a good sense of the performance of the different segments within your account, you can manage those segments through the appropriate modifiers. You might find that your base bids are in great shape, only to see that a stray modifier is throwing off your average CPC.
Average CPCs are an important metric to measure, but it’s even more important to understand what creates that average. It’s important to stay on top of your CPCs to ensure that you’re getting the best possible return from your AdWords investment.