CPCs keep increasing – here’s what you can do about it by CallTrackingMetrics

Cost-per-click (CPC) rates are rising across industries. In fact, CPCs are up by an average of 10% year over year, according to WordStream.

It’s time to address this challenge.

Lisa Salvatore, Sr. Manager, Lead Acquisition at CallTrackingMetrics, puts it this way: 

“You can give the digital advertising landscape credit for one thing: keeping us on our toes! From AI to CTV to privacy restrictions alone in the past year, it’s made it harder for advertisers to control costs while improving performance. With such a complex and rapidly changing environment, it’s more important than ever for us to work smarter, using the right tools to uncover what drives revenue and increase our understanding of customers. It’s the ability to optimize off these actionable insights that will ultimately allow any advertiser to spend more efficiently.”

Before we dive into solutions, let’s explore what’s behind this upward trend.

What is causing CPCs to rise?

Understanding the root causes of rising CPCs is crucial for developing effective strategies to combat them. Let’s delve deeper into each factor.

A broken funnel

Sometimes, the issue lies within your marketing ecosystem, especially if you don’t regularly evaluate your tactics’ effectiveness. Places to start include examining your ads, website experience or conversion process.

• Ad quality: Low-quality ads that trigger poor Quality Scores can lead to higher CPCs. Google rewards ads that provide a good user experience with lower costs.
• Landing page experience: If your landing pages don’t match user intent or have high bounce rates, again your Quality Score will be impacted. The better the user experience from an ad click to a landing page, the more you will be rewarded with relevant clicks and lower CPCs.
• Conversion rate optimization (CRO): A low conversion rate means you’re paying for clicks that aren’t turning into customers. This inefficiency can drive up your overall cost per acquisition, even if your CPC remains stable.

Google’s direct influence

Google has been transparent about certain changes that affect ad costs. When the platform updates its algorithms or introduces new features, it can directly impact CPCs.

• Algorithm updates: When Google updates its search algorithms to adapt to what people want, this could potentially impact which user queries trigger your ads and at what cost.
• Ad format changes: The introduction of new ad formats and generative AI-assisted creative tools can impact CPCs as advertisers adapt to new best practices.
• Policy changes: Updates to Google’s advertising policies can affect which ads are allowed to run and how they’re displayed, potentially increasing competition for certain keywords.

Smart bidding’s indirect effect

While smart bidding aims to optimize your ad spend, its lack of transparency can lead to increased costs as it tries to reach your “ideal customer.”

• Audience targeting: Smart bidding may prioritize users it deems more valuable, potentially increasing bids for these high-value clicks.
• Time of day and device adjustments: The algorithm might increase bids during times or on devices where conversions are more likely, which could drive up average CPCs.
• Learning period fluctuations: When you switch to smart bidding, there’s often a learning period where costs may increase before the system optimizes.

Increased competition

As more businesses allocate larger budgets to digital advertising, the auction becomes more competitive, driving up prices.

• Market saturation: In some industries, nearly all businesses are now advertising online, increasing competition for the same keywords. We’re looking at you, the home services industry.
• Seasonal trends: During peak seasons (e.g., holidays, election years), competition intensifies as more advertisers vie for the same audience.
• New entrants: The low barrier to entry for digital advertising means new competitors can quickly enter the market and drive up costs.
• Budget increases: As businesses see success with PPC, they often increase budgets, leading to higher bids across the board.

Economic factors

Broader economic trends can also influence CPC rates.

• Inflation: As the cost of goods and services rises, businesses may increase their ad spend to maintain sales, driving up CPCs.
• Industry growth: Rapidly growing industries often see increased ad competition as more players enter the market.
• Consumer behavior shifts: Changes in how and where consumers shop (e.g., the shift to online shopping during the COVID-19 pandemic) can increase competition for digital ad space.

Platform changes and restrictions

Updates to advertising platforms and increased privacy regulations can impact CPCs.

• Privacy regulations: Laws like GDPR and CCPA have limited data collection, potentially making targeting less efficient and driving up costs.
• Cookie deprecation: The phasing out of third-party cookies is changing how ads are targeted and measured, which could impact CPCs as advertisers adapt. The impact of this situation may be partially mitigated by recent news.
• Platform feature removals: When platforms remove targeting options (like Facebook’s removal of certain detailed targeting options), it can increase competition for the remaining targeting criteria.

Understanding these factors can help you identify which ones are most relevant to your campaigns and develop targeted strategies to address and minimize their effects. 

By addressing the root causes of CPC increases you can work toward more cost-effective advertising in an increasingly competitive digital landscape.

5 ways to fight back against rising Google Ads costs

Despite these challenges, there are ways to achieve your goals – and likely without any extra budget. Here are five approaches to help you succeed:

1. Check your settings

Before pointing fingers at external factors, look inward. There might be optimizations waiting to be discovered within your account:

• Review and update your negative keywords to prevent wasted spend on irrelevant searches.
• Check for keyword overlap that might be causing your ads to compete against each other.
• If you’re using Performance Max campaigns, ensure they’re not cannibalizing traffic from your more targeted campaigns.
• Examine your ad copy and look for opportunities to improve its relevancy to customers (Google’s Ad Strength metric is a good place to start!).

2. Improve and optimize your landing pages

If you’re going to pay more per click, make sure you’re maximizing the value of each visitor:

• Implement clear and compelling calls-to-action (CTAs) that guide users toward conversion.
• Conduct A/B tests to identify the most effective layouts, copy, and offers.
• Ensure your landing page messaging accurately reflects your ad content for a seamless user experience.

3. Focus on CPA vs. CPC

While rising CPCs are concerning, they aren’t the whole story. Shift your focus to cost per acquisition (CPA):

• It may be acceptable to spend more on clicks if you’re generating more revenue from sales. Have you considered a Target CPA smart bidding strategy?
• Optimize your conversion funnel beyond the initial click. Look for opportunities to improve your lead nurturing process, sales follow-ups and customer onboarding.
• Implement better tracking (like call tracking) to accurately measure the true value of each conversion, and optimize those conversions within Google accordingly. Many advertisers still rely on outdated metrics, like call duration, to measure success. Instead, find new ways to track meaningful conversions that directly impact your bottom line – such as conversation intelligence.

4. Expand the marketing mix

Don’t put all your eggs in one basket. While Google remains a crucial platform, explore other channels to diversify your advertising efforts:

• Consider increasing your presence on platforms like Bing, Amazon, or industry-specific ad networks.
• If you’re in the B2B space, are you fully leveraging LinkedIn’s targeting capabilities?
• For B2C marketers, evaluate your influencer marketing strategy. Are there untapped opportunities to reach your audience through trusted voices in your industry?
• Implement cross-channel attribution tools, like call tracking, to make data-informed decisions on where to allocate your budget.

5. Listen to your customers

Sometimes, the best insights come directly from your audience:

• Analyze recorded calls or transcriptions to understand the language your customers use, the questions they frequently ask, and the pain points they express. This valuable data can inform your keyword strategy and ad copy, allowing you to create more targeted and resonant marketing messages. By aligning your marketing language with your customers’ natural vocabulary and addressing their specific concerns, you can improve ad performance, increase conversion rates, and ultimately connect more effectively with your target audience.
• Use customer feedback to identify new marketing channels. Are they mentioning specific websites, podcasts or social media platforms where they spend time?
• Look for patterns in how customers found you. This can reveal unexpected marketing opportunities or undervalued channels.

Embracing the challenge

Rising CPCs present a challenge, but they also offer an opportunity to refine your digital marketing strategy. 

By focusing on optimization, diversification and customer insights, you can navigate these cost increases while still achieving – and potentially exceeding – your marketing goals.

Success in digital marketing isn’t just about spending more. It’s about spending smarter. 

As you implement these strategies, monitor your metrics closely and be prepared to pivot as needed. 

The digital landscape is always evolving. Your ability to adapt will be key to your long-term success.

By taking a proactive approach to rising CPCs, you’re positioning your business to thrive in an increasingly competitive digital marketplace.

So, roll up your sleeves, dig into your data and start optimizing. Your future self (and your budget) will thank you.