Ever wonder the secrets to lower your cost per click while maintaining favorable results? This guide will walk you through exactly how cost per click is calculated through real-time auctions and how you can get the best rate. In addition, we’ll cover how cost per click has changed over time, which platforms are more expensive than others, and why.
How is cost per click calculated?
The amount you spend for a digital click is broadly determined by four factors:
- Competition: more advertisers mean you are directly competing with more bidders in the auction.
- Quality Score: taking into account the quality of your ad and how relevant your ad message and landing page is to the search query.
- Bidding strategy: your maximum bid you are willing to spend per click or impression.
- Seasonality: when you advertise also has an impact on your cost per click. For example, if Black Friday is a popular time for competitors bidding, this will mean you are competing with more advertisers in the auction.
In Google Ads, you specify your maximum bid for keywords or phrases, then Google evaluates your ad to determine its quality score. Your quality score and maximum bid together make your Ad Rank. Google will use this Ad Rank to compare you to other advertisers. This is important so that only relevant and good quality ads are shown at the top of search results, a benefit to both the user and the advertiser.
Google then works backwards to answer the question: what is the bid the advertiser with the highest Ad Rank needs to win the auction? This is where the formula above comes from. The highest you will ever pay is your maximum bid, though advertisers can still win the auction with the lowest maximum bid by having the highest relevance.
How has cost per click changed over the years?
“Cost Inflation” is a term often sprouted by digital marketers as they worry about the increasing costs of running paid advertisements across platforms such as Google and Facebook. Whether that be pay-per-click search campaigns, image-based shopping ads or display campaigns on social media and popular blog sites, we are seeing a very similar trend: it is becoming more expensive to advertise.
A study by Hochman Consultants looks at the average cost per clicks across 50 advertisers on the Google AdWords Network from 2005 to 2019, where the advertisers came from a range of industries. We can see that cost per click has been growing steadily over time, and in 14 years, the average cost per click is almost triple that of 2005. This study was conducted in the US, but we are seeing a similar trend across advertisers in the UK.
Like any competitive market, pricing is determined by supply and demand. When Google Ads first launched in 2000, there were 18 million searches per day worldwide. In 2019, there are around 5.6 billion searches a day worldwide—the equivalence of 63,000 searches every second. Not only is that 300x the search volume of when Google Ads first began; with growing capabilities of targeting, you are really able to whittle down which search queries you want to bid for based on location and for which demographic you want your ad to shown to. Also, the number of advertisers in digital marketing platforms are increasing, and spend for UK Paid Search media surpassed that of TV in 2015 becoming the most spent channel.
How does cost per click differ across social media channels?
Facebook and Twitter are the cheapest to advertise in, with Instagram being double the cost. This is mainly due to a different ad format mix, where Instagram ads are more likely to be videos. LinkedIn is by far the most expensive to advertise in, as they offer a very niche audience of professionals, with filtering options to target job title, years of experience and company name for example.
How can I lower my cost per click?
As mentioned earlier, cost per click factors in the quality of your ad in the Quality Score metric. In the example above, the advertiser willing to spend the least actually won the auction due to having a high-quality score. So how can you improve your quality score and therefore lower your cost per click?
- For Google Ads, ensure your ad is relevant to the keyword you are bidding for. If you are bidding for “hand sanitizer” but you really sell washing powder, you may need to rethink your keyword strategy.
- Make sure that your landing page is relevant for the ad. For example, a landing page with 100 different items to shop from including hand sanitizer wouldn’t work as well as a landing page that is only about hand sanitizer, because Google will deem the latter more relevant
- Optimize for click-through-rate. This is often the case with social media advertisement as well as Google Ads. Having a clear call-to-action and a good creative will help.
The final note is that historic performance of your account is taken into consideration when calculating cost per clicks, so take the time to make sure all ads are optimized as much as possible. With the info above, you should be well prepared to optimize toward success. Learn more about how we can help you now.
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