Have your Google Ad CPCs increased over the past year? Sometimes CPCs can increase because another competitor started bidding on your keywords, or a current competitor started bidding higher on your keywords, or your Quality Score decreased because you haven’t been able to optimize your campaigns, adjust your ad copy, etc., and your CTR decreased.
But, based on recent news from the advertising behemoth, it’s likely that your CPCs increased for a completely different reason.
Recently, Google admitted to inflating advertisers’ CPCs on some auctions by as much as 5-10% with the primary objective merely to increase the company’s revenue. With inflation steadily on the rise and companies’ margins increasingly shrinking, a 5-10% hit on your ads’ efficacy can really dampen your ability to maintain your market share, let alone grow it.
While we cannot control what our search engine overlords do underneath the hood, that doesn’t mean there’s nothing we can do as advertisers to combat this.
What Google Is Doing
Back in the day (the 2010’s), when Manual CPC bidding was widely used and before the prevalence of automated bidding, advertisers would set their CPC bid, and if your ad was clicked on, you would only have to pay for that click the minimum amount to retain your Ad Rank (watch this YouTube video by former Google Chief Economist Hal Varian for more details). Pretty straightforward, and relatively transparent because you knew how much you were bidding for each keyword when using Manual CPC bidding (though you never knew how much your competitors were bidding).
Fast forward to today, while (assuming) the rules of the ad auction are the same are still straightforward, the transparency is no longer there. Personally, and I have observed other colleagues experiencing the same, I have seen advertisers become increasingly reliant on automated bidding strategies such as Target ROAS, Target CPA, or even Enhanced CPC, with few, if any advertisers, using Manual CPC bidding. When utilizing an automated bidding strategy, you relinquish control over the exact CPC amount you are willing to bid on each keyword in exchange for allowing Google to optimize your bids based on specific performance goals (a target ROAS or target cost per form fill, for example).
And herein lies the risk: when we give up this control to Google, who has an obligation to its shareholders to maximize profit any way possible, Google has the opportunity, and apparently seized this opportunity, to artificially inflate actual CPCs paid by advertisers to increase their profits. Speculating here, but this could be done by increasing your CPC on certain auctions, or increasing your competitors CPC bids on certain auctions, which inflates your cost for that click.
So What’s The Solution?
The reason many advertisers have adopted automated bidding strategies is, in part, the solution: They work! Or at least, Google’s automated bidding strategies have improved dramatically over the years where it didn’t make sense to apply one blanket CPC bid for all the clicks an individual keyword received, and it was better to let Google adjust your bid for every individual search you qualify for.
But, while automated bidding can be “better,” it does require enough economic sophistication to know how much you should be bidding, the tenacity to ensure Google continually hits that mark, and to know how to massage your campaigns so you know you are doing everything you can to hit your economic goals with your campaigns.
The way we can combat Google’s finger on the ad auction scale is to:
- Set appropriate tROAS or tCPA bids,
- Evaluate Google’s ability to achieve these targets,
- Optimize your campaigns and offers to do what’s in your power to maximize results
- Adjust your budgets up or down based on your ability to hit these economic goals
Point 4, in particular, is where we can fight back against Google, while ensuring our campaigns are performing optimally for our business/organization. Because, in theory, if you are able to set proper tROAS or tCPA goals and achieve those goals, then everyone wins! You grow your sales, or increase enrollment at your university, or fill your pipeline, and Google gets a happy customer that will continue to invest in its ad platform.
But if you get trapped in the “arms race” by being complacent with increased CPCs to get the same amount of return as you did five years ago, only Google will win.
So, How Much Should I Be Bidding?
If your goal is lead generation, you need to know:
- What is your lead-to-sale conversion rate?
- What is the value of each sale conversion?
- What is your profit margin for each conversion
For example, if 1 in 10 website form submissions from your Google Ads leads to a paying customer, and the lifetime value of that customer is $10,000, but only 40% of that is profit, then the maximum you should be paying for each lead (your Target CPA) should be
(1 closed sale)/(10 leads) x $10,000 x 40% = $400
If you advertise for an eCommerce website, the math is similar. You will need to know:
- What is your average product margin?
- What percent of your margin are you willing to invest to win that sale?
So, if your average product margin is 40%, and you are willing to invest half of that margin to win a sale through Google ads, then your Target ROAS should be set to 40 x 50 = 2000%.
Ecommerce can get tricky when margins vary by product or product type. In this case, it is best to structure campaigns so that similarly-margined products are under the same campaign and/or bidding strategy, so your 2000% tROAS bid makes sense for all products it covers.
Evaluating Results
Ideally, if you set a specific tROAS or tCPA bid, Google will manage your bids in a way that you will achieve these results consistently. This isn’t always the case though, and at the end of the day, it is up to you to make sure that you are getting the results you need.
First, you need to review performance reporting frequently, or at least have a reliable partner to do so for you. How frequently depends on your budget and conversion volume. If you’re spending $10k/day on ads and typically see 100 conversions a day, then reviewing performance daily could make sense. But if your budgets are more modest ($100’s to $1,000’s a month) and you typically only see 10-20 conversions per month, then it is more important to review your performance less frequently, take a longer-view approach to your campaign’s performance, and to avoid knee-jerk reactions to “spikes” in your performance metrics when they can be easily attributed to statistical variance.
How To Optimize Campaigns To Hit Your Desired Return
This can’t be definitively answered succinctly enough for this blog post, as the answer will vary greatly depending on your particular industry, business, and campaign setup. But generally speaking, if your actual ROAS is out of sync with your tROAS bids (or actual CPA is higher than your tCPA bids), here are a few areas you can look to for adjustments and answers:
- Search Query Reports – Are you getting clicks on irrelevant searches, wasting your ad spend?
- Landing Page Optimization – Are you losing conversions because your form is hidden, has too many fields, or just not working at all?
- Your Offer vs Competitors – Are you giving customers a compelling reason to use you over a competitor? Is a competitor currently running a sale? Has a new competitor started bidding on your keywords?
- Multichannel Ecosystem – Are you supporting your bottom-of-funnel Google campaigns with Remarketing ads, interest-based brand awareness campaigns, an active YouTube channel, etc?
- “Partner” Network Placements – Or, conversely, are you wasting ad spend on Google Search Partner placements, Bing Audience Network placements, etc., instead of focusing your budget on Google/Bing proper?
All of this takes time and an intimate understanding of how the PPC ecosystem works to do effectively.
In Summary
In light of recent news about Google admitting to artificially inflating CPCs for their own gain, you can still have enough control over the efficiency of your PPC campaigns if you know what you’re doing. It all starts with understanding your business economics so you can take advantage of Google’s conversion-based bidding strategies. But it is vital that you monitor to make sure Google’s getting the results you’re telling them to get for you. And if they’re not, then it’s on you to either adjust your campaigns to help you achieve the results you’re looking for, or stop paying Google for poor performance.
