This question has come from a few business owners who outsource their Google Adwords management and are wondering why their average cost-per-click (CPC) has jumped from $3 to $6 or $9.
This blog will actually address a few questions:
- Why are my Google Adwords CPC going up?
- At first we got a lot of leads but now it’s dropping off, why?
- We used to be in the Top 3 paid spots for <favorite search term> but we weren’t yesterday. Why?
- Is there something my SEM expert can be doing to improve all of this?
These actually seem like a quite broad range of questions but, in fact, they are all related.
Overview of how Google decides which ads to show.
Google Adwords is an auction market… But it’s not a PURE auction where the highest bidder wins. You see Google is in business to generate revenue so they take a bit longer term approach to their auction.
Let’s look at a very OVERSIMPLIFIED example.
WaterMan and WaterBoy are 2 different businesses that are bidding on the keyword “water filters”.
WaterMan is well established and decides to bid $4/click. WaterBoy is just getting started and decides he can only afford $2.01/click.
So which ad does Google show on top???
We don’t have enough information yet… You see, WaterBoy understands how Google works and realizes that if he invests a bit more effort in his ads, he can actually get better placement than WaterMan.
So he creates a Highly Relevant ad that 4% of Google Searchers click on for a 4% Click-Thru-Rate (CTR). WaterMan doesn’t have time to be bothered with all that, puts together a basic ad and so ends up with a 2% CTR.
So let’s do the math for Google to see which advertiser will make Google more money.
- If Google shows WaterBoy’s add 100 times, 4 people click on it at $2.01/click for total revenue of $8.04.
- If Google shows WaterMan’s add 100 times, 2 people click on it at $4/click for total revenue of $8.00.
In other words, Google can make more money showing an ad with a LOWER bid price.
Again, this is a vast oversimplification, but this helps us answer our first question.
Why are my Google Adwords CPC going up?
Your competition is creating ads that are more relevant (i.e. have a higher CTR) than yours or new competitors have recently entered the market resulting in more people bidding on the same words.
Ok, so let’s take this a step further…
WaterBoy started his marketing at the beginning of the year on January 1 however WaterMan is a bit slow to get on board with new technologies and didn’t get started until June 1st.
So when WaterMan’s ads start running, Google doesn’t yet know if his ads are any good because there is no history. So Google gives the new guy on the block, WaterMan, top placements for his ads until Google has enough data to do the calculations above.
Which answers our next 2 questions –
At first we got a lot of leads but now it’s dropping off, why? -
Google at first gave you the benefit of the doubt and top positions however, over time your competition developed more relevant ads that get more clicks and therefore make Google more money.
We used to always be in the Top 3 paid results for <my favorite search term> but we weren’t yesterday. Why?
- Your ad became less relevant compared to your competition.
- You competition is now willing to bid more.
- More competitors have entered the market to bid on the same keywords.
Keep in mind, not being in the top 3 isn’t always a bad thing and is pretty much impossible to guarantee unless you are just willing to drastically over-bid everyone else. Sometimes it’s just not cost effective to pay $10/click to get top position.
Which brings us to our final and most important question…
Is there something my SEM expert can be doing to improve all of this?
Here’s the thing, we hired a new team member to help with copy writing, marketing, and Google Adwords. She’s been with us for about 7 weeks, has received regular training, and is probably 50% up to speed on Adwords.
Of everything we do, Search Engine Marketing is the most complicated and fastest-changing.
Granted, we’re fanatical about being the most knowledgeable around in our given area of expertise so our training and our definition of “expert” status might be a bit higher standard than most.
That being said, here are 4 of the most important things your SEM expert can (and should) do:
- Set Benchmarks – The most important is your cost/contact or Cost Per Acquisition (CPA). Know if it should be $10 or $500 by knowing the lifetime value of your customers. The lifetime value can vary significantly for residential, commercial, and industrial clients and so should your CPA.
- Become obsessed with testing – We’ve done tests where a single word in the headline of a Google ad can change the click-thru-rate nearly 300%. If our CTR is going up 300% your CPC is going down but the only way to know which word is going to make that difference is to test.
- Adjust your individual keyword bids – This concept is pretty simple but rarely done in small business because it can be time intensive. The idea is that if “water filter” has a CPA of $100 and “water testing” has a CPA of $25 and your target CPA is $50 then you need to cut your “water filter” bid in half and you can afford to increase your bid on “water testing” by double. All words are not created equal and the best words vary from one locality to another.
- Build up Negative Keywords – This again takes a lot of work to build up but is crucial. Google allows you to block your ad from showing up when it’s not relevant. For instance, if you sell filters to remove iron from water and bid on the keyword “iron in water” you don’t want your Google Ad showing up when someone types in “can I improve anemia by drinking iron in water?” In that instance, the negative keyword would be “anemia.”
Even though there are dozens of other things you can do to improve SEM, keep your CPC down, and get more leads, these 4 things are important enough that if your current SEM expert was just doing those, your CPC wouldn’t be going up.
If you don’t want to be an Adwords expert, how do you know if your hired expert is doing his job?
If your cost-per-click is going up, your leads are not, and you didn’t have an influx of new competition in your market, then your SEM expert isn’t doing his job and you should replace him or her.
To your SEM success,