Cost per click (CPC) is how much you pay for each click on your ad. When it rises, your ads become less cost-effective. Read on to learn all the reasons why CPC rises and what strategies you can use to bring it back down.

Here you’ll find:

 Is your blood pressure rising because every time you check your analytics you see see the cost of clicks is up and to the right? Your stress levels are rising as you see your cost rising and your clicks dropping. You feel helpless as you see your performance sliding.

If you are seeing rising CPC in your campaigns, stick around. We will explore why that might be – such as greater competition or algorithm changes – along with how to fix it. 

 What is CPC?

CPC is the price you pay every time someone clicks your ad. It’s also a fundamental metric in pay-per-click (PPC) advertising. It is used by all the major advertising platforms, such as Google Ads, Microsoft Advertising (formerly Bing), and Amazon.

CPC plays an essential role in determining the success of your online marketing efforts by setting the cost of every click on your ad. 

This metric is so important because it directly impacts your advertising budget and return on investment (ROI). The higher the cost of the click, the less return you are likely to make.

When you understand CPC, you can better maximize the effectiveness of your campaigns and find ways to improve ROI by adjusting your bidding strategy.

Imagine you’re running a Google Ads campaign for your ecommerce store that sells artisanal chocolates. 

Let’s say you bid on keywords like “handmade chocolates” and “gourmet chocolate gifts.” 

Each time a user searches for these keywords and clicks on your ad, you’re charged a specific amount: your CPC.

However, you may find that one keyword has a lower CPC and a higher conversion rate. In that case, placing more of your ad budget into that keyword is logical. 

Is CPC a fixed rate? 

No, CPC is not a fixed rate. It varies depending on several factors, including competition, ad quality, keyword relevance, and more. 

This variability makes it even more important for you to monitor and optimize through this metric. 

A lower CPC means you’re getting more clicks for your budget, while a high CPC could strain your advertising resources.

How is CPC calculated?

CPC is calculated based on ad rank and the auction time bids. Your ad rank allows you to enter the auction. From there, the advertiser with the highest bid – one penny or more above the second highest – has their ads shown. 

CPC is defined as the price you pay for an individual click on your ad. According to Google, “The average amount that you’ve been charged for a click on your ad. Average cost-per-click (avg. CPC) is calculated by dividing the total cost of your clicks by the total number of clicks.”

 What is the average CPC in the U.S.?

When you know the average CPC, you can sometimes better gauge the competitiveness of your ad campaigns. 

It’s important to note that CPC can vary significantly by industry and ad type, making it essential to stay informed about the latest benchmarks. 

Here’s a closer look at average CPC figures in the U.S. and the factors influencing these costs:

Average CPC by industry (Display Network) 

  • Legal services: In the legal industry, where competition for keywords like “lawyer” or “attorney” is fierce, the average cost per click is $6.75.
  • Healthcare and medical: CPCs in the healthcare and medical field, particularly for keywords related to specialized treatments or medical services, can get expensive. The average CPC is $2.62.
  • Finance and insurance: The finance and insurance sector often also experiences high CPCs, with keywords like “auto insurance” or “credit cards” having high competition.  The average CPC is $3.44.
  • Ecommerce and retail: In the ecommerce and retail industry, the average CPC varies based on factors like product type and seasonality. It can range from being low for lower-demand products to getting higher for competitive niches. The average CPC is $1.16.
  • Technology: Technology-related keywords, such as “software” or “IT services,” typically command CPCs ranging from $2 and up, depending on the specificity and competition. The average CPC is $3.80.

Source: Wordstream May 2023 

It’s important to remember that these are averages. Your CPC may be higher or lower within your industry because you are in a less or more competitive niche or due to a number of other factors. 

While it’s good to know the averages, you don’t necessarily need to use them as a benchmark to aim for. 

 Why has my CPC started to rise?

As you navigate your campaign budget recently, you may have started to encounter a notable shift — a rise in CPC costs. These changes can come from a lot of things, such as the algorithm, the economic landscape, and more. 

Understanding the reasons behind any rise in your CPC is vital for effective campaign management and budget allocation.

Steven Dang, HawkSEM’s VP of Growth and Strategy, explains a bit more about what causes CPCs to rise.

“Fundamentally, CPCs increase due to increased competition, i.e., a greater number of entrants or advertisers on a given platform,” he says.

“Secondly, there is a continued secular shift of advertising spend from offline to online or digital channels.” He adds that this means you can expect CPCs to continue to rise for the foreseeable future.

There are a few things that happen in the world of advertising that may have contributed to rising CPC costs in recent months.

More competition

The online advertising world is becoming increasingly competitive as more businesses recognize the potential of online advertising.

As more advertisers fight for the same audience’s attention, the demand for ad placements has surged, leading to higher bid amounts and rising CPCs.

How do you find out if there’s more competition? Review your auction insights reports for the past three to six months.

Check to see if there are any newcomers to the space. Analyze the metrics to see if your top of page rate, impression share, and other metrics have changed. These metrics will give you insights into what’s happening in the space.

Economic realities and inflation

Prices are going up everywhere – and the world of PPC is no exception.

As inflation drives up the day-to-day costs of running a business, many companies often have tighter budgets. 

To compensate for rising expenses, digital marketing managers are left with tough decisions about allocating their budget. Many may choose to allocate a more substantial portion of their budget to advertising as it sees a faster return on investment.

And then take the budget out of longer-term marketing strategies such as content marketing or social media.

This influx of spending on ads increases the demand for ad space. The intensified competition results in rising CPCs.

“CPCs follow the direction of inflation overall,” Dang says.

“As prices for goods and services increase, so too does the average CPC that an advertiser is willing to pay (assuming ROAS stays relatively intact; should ROAS or margins increase, competing advertisers should, in theory, be willing to pay more to ‘compete’ away the excess.’” 

Not only this, but inflation can alter consumer behavior and purchasing patterns. 

Consumers may become more price-sensitive and scrutinize their choices carefully. 

As inflation rises, consumers spend less overall, according to J.P. Morgan.

Less spending can translate to fewer clicks on ads as consumers scrutinize their spending. Fewer clicks also push up competition and lead to rising CPCs.

Algorithm changes

Search engines like Google use highly sophisticated algorithms to decide the position of ads in search results. 

You bid on keywords, but your bid alone doesn’t guarantee you the top placement. 

Google’s Ad Rank algorithm considers bid amount, ad quality, expected click-through rate, ad relevance, and landing page experience. 

Changes in the weighting of these factors within the algorithm can significantly impact ad positioning and, consequently, CPCs.

Your Quality Score is another algorithmic component. It evaluates the quality and relevance of your ads. 

When you have a high Quality Scores, you will enjoy better ad placements and lower CPCs. 

However, changes in how the Quality Score is calculated or weighted can affect CPCs. You should regularly monitor these shifts and announcements from Google to adapt your strategies accordingly.

Seasonal trends

Seasonal fluctuations can significantly impact CPC costs, with industries experiencing varying degrees of influence.

The holiday season, including Thanksgiving, Christmas, and New Year, often witnesses a surge in online shopping and advertising. 

Advertisers in ecommerce and retail typically see intensified competition during these months. 

The increased demand for ad space and higher CTRs can cause a rise in CPCs.

Another example of this is the back-to-school season. Some businesses, such as those that sell stationary, computers, and children’s clothing, will experience seasonality tied to back-to-school sales. 

During these periods, you may need to compete more aggressively to capture the attention of consumers, causing rising CPCs.

Raising customer expectations

Your customers expect advertising that feels tailored to their needs and interests. They are less receptive to generic, one-size-fits-all advertising messages.

According to Google, well over half (61%) of shoppers expect brands to tailor advertising experiences to their preferences.

If you’re not investing in data-driven strategies that enable personalization, which often involves segmenting audiences, crafting customized ad content, and delivering ads at the right moment, then you could experience higher CPCs due to a lower Quality Score.

Every single cause of your rising CPCs will have a solution. You just need to instigate the right one for your campaigns. (Image: Adobe Stock)

 7 advanced strategies from the pros to lower your CPC

The doom and gloom is over. Now we know why you might be seeing rising CPCs, let’s take a look at what you can do about it. 

“While CPCs generally rise overall due to competition, inflation, and increasing allocation from offline to digital channels, we can still fight the overall rising tide by doing our best to optimize our account and our campaigns,” Dang tells us.

“Google rewards advertisers with high quality scores with a lower cost per click; i.e., on an all else equal basis, an advertiser will be able to “win” a particular bid auction with a lower bid with a higher quality score as compared to a lower quality score.”

The great news is that every single cause of your rising CPCs will have a solution. You just need to instigate the right one for your campaigns.

Here are advanced strategies to help you manage and reduce CPC costs:

1. Audience segmentation and targeting

Divide your audience into specific demographics, behavior, and interests segments. 

Tailor your ad content and bidding strategies to each segment’s preferences and needs. This will help you meet your audience’s expectation of more personalized advertising experiences and could improve your Quality Score.

For example, segment your audience if you’re a clothing store that sells both high-end and budget-friendly fashion. Create separate campaigns for luxury shoppers and budget-conscious consumers. 

Adjust ad copy and budgets accordingly.

2. Ad placement optimization

Experiment with different ad placements to find the optimal balance between visibility and cost. 

Some placements can sometimes result in lower CPCs.

Focus on finding websites or pages that have high conversion but low CPC. This could involve doing more research into what websites your audiences frequent rather than solely focusing on major publications because of their large volumes of traffic. 

Monitor the CPC and conversion rates to identify the position that offers the best ROI.

3. Quality Score enhancement

Continuously improve the components that influence Quality Score, including ad relevance, landing page experience, and expected click-through rates.

For example, you can enhance your ad relevance by aligning ad copy with targeted keywords. You can also ensure that your landing pages provide a seamless user experience and contain relevant content that matches the ad’s intent.

Google Ads rewards advertisers with high Quality Scores by offering more favorable ad placements at lower costs, so focusing on Quality Scores will bring down your CPC.

4. Keyword expansion and match types

Expand your keyword list strategically by incorporating long-tail keywords and experimenting with different match types (e.g., broad match, phrase match, exact match).

Long-tail keywords typically have lower CPCs and can attract highly relevant traffic. By strategically expanding your keyword list, you can optimize your ad spend and potentially reduce overall CPC.

For example, if you are a shoe store, instead of bidding on broad keywords like “shoes” (which are generic and will have a high CPC due to high competition), target specific long-tail keywords like “men’s running shoes with arch support.” 

5. Negative keywords

Reviewing the search terms report and analyzing how they match keywords will show you several things. First, you’ll be able to see expensive terms that have been matched with your keywords.

Second, you can find search terms that don’t match the meaning of your keywords. Last, you can find non-converting terms that are wasting ad spend.

You can then use this information to add negative keywords to your ad groups and campaign, which will lower your CPC.

6. Ad extensions

Use ad extensions to enhance ad visibility and user engagement. 

For example, you can implement site link extensions that direct users to specific product categories within your website. Or you could use callout extensions to highlight promotions.

Ad extensions can make your ads more appealing and informative to users. 

Ad extensions make your ads more informative and compelling, which can lead to higher CTRs. When more users click on your ads, platforms may reward you with lower CPCs due to improved ad performance, as platforms reward relevant and engaging ads with better placement.

7. Remarketing and retargeting

Implement advanced remarketing campaigns to re-engage users who have interacted with your site but didn’t convert. You can then tailor your ad content to their specific interests and behaviors.

Suppose you own an ecommerce website with visitors who viewed a particular product but didn’t purchase it. Create a remarketing campaign that displays ads featuring that specific product to those visitors when they browse other websites.

Remarketing campaigns often have lower CPCs because they target a warm audience—users who have already shown interest in your products or services. This audience is more likely to convert, which can result in lower CPCs due to improved ad performance.

The takeaway

The art of CPC management is an essential skill for anyone managing digital advertising campaigns. Rising CPC costs demand a strategic approach.

You can combat rising CPC in multiple ways, from audience segmentation and ad position optimization to enhancing Quality Scores and using ad extensions. And as competition intensifies and consumer demands evolve, you must keep your strategy agile. 

By implementing advanced strategies and staying informed about industry benchmarks, you can navigate the dynamic CPC landscape effectively and ensure your campaigns remain efficient and cost-effective.

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