Google Adwords CPC Inflation

In Paid Search by MediaVision

InflationConsider the following: If you created an Adwords account now, with a list of let’s say 25 keywords with a set bid, you activated the campaign and let the account stabilise at an average position of 1.9, and then abruptly stepped away from the Adwords campaign for a year, what do you think would have happen to the account when you returned? If you think that your keywords would have slowly drop position until they stopped garnering impressions then you are pretty much correct. The questions is, why does this happen?

The short answer is because of inflation. Now I hear you saying, “Google is affected by inflation?” Yes, Google is affected by inflation. Increase in competition is the main cause of inflation. In a free market competition is a good thing as it gives a consumer options revolving around products, quality and prices. Increased competition usually drives prices down. However, in an auction market like the one Adwords uses, increased competition can be negative.

The reason why increased competition in an auction model can be negative revolves around inventory. In Adwords there are only a finite number of keywords to bid on. Everyday there are new advertisers signing up to Adwords to bid on a limited number of keywords. The number of keywords are stagnant but competition is constantly increasing. The only way to decrease competition is to increase CPC and knock out advertisers who can’t afford increased CPC.

CPC inflation is a fact, and Google has even admitted that it does occur. Google has never said at what percentage inflation occurs at, but after some investigating online some search engine marketers are estimating between 5-12% a year. Now that we know that inflation does occur we need to come up with strategy to counter act inflation as best as possible. Below are some examples of how to minimise inflation in Adwords.

How To Minimise the Effects of Adwords Inflation

Competitors, Affiliates Bidding on Your Brand: Where possible, limit competitors bidding on your brand or products. With increased competition on your own brand comes an increase in CPC. While your brand CPC may only increase by a minuet fraction, it’s still an increase in CPC that you have to pay for due to others bidding on your trademarks.

Ensure You Target the Correct Geographic Area: There will be less advertisers advertising on keywords in smaller geographic areas. Where possible limit your exposure and reach to more targeted and specific areas. This will limit the number of other advertisers bidding on your keywords, which means less competition and could result in a lower CPC.

Quality Score and CTR: Ensure that your quality scores are decent. A quick search will give plenty of examples of how to improve Quality Score, but the bottom line is that a better quality score and CTR will help drop your CPC.

Old Accounts vs New Accounts: When creating a new account for a client, if possible try and take over an existing account rather than create a new account from scratch. Accounts that have a history of advertising are more likely to have a lower CPC (as well as better Quality Score) than a brand new account with no historical data.

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