When bidding for terms on Google AdWords, there is always a single metric that gets people hung up. More often than not, cost per click is a big pain point that gets PPC advertisers worried. Is the keyword expensive per click? If so, then forget about it. We can’t afford it!
Cost per click does, in fact, have the potential to drain your budget fast. But if you’re making money on those clicks, you have more money to reinvest in your budget. In reality, there are vastly more important things to focus on rather than the cost you pay for each click. Sure, CPC is important, but it’s one piece of a very large pie.
The majority of that pie should revolve around something different. You should focus on a metric that really matters when it comes to your budget: Cost per acquisition. Here’s why cost per click doesn’t matter, what really matters, and why you should want to pay more in the end.
PPC-based platforms like AdWords, Facebook, and Bing tend to focus on vanity-style metrics. They look at metrics that don’t really tell you how well your campaign is going. They emphasize things like clicks, impressions, bids, and more. These metrics are great for tracking performance over time, but they shouldn’t be your main focus. Similarly, we could also consider cost per click a vanity metric.
But if I know one thing, I know this is true: Cost per acquisition is the only thing that matters when it comes to bidding costs on a given PPC platform.
Now that you know why cost per click doesn’t matter, let me show you why you should want to pay more. Google AdWords works on a bidding system. So, the average cost per click might vary from the real costs you’re paying. In fact, you could be paying much less than a keyword says or maybe just a bit over. Either way, the difference isn’t always huge. But, knowing that lots of different advertisers are bidding for the same terms, you want to pay more per click.
It will help your rankings. Do a search for a keyword, and look out for a word for which the competition level is very high. It’s a competitive keyword. That simply means that tons of advertisers are bidding on it.
The ad that is ranking on top has got there by bidding higher than the other advertisers below them. No matter what type of search term you bid on, ranking in the first ad position is going to get you a higher click-through rate. More clicks on your ads likely mean more conversions. It at least gives you more chances to convert visitors. And if your average cost per acquisition isn’t coming close to your margins, bidding higher means getting more conversions at barely any additional cost.
Plus, in most cases, you won’t have to increase your bid dramatically to take the top spot. If you’ve done the calculations properly, you should have a clear idea of what you can pay before the transaction becomes unprofitable. For example, if after labor and non-ad-based spend, you can sell a product for $60 profit, paying $10 for a sale on AdWords is going to give you a large profit margin.
There’s no reason why you shouldn’t increase your bids and pay $15 for a sale while generating 5x the amount of sales. You should always be willing to pay a little extra per acquisition if it means doubling or even tripling your acquisition at a profitable margin. One of my favorite ways to assess this is the keyword planner in AdWords.
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Start by using the budget and forecasting tools, and you can see how you’ll impact your costs by bidding more on specific terms to rank higher. You can enter a given keyword or a list of keywords. You can even get forecasts based on current campaigns. For this process, I recommend taking it one keyword at a time to make sure that your data is as specific as possible.
You might have noticed the massive fluctuation in bidding and pricing when running an ad on CPC. Let’s compare the individual average costs of a few of the legal services. For typical legal services, the cost per click is almost $6 on average. Employment services clicks are just over $4. Meanwhile, e-commerce and dating/personals clicks are less than $1 per click!
This can often be confusing for some people.
Why are CPCs the way that they are?
Why are some generally more expensive than others? Why the heck doesn’t my industry have a $0.19 CPC?
It all goes back to the way that Google AdWords functions. It works by letting advertisers bid on keywords, meaning the market price for a click is dependent on how much advertisers are willing to pay. Let’s take an example by looking at the legal industry CPC of $5.88.
According to a renowned law firm, lawyers costs can be anywhere from $100 to $1,000+ per hour of services.
That’s a lot of money if you can convert someone to a full service. Your average client value is going to be massive. So paying nearly $6 per click and potentially needing a few hundred clicks to get a single case isn’t bad. The same can be said for e-commerce.
When you head to Amazon and inspect some of the top deal-based products, they are relatively cheap. They range from a few bucks to less than $100 on average. With an average CPC of $0.88 in the e-commerce world, it makes sense. Advertisers generally aren’t going to be willing to bid huge amounts that would sabotage their acquisition costs. Bidding $5 on a term for holiday socks wouldn’t be profitable if you’re selling the socks for $3.
That means that nobody on the platform with a goal of profit is going to be bidding that much.
Cost per click is industry-specific for this reason. Advertisers are only willing to pay an amount that gives them an opportunity to make money! That’s the entire purpose of AdWords. It’s about profit — not just sales, but profitable and repeatable sales. You will almost never see a cost per click that doesn’t add up to your own profit margins.
Sure, some will seem expensive on the surface, like this term for an accident lawyer:
Paying $134.77 for a single click might seem outrageous to you. Knowing that conversion rates are low on AdWords, you might be paying thousands before landing a client. It almost seems disastrous when you look at it from an outsider’s perspective. You could be spending millions every year on AdWords.
But seeing a bid that high probably means that the average case value for an accident-based law firm is huge! Otherwise, they simply wouldn’t bid on it. A bid might be higher for “basketball shoes” than it is for “Christmas socks” simply because of the final price of the product being sold.
Advertisers are willing to pay more for a click on basketball shoes because the product costs more, meaning they have higher margins and more revenue to spend. The moral of the story boils down to one point: Cost per click is all relative. It’s relative to the keyword or search term, the intent, the industry, and the final product being sold.
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It’s hard not to focus on a metric like a cost per click. It stares you in the face every time you do keyword research or adjust your bidding. This term costs $100 per click. That term costs $20. CPC is one of the first metrics you’ll learn about in the PPC world. But you also know that it’s only a small piece of a very large, complex pie.
Your real focus should be on the cost per acquisition and be maintaining a solid return on investment. How much does it cost you to acquire a customer relative to your profit margins? If it’s still positive, there is no reason not to pay more. In fact, paying more per click can help you rank higher in the bidding process. More and more customers will be able to find you, driving tons of sales at a price that still gives you a great profit.
Cost per click isn’t something to fear. Rather, it’s something you should want to spend more on. AdWords exists for one reason: To generate fast, profitable sales for your business. Paying more per click can often lead to this exact, positive side effect. Cost per click is industry-specific for a reason. More often than not, it makes sense to pay a bit more.
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