Ad CPCs Are Increasing - How To Protect Your Business

BigTech reported their Q3 earnings this week. Whilst a lot of investors eyes were directed towards artificial intelligence (AI) development and cloud sales, mine were focused on average cost-per-click (Avg CPC) increases.

Those base increases, which are controlled by platforms, directly impact the impact of paid campaigns. As CPCs increases, budgets need to increase in line with them to maintain results, tough pill to swallow for businesses given the inevitable impact on their bottom line - if sales remain stable and cost increases, you're making less money.

So what is the current stage of play across key ad channels? Let's take a look.

Google Ads

Alphabet (GOOG) reported its Q3 earnings on Tuesday with revenue from its core search business up 12.3% vs Q3 last year.

Nothing was specifically reported on Avg CPC increases but a report cited in a Search Engine Land report from April indicates that CPCs were up 13% y/y with this trend likely continuing in proceeding months.

Google are continuing to implement more and more AI integrations into how search operates with core changes to mainly organic results in the form of AI Overviews. They have also implemented new AI features on the ad side of things too with new features having been rolled out to ad products including Performance Max (PMax) and Demand Gen, with other notable additions also coming to Merchant Centre to enrich product feeds.

More on how those products are performing from Philipp Schindler, Google's SVP & Chief Business Offer which was part of the Q&A part of the earnings call.

And on the PMax side, look, we continue to see success with PMax. And we see those success stories really from large advertisers, from agencies, from SMBs across marketing objectives, across different verticals. It's very cost effective, and it really finds customers wherever they are across all the different Google channels. And with the introduction of Gemini, we added a lot of new features to PMax. For example, to deliver more powerful performance, help advertisers scale, build high-quality creative assets and so on. But going directly to your question on the funnel, also keep in mind, we have a great product with Demand Gen that is all about inspiring consumers beyond the initial awareness and to take action. And we think Demand Gen is actually a very powerful tool to win in today's marketplace with marketers, and we can't wait to see actually what more value it will drive. -Philipp Schindler, SVP & Chief Business Officer at Google

Meta Ads

Meta reported that CPCs increased by 11% y/y from Q3 last year, though that increase was felt more across Europe which saw a 16% increase y/y.

From their earnings deck, Meta reported an 8% increase in CPCs in Q3 2023 and coupled with a 16% increase in Q3 2024. Both percentages compound, meaning that advertisers need to commit 25% more budget in 2024 than they did in 2022 to remain on par with expected performance.

Combined with decreased conversion visibility, mainly due to privacy changes across Apple devices & cookie consent, advertisers viewing Meta's performance from a top-level will undoubtably have seen a performance dip, especially if investment levels have not kept up with y/y CPC increases.

Microsoft Ads

Microsoft, which is unique in reporting not one but two channels in Microsoft Ads & LinkedIn, reported that it also saw increases in its ad channels though its not as clear as to what extent CPCs increases.

On Microsoft Ads, search revenue increased 18% due to higher search volumes with them noting a higher revenue per search. That latter update signals an increase in CPCs, whilst not explicitly stating what the increase was.

LinkedIn noted that ad revenues increased by 10% y/y with growth across all business lines, whilst sessions grew 11%, with record levels of engagement seen across the platform.

So what can YOU do about it?

Whilst there's no silver bullet, there are steps advertisers can take to partially protect themselves from the increases.

1. Knowledge Is Power - Be Aware These Are Increasing

Tomorrow's strategy is planned today. Key conversions on forecasts for 2025 should already be underway and knowing the level of these increases is pivotal in budget forecasts.

Know that these increases are part of a trend and that trend is likely to continue in 2025 and beyond. Pay attention to industry insights and earnings reports which outline increase and build the numbers which are reported into growth plans.

Be up front with expectations that it's going to cost more next year to deliver the same numbers as this year, and if you want to grow next year then its going to require investment which is higher than the increase in cost which is being built in be ad platforms.

If you're not aware, your competitors will be and you'll be the one clutching at straws on reporting calls when your numbers are down year-on-year because you poorly planned.

2. Business Insights Are More Important Than Ever

Regardless of the level of investment into ad channels, its important to track and measure the impact across all channels.

We've invested heavily into data & AI to produce a number of tools for our clients which takes campaign & first-party data and leverages that to generate business critical insights.

We're now able to monitor when competitor's shift to sale messaging, how often they are including specific messaging in their ad copy with these tools bring applied across both paid & organic search results.

We're able to produce heatmaps to highlight where they are finding their top customers and built that data into campaigns to support drive growth.

We constantly monitor key search results and have the ability to provide real-time updates on competitors shifts, highlighting time sensitive opportunities to maximise the impact of their advertising.

More than ever, those kind of insights are more important than ever. By knowing and understanding the key levers which dictate digital success, you're able to leverage them to drive better and more efficient results.

3. Lower CPCs Where Possible

Whilst you can't control the base level of what CPCs will cost there are some instances where you can control how much you pay.

By leveraging a comparison shopping service (CSS), retailers are able to save up to 20% on their Shopping CPCs, and transitioning to one can be extremely beneficial to stretch advertising budgets that much further.

From our own research, we found that around 50% of advertisers in the UK are not currently leveraging a CSS, and so there's been saving to be made.

As part of that search, we found that advertisers who were using a CSS showed more often at the top of shopping results compared with advertiser who weren't, so it seems like a win-win all round.

4. Identify & Cut Wasted Media Spend

No ad account can ever be perfect but we continue to audit account and identify wasted spend, with this falling into one of two buckets; Irrelevant Waste or Misappropriated Waste - both which can be equally damaging to performance. By identifying these and cutting them out, performance will improve.

Irrelevant Waste is click or impressions being delivered to users which, for a variety of reasons, would be deemed irrelevant. For example, when on search a keyword is matched to a search term which is not linked to the keyword, this is what would constitute Irrelevant Waste. Any spend here would be considered to be fully reinvest-able in the account on relevant traffic to help drive growth.

Misappropriated Waste would encompass when good intentions are in place in an account but settings are off leading to wasted spend. This could be related to poor targeting settings or limit control which result in showing ads in incorrect locations. We audited an account earlier this year 60% of their annual spend had sadly been spent in this way. They were still generating some results from the spend, but could be doing so much more if the correct setup was in place. Given results are still possible, most, but not all, of this spend can be considered revinest-able.

5. Value Based Bidding & Micro Conversions

By far the best option on this list is saved for those that read the full article.

Value Based Bidding (VBB) and Micro Conversions can work in tandem to be fully transformative to any account by empowering bidding algorithms to better understand the value of potential customers by taking the characteristics of existing customers and look for those which share a similar make up.

Through VBB you can measure different touchpoints and milestones on the conversion process and assign a value to a user when they reach one of these. The more values they hit, the more value is measured.

By prioritising value as a bidding factor, algorithms can understand the expected value of a potential customer pre-click and determine the appropriate bid level depending on their likely value to the business.

Micro conversion work alongside bidding algorithms to track minor conversion points which, whilst not directly driving revenue, still add significant value in the conversion process. These could include, newsletter sign ups, page scrolls to a significant length, video watches & more, all of which can help enrich algorithms and help them to look for more valuable customers.

Taking that approach can be particular useful across top and middle of the funnel channels and audiences which aren't geared towards end game conversions but can help fuel your funnel with a higher quality, more valued volume of users.