With the announcement of Google Instant sweeping across the industry well, instantly (pardon the pun!) over the last few days, I want to cover something else equally as important that has been grabbing our attention recently: rising click costs in Google Adwords, otherwise known as CPCs (cost per clicks).

Our analysis has shown that since May, many of our clients’, across multiple sectors, have seen average CPCs increasing month on month. Why is this? Well, amongst other factors, the price you pay for a click will strongly depend on the competition for the keyword you are targeting.  With this in mind, here are some factors which we feel may explain the rise in CPCs we have seen over recent months.

The end of the recession?

Many advertisers will have reduced their ad spend or cut it completely when the recession hit the UK. In turn, competition for paid ad placement is likely to have reduced. However, as we come out of recession and business starts to pick up again, many companies will be releasing budget and ploughing it back into paid search. As this channel offers almost instant search engine positioning with full control and maximum flexibility, it is the ideal tool for nervous businesses wishing to dip their toes back into search.

This is perhaps leading to greater competition and takes me nicely on to the next point…

Aggressive bidding strategies

Due to greater competition in the search auctions, companies may be forced to adopt aggressive bidding strategies in order to remain competitive and get in to the top positions for high converting search terms. This can result in bidding wars from advertisers, therefore increasing click charges across the board.

Summer promotions

Another possible explanation for the increase in CPCs is that many of our clients, operating in retail for example, run summer promotions or sales. With paid search being the ideal platform to run such promotions, many companies will be taking advantage of this – also leading to extra competition during recent months.

So, how do I remain competitive?

If the trend of increasing CPCs continues then advertisers (especially smaller businesses) will have to get a lot smarter if paid search is to remain a viable tool. Focusing on the cost per conversion for each keyword will be paramount in deciding the price you are willing to pay for each term. Small to medium sized businesses may also have to switch focus to long tail search terms as bigger brands with deeper pockets dominate the listings for the more generic, and therefore highly competitive terms.

There are many other ways to remain competitive as CPCs increase. Tools such as Conversion Optimiser will use your conversion tracking data with the aim of delivering more conversions at a lower cost. Ad Scheduling also allows you to adjust bids on certain days of the week or times of the day when conversions are usually at their highest. There are many other ways but I’ll save these for a later blog post!

Will Google Instant affect my CPCs?

As Google Instant has only been live for a few days (to those in the UK it is only available for Google account holders who are logged in), it is still very early to say what impact it may have on paid search. Over the coming weeks and months advertisers should keep a watchful eye on any unusual shifts in impressions and click-through rates (CTRs). A drop in the CTR could negatively impact quality scores, thus potentally leading to higher CPCs.

I’d love to hear if any other AdWords advertisers have experienced similar increases in their CPCs over the past few months. Please leave any comments below.