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We Don’t Care About CPC Anymore

There’s one metric in the digital world that business owners always seem to get hung up on—cost-per-click or CPC. When bidding for search terms in Google Ads, the more expensive the keyword, the more anxious everyone gets. Having worked on hundreds of ad accounts, we’ve noticed that clients often focus more on CPC than the metrics that should matter more. 

So, it may be time to bid farewell to CPC or, at the very least, consider it a vanity metric as its significance wanes in the face of more relevant and telling ones.

The Irrelevance of CPC

Once the golden goose of online marketing campaigns, CPC now feels antiquated—like a relic from when clicks were king and conversion tracking was tenuous at best.

Many amateur consultants and account managers still use this metric to determine campaign success. But does it really inform us of how good or bad the campaign performance is? 

It’s crucial to underscore that CPC should never be considered a reliable measure for evaluating a campaign’s effectiveness. While still important, other metrics, like return on investment (ROI) and lifetime value (LTV), indicate campaign success more accurately. These give us a better idea of whether or not the campaign is delivering the results we’re after.

For example, we have two real estate businesses, which we’ll call businesses A and B.

We have both the Google Display Network and Search Partners enabled in Google Ads for business A (as shown below), and the partner network is excluded for business B. Thanks to these networks, the CPC for business A is much lower, but business B is still receiving more conversions (aka. leads or sales). 

It’s difficult to understand why the Business B campaign performs better, looking only at the CPC alone. However, if you dive into the account, you might notice that they are using more relevant keywords or have advanced tracking set up, helping the campaign perform better. At the same time, Business A has lower CPC purely because the ads on Search Partners and Display Networks are cheaper—yet those ads are shown to a much less relevant audience.

What we’re getting at is that using CPC as the sole metric for campaign evaluation is questionable. It’s often irrelevant and should be analyzed as part of the entire strategy.  

CPC Is Industry-Specific

CPC is important because it gives us insight into the cost of attracting and converting customers with digital ads. This metric can vary significantly by industry. 

Businesses specializing in products with shorter sales cycles and lower price points, such as personal care items or online grocery services, strive to reduce their CPCs. This is because the average consumer spend in these sectors typically ranges in the hundreds of dollars rather than thousands.

Factors like the target audience, product or service types, and market competitiveness also play a significant role. 

Let’s take a deeper look:

Competition: The level of competition within an industry significantly shapes CPC and CPA. In industries where many companies compete, the cost of advertising and getting customers usually increases. This happens because all these companies are trying to grab the same group of people’s attention, so they spend more money to stand out and win over customers.

Target Audience: The composition of the target audience also plays a pivotal role in determining CPC and CPA. Industries catering to highly specialized audiences, such as finance and insurance, often incur elevated costs as advertisers allocate more resources to engage and convert these discerning customers.

Nature of Products or Services: The advertised products or services category likewise affects CPC and CPA. Industries offering high-value products or services, such as legal services or luxury goods, commonly experience higher costs, reflecting the heightened expenditure required to engage and convert customers for such offerings.

Ad Format: An advertisement’s presentation format—whether a display, video, or search ad—can influence CPC and CPA dynamics. Video ads, for instance, typically command higher costs owing to the inherent complexities and resources associated with their creation and sharing.

Pitfalls of Focusing on CPC

Relentlessly pursuing a low CPC is akin to chasing the lowest price on a piece of technology; it may not provide the necessary functionality.

Low CPC Doesn’t Guarantee Results

A campaign is not a bargain bin. And while scoring a bargain on a click is tempting, it can come at the cost of visibility and conversion potential. It’s an illusion of efficiency that blinds marketers to the broader picture.

This rings true when looking at CPC. It is not the sheer quantity of clicks that defines success but, rather, their quality. An artificially inflated pool of clicks jeopardizes marketing analytics, skewing the data and leading to misguided efforts.

Outdated Approach in the Era of AI Bidding

In the race for relevance, CPC has lost its footing to Automated Bidding Strategies (ABS) that leverage machine-learning algorithms. These ABS are crafted to optimize towards better conversions or return on ad spend, leaving the “old” manual CPC approach behind.

With the advent of AI, the manual machinations of CPC management seem more than just archaic but counterintuitive. Why cling to manual optimization when a machine can adapt in real-time, not just to clicks but to actual consumer behaviors?

There is an odd and yet definitive quirk in human nature to cling to the familiar even when evidence mounts against it. AI may drive us toward sophistication, but the sentiment to wrestle control remains.

Shifting Focus: ROI and LTV

The emphasis on Return on Investment (ROI) and Customer Lifetime Value (LTV) has become increasingly important. These metrics offer a deeper understanding of campaign performance than the traditional focus on Cost-per-Click (CPC).

ROI and LTV provide comprehensive insights into the effectiveness and sustainability of ad campaigns. 

  • ROI quantifies the financial returns generated from advertising expenditures, clearly measuring campaign profitability. By analyzing ROI, advertisers can assess the efficiency of their marketing efforts and allocate resources strategically to maximize returns.
  • LTV extends the analysis beyond the initial conversion, capturing the long-term value of acquired customers throughout their lifecycle. Understanding LTV enables advertisers to prioritize high-value customer segments, tailor messaging to enhance customer retention, and optimize marketing strategies for sustained profitability.

By shifting the focus towards ROI and LTV, advertisers can make data-driven decisions that align with broader business objectives. These metrics empower advertisers to evaluate campaign success holistically, optimize resource allocation, and drive sustainable growth in an increasingly competitive digital landscape.

The Value of Acquisition Cost

The acquisition cost is pivotal in shaping marketing strategies and determining the campaign budget. While a high acquisition cost may initially seem prohibitive, it can often be justified when it leads to the acquisition of high-value customers and high lifetime value (LTV).

Acquiring customers with significant spending potential represents a strategic investment for businesses. These customers not only contribute substantial revenue in the short term but also hold the promise of long-term profitability through repeat purchases and increased lifetime value.

Acquiring high-value customers underscores the importance of looking beyond immediate costs and focusing on the broader impact on business growth and profitability. By prioritizing acquisition efforts towards customers with significant spending potential, businesses can enhance revenue streams, foster loyalty, and drive sustainable growth in the long term.

Conclusion

Cost-per-click (CPC), once the benchmark for advertising success, now plays second fiddle to more insightful metrics like Return on Investment (ROI) and Lifetime Value (LTV). Our exploration into advertising metrics has highlighted industry paradigm shifts, revealing CPC’s limitations as the lone success indicator, the more significant insights offered by ROI and LTV, and the strategic importance of understanding acquisition costs.

Advertisers are now called upon to adapt to this evolved landscape, embracing the complexities of modern marketing and the power of data for informed decision-making. A focus shift towards ROI and LTV empowers advertisers to navigate the digital realm confidently, optimizing resource use and fostering sustainable growth amidst fierce competition.

As we leave the CPC-dominated era behind, we welcome a new chapter in advertising metrics that values depth, relevance, and a commitment to achieving actual business results. In this new era, success is measured not by clicks but by substantial contributions to the bottom line and the development of lasting customer relationships. 

And if you’re still measuring your ad campaign performance just by looking at the cost per click, don’t hesitate to reach out to us and see how our team can help you streamline your business growth through new and advanced marketing strategies.

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