4 Reasons for CPC Inflation & How to Respond

Overview

Is there a word that generates more anxiety than inflation? 

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It’s a term that refers to rising prices and diminishing quality of life. And it seems that even our precious cost per clicks aren’t safe from it. 

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From 2022 to 2023, the average CPC increased by approximately 5%, and cost per lead (CPL) rose by about 20%. At InterTeam we've noticed the same trend. As you can see in the graph below the CPCs in our Google Ads accounts have steadily increased over the past two years.

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Increasing CPCs means that getting solid ROIs is becoming increasingly challenging because cost per lead (CPL) would increase as well and unfortunately, this trend doesn’t appear to be stopping anytime soon.

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But how is it that something intangible, like keywords, is increasing in price? What does it mean for advertisers? Is it possible to mitigate the rising costs or CPC inflation?

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While CPC inflation does paint a discouraging picture, it doesn’t mean your ad campaigns have to come to an end.

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This blog covers everything you need to know about CPC inflation, from why it’s happening to how you can minimize the impact.

What is CPC Inflation?

Put simply, CPC inflation is the gradual and consistent increase in average cost-per-click for ads within a specific industry, niche, or set of keywords over time. Higher costs-per-click also means you have to spend more just to maintain your average position or impression share. 

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4 Reasons Why Cost-Per-Click Inflation Occurs

The cause(s) may be unclear and multifaceted, but one thing is certain: higher CPCs can mean harder times for advertisers and small to medium-sized businesses. CPC inflation essentially constrains your marketing budget, making it challenging to achieve a return on investment. 

However, understanding the major factors that go into CPC inflation can help us develop a proper response to it.

Here are some of the main causes of CPC inflation:

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Competition

At this point, nearly every business is running ads. This is especially true for Google Ads, it's the most used , which means more people are competing for the same keywords. So it’s natural that prices reflect that. 

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What’s more, keyword competition can increase depending on geographical location. Running ads for specific, more populated regions usually results in higher CPCs due to the sheer volume of businesses vying for attention. 

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Costs-per-click can also vary widely depending on the industry you’re working in and the specific keywords that you’re targeting. 

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Keywords related to industries like legal services, finance, and healthcare are typically more competitive and often see higher CPCs. For instance, keywords such as “personal injury lawyer” or “mortgage rates” can easily have a CPC over $100. Industry trends could also lead to CPC inflation.

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Advertising has always been competitive. A huge part of marketing and advertising is assessing and outmaneuvering your competitors. Check out our blog, “How to Target Competitors Audience on Google Ads,” to build a winning strategy! 

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Changes in Search Volume

CPCs can literally change with the season due to higher seasonal search volumes for certain terms. During certain periods of the year, some keywords increase in demand and, therefore, increase in price. For instance, holidays or global events (like a pandemic) can increase CPC prices in many industries at once. 

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Changes in the Algorithm

Another factor that constantly creates price fluctuations in the SEO world is Google’s evolving search algorithm. Google is always tweaking things to optimize its platform and improve user satisfaction. Frequent updates, policy changes, and format changes can also lead to higher CPCs.

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Seasonal & Societal Trends

Last, seasonal trends can also affect CPC inflation. For instance, CPCs tend to spike in the summer, especially for B2B businesses when searches are down and professionals are on vacation.

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Political and economic trends can also impact CPC inflation. For instance, we've spoken to many agencies in both organic and paid marketing disciplines and found that June and July 2024 were 2 of the worst months for all advertisers and marketers due to uncertainty about the US election and a poor economy.

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4 Strategies for Responding to Higher CPCs

We can’t control the cost per click, but advertisers can certainly adapt their strategy to mitigate these higher prices. With the right approach, CPC inflation can actually encourage you to refine your ads.

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Improve Campaign and Ad Quality

Focus on improving campaign and ad quality. This can be an opportunity to review your Google Ads campaign budget and refine—and if need be—shift business objectives.

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With more specific goals in place, it’s a matter of fine-tuning content so that it’s laser-focused on boosting specific metrics.

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Get Serious With Your Keyword Research

Conducting keyword research is a crucial aspect of advertising. Identify high-intent keywords and only use those that align closely with your business objectives. 

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Focusing on long-tail keywords can often provide a higher conversion rate at a lower CPC, as these terms are usually more specific and less competitive. 

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Optimize Your Landing Pages

Landing pages are an essential part of Google Ad campaigns, and it’s highly important that keywords and messaging closely align with what you have on your ads. What’s more, optimizing your landing page so that it’s high-quality, relevant content will improve your keyword quality score, which can lower your CPC. 

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Diversify Advertising Channels

Another adaptation is to diversify advertising channels. While it may seem like it, not everyone uses Google’s search engine. Running ads on other platforms like Bing or LinkedIn will increase your outreach while potentially offering cheaper CPCs.

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Rising Above The Challenge Of CPC Inflation 

CPC inflation is a bit of a drag, but it’s not impossible to navigate and even thrive in this environment. When it comes to Google Ads, attention to detail is SUPER important. By making your campaigns laser-focused, refining your keyword search and landing pages, and using other ad platforms, maximizing your ROIs (even with CPC inflation) is totally achievable. 

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InterTeam is a premium PPC agency that works with B2B, B2C, and SaaS companies to generate high-quality leads through Paid search advertising. If you’re looking for someone to audit your campaign or help launch and execute one, book an appointment today! 

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FAQ

What is CPC inflation, and what causes cpcs to increase?

CPC inflation refers to a gradual increase in the average cost-per-click for ads of keywords over time. Several possible causes include increased competition for keywords, changes in search volume, and variations in Google search algorithms. 

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How does CPC inflation impact B2B advertisers?

CPC inflation can increase an ad campaign's total costs, making it challenging to achieve a positive return on investment (ROI). A higher cost-per-click means advertisers have to spend more to maintain their average position or impression share. 

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Will CPC inflation go down?

It’s certainly possible that CPC prices can go down. The are many variables that make CPCs fluctuate. However, the general trend of the market is that prices have been increasing over time.