How to Keep Ballooning Cost Per Acquisition Numbers Grounded

By Sean Evanko
TOPICSGoogle, Paid Search, Product Ads

Have you observed your year-over-year cost-per-acquisitions (CPA) increasing in AdWords? Do you understand why? By only looking in your AdWords account you may have a difficult time pinpointing the reasons for the increases. The answer lies externally — at least partially.

First let’s look at Google Shopping. Last year the number of retailers advertising on Google Shopping was significantly lower. This gave
those participating advertisers the ability to advertise at unheard of CPCs which resulted in very low CPAs. With such strong performance, word spread and other advertisers wanted similar results. In fact advertisers increased their investment in product listing ads by 300%. At the same time Google has been aggressively testing the product listing ad positioning which has helped increase PLA click-through-rates by 6%. This increased participation by advertisers plus Google’s changes has led to the average cost-per-click for PLAs to increase by a staggering 141%.

These changes by Google to how the product listing ads appear on the search pages has also effected text ads. Before PLAs became prominent, text ads with an average position of 3, 4, or even 5 had the potential to perform well (albeit the volume would be lower than an ad in top position). As PLAs began appearing in the right column of the search page the text ads that had been at the top were now being pushed further down the page to areas that would have formerly been considered position 6+. Advertisers saw a 13% decrease in the click-through-rates for text ads. This effectively made the top positions even more desirable. Competition for these positions increased and the cost-per-click for text ads increased 21%.

To put this in perspective take the following example:

An advertiser is spending $5,000 per month in AdWords. They have allocated $3,500 towards text ads and $1,500 towards PLAs and their site has a conversion rate of 2.25% and their average margins are 45%.

There are a number of steps that can be taken to not just mitigate these increases in costs but to thrive. In this fictitious example, if all things remained equal year-over-year profits for June would have decreased over $10k — a significant sum for many advertisers. Here are five ideas to help lower your CPA now.

Google Shopping PLAs

  1. Create segmented campaigns with various bidding tiers based on best sellers and high margins.
  2. Target lower volume and lower margin items in campaigns with low bids.
  3. Run search query reports to harvest negative keywords to exclude.
  4. Utilize the product level data to bid up, down, or exclude products.
  5. Ensure your feed is error free and that all products are eligible to show. More products in the feed means more opportunity.

Text Ads

  1. Create segmented campaigns utilizing a long tail keyword strategy.
  2. Optimize your campaigns geographically. For example, instead of targeting the US, target all 50 states and the District of Columbia. This provides more opportunities to optimize bids based on location.
  3. Use day-parting to optimize your ads to show during the most profitable times of the day and week.
  4. Continually test ad copy. Small incremental improvements to CTR and conversion rates can add up to big gains over time.
  5. Remarket using dynamic remarketing for those visitors who have not yet purchased, traditional remarketing campaigns for past customers, and RLSA campaigns for all visitors.