It’s understandable for most businesses to think about cost when considering a marketing option for their products or services. After all, you want to know if you can afford it. But if you’re looking for a fixed price to do your pay-per-click (PPC) advertising on Google in this article, then you won’t find one. Instead, we will help you understand how it’s calculated and what factors affect the final price.
So buckle up, and let’s get started.
There Is No Fixed Cost for a Google Ad
Google simply does not place a fixed price for each ad. The cost for each ad is dependent upon a variety of factors. But before we get into that, let’s first explore precisely how Google calculates the cost of your ad.
Google takes advantage of the massive demand for their ads service by using an auction model for determining the cost of each ad pitched to them. That means companies or individual marketers will have to bid on keywords that they want to target.
Before you feel hopeless about your meager Google Ads budget, know that your bid price is not the only factor in the equation. Google tries to level the playing field for everyone using its Ad Ranking system. To learn more about how Google Ads work and how you can optimize your campaigns, read more about it here.
Google’s Formula for Calculating Ad Cost
Simply put, your ad will be ranked based on its quality score multiplied by your maximum bid. This is the formula Google uses:
Maximum Bid x Quality Score = Your Ad Rank
Remember that the maximum bid is the amount you are willing to pay for every click on your ad. If this is the only factor, brands who can afford to shell out maximum dollars for their adverts will always outrank you. Fortunately, the quality score allows smaller brands to play.
Google scores ads based on factors, including how relevant it is to the keyword you’re bidding for, the quality of your landing page, and its click-through rate (CTR).
Suppose you are willing to bid $2 for your ad, and it gets a quality score of 8; your ad rank will be 16 (2 x 8). Let’s say another advertiser comes in and makes a bid of $6 for the same keyword but only gets a quality score of 2; their resulting ad rank will only be 12 (6 x 2).
You would still be able to compete effectively on Google Ads with a lower budget if you have a killer ad with a remarkable landing page, among other things.
Now let’s move on to the actual cost of your ad.
The cost per click price is calculated using the following formula:
[The rank of the advertiser below yours / Your quality score] + $0.01 = Your Ad Price
Let’s take the example above and calculate the cost per click (CPC) for both marketers.
| Bidder | Maximum Bid | Quality Score | Ad Rank | CPC |
| Marketer A (You) | $2 | 8 | 16 | [12/8] + 0.01 = 1.51 |
| Marketer B | $6 | 2 | 12 | [8/2] + 0.01 = 4.01 |
| Marketer C | $4 | 2 | 8 | N/A |
See how a higher bid does not always guarantee you a good position in the overall rankings. In the end, a good quality score matters a lot.
Factors That Affect the Cost of Google Ads
Aside from CTR and keyword relevance, many other aspects influence your CPC.
1. The Industry You’re In
Last year, the average cost per click for Google Ads was $2.69 across all industries, but it can quickly fluctuate depending on your niche.
The nature of your business is the most significant factor that influences how much you have to bid for each ad. There are guides where you can start at low cost if you are into physical products and want to start a TShirt business. For those in real estate, legal, insurance, and online education, costs per click can get pricey.
The costs are often directly proportional to how much each click translates to in terms of profit. If one successful click gives you thousands of dollars in gain, then bidding $60 for an ad is a sensible investment to make.
2. When You Want Your Ads to Run
Scheduling is something you will need to pay attention to if you want to get the most out of your money. If your research has shown that most of your target audience are online from 10:00 a.m. to 4:00 p.m. only, then it makes sense to run your ads during those times solely.
But that is only one dimension to it. If you run your ads when there are so many others bidding for the same keywords, rankings will become competitive and result in expensive CPCs.
Make sure you have the data to guide you with proper scheduling and see if you can find the perfect time to run your Google ads.
3. The Type of Ad You’re Running
Google’s Search Ads are generally more expensive to run than their Shopping or Display Ad options.
Deciding which ad type to go with depends on your campaign goals and how far in the funnel you want to hit.
Search and Shopping are more effective (and, on average, more expensive) than Display Ads, but Display Ads are excellent for exposure, brand awareness, and loyalty campaigns.
4. The Current Trends
Like the stock market, average CPCs can fluctuate by keywords or industries depending on what’s happening in the real world.
To cite a current example, businesses in the travel and tourism sector have been sorely hit by the pandemic. Meanwhile, many fashion and online retail sites have experienced a boom in traffic and conversions because most people are at home. As a result, CPCs for these industries have seen significant changes lately.
Trends can unexpectedly tip the odds in your favor. Unfortunately, they are hard to predict or prepare for.
5. Your Preferred Bidding Strategy
If your campaign goal is to hit the maximum amount of impressions for your budget, get a high CTR, or maximize your conversions, choosing a bidding strategy is the way to go.
Google can customize your campaigns so you can hit these goals—for a price.
Campaigns made to maximize conversions are understandably more expensive than other strategies.
Final Words
Hopefully, learning what factors affect CPC on Google Ads will help you manage your Ad Spend. Whether you choose to do so in-house or with the help of a professional Ads agency, you can never go wrong with paying attention to making ads and landing pages that are relevant and created with the end in mind.
