Inflation isn’t just affecting the cost of consumer goods. Since April of 2022, cost per clicks (CPCs) have been dramatically rising. According to Statistista, the average cost-per-click worldwide has risen 17 percent, from $0.52 in 2021 to $0.62 in 2022.

A variety of marketplace and platform factors are contributing to CPC Inflation. These factors range from increased market competition to platform changes. Read on to understand more about why CPCs are soaring.

Factor 1: Increased Competition

A more competitive marketplace equals increased costs

Increased competition often leads to higher bid prices as advertisers try to secure ad placements. Although you can control the price of your own keyword bids, it is your competitors who determine how much you pay and where your bid will be positioned. As more competitors are vying for the same keywords, competition is increasing, and thus, the CPC rises.

Not only is there more competition, but organizations impacted by the pandemic are trying to recover revenue by saturating the marketplace and driving up cost.

Factor 2: Google Platform Changes

The Google we knew is not the Google of now

Google continues to revise and introduce new features and functionalities to accommodate their growing, changing and expanding search algorithm and advocate for the use of their automation:

Match type changes: keyword match types have become less restrictive to capture the volume and complexity of search. The level of cost control associated with legacy match types no longer exists.
New campaign types: new automated campaigns have been introduced that offer less control over the quality of traffic and efficiency of media spend.

“We’re seeing it most aggressively hit brand keywords, so increases of as little as $0.02 could be 20 percent increases in cost” (Search Engine Journal).

Factor 3: Platform Popularity

The platform of the moment will be the most expensive

Popular advertising platforms, such as Google Ads and Facebook Ads, attract a large number of advertisers. The increased demand for ads on these platforms can contribute to higher CPC prices, especially if the targeting options and audience reach are effective. Popularity often results in a higher return on investment for advertisers. Higher ROIs mean they may be willing to pay more for each click. Ad platforms recognize the value advertisers receive and adjust prices accordingly.

Inflation will continue to impact the industry in the near term. The following are a few additional factors that can come into play:

Market maturity: As online advertising becomes more prevalent and mature, the competition for ad space intensifies. This increased demand can lead to CPC inflation, particularly in popular and competitive industries.

Industry trends: Certain industries or niches may experience higher levels of CPC inflation due to factors specific to their market. For example, industries with high-profit margins or those that rely heavily on digital marketing may witness more significant price increases.

Ad format popularity: The popularity of specific ad formats, such as video ads or interactive ads, can impact CPC prices. If advertisers are willing to pay more for these formats due to their effectiveness, it can contribute to inflation in those ad types.

Ad targeting and segmentation: Advanced targeting options allow advertisers to reach specific audiences, increasing the value of CPC ads. As targeting capabilities improve and become more precise, the competition for reaching those valuable segments can drive up costs.

Mobile advertising: With the growing usage of smartphones and mobile devices, the demand for mobile advertising has risen significantly. Mobile CPC ads often command higher prices due to limited screen real estate and the increased user engagement associated with mobile platforms.

Ad platform policies: Changes in policies or regulations imposed by ad platforms, such as Google or Facebook, can impact CPC prices. For instance, stricter ad quality guidelines or privacy regulations may require advertisers to make adjustments to their campaigns, potentially affecting costs.

Advertisers need to stay informed about these factors and adapt their strategies accordingly. Monitoring performance metrics, testing different targeting options, optimizing ad creatives, and exploring alternative advertising platforms can help mitigate the impact of CPC advertising inflation and achieve better results within your available budget.