Paid Media

How Much Does PPC Cost?

PPC is one of the most useful advertising methods available. Google makes 98% of it's revenue from paid advertising, so they have a huge incentive to "encourage" advertisers to use the service. Hence the existence of AdWords Express, which is, in my opinion, one of the worst ideas ever (hint: Anytime you see the phrase "Only pay for results," or something to that effect, in marketing, you know you're being screwed).

AdWords Express Ad

But I digress. Aside from AdWords Express, Google has been slowly increasing the impact of PPC ads. Over time the size and clickability - if you want to call it that - has only been increasing. Take a look at this screenshot:

Wow, ok, so on my 15" laptop screen, roughly 90% of screen real estate is taken up by Google links or paid ads. This alone should be enough to convince anyone that Google is pushing paid search hard. With the addition of ad extensions, those top three ad spots are getting bigger and bigger, pushing the organic listings down the page and increasing click through rates on PPC ads.

Should you even do PPC?

There seems to be a general disdain for PPC amongst prospective clients I speak with. I get it. People see PPC as being an ongoing cost and you only show up in search as long as you're paying that cost. Whereas people generally look at SEO as "free traffic."

Well that's just the wrong way to look at it. Nothing is free. And I don't mean "nothing is free" as in, there's some small cost to everything. I mean SEO really is not free traffic; not even close. It can be incredibly time consuming and difficult to drive quality organic traffic to a website. Then, once you drive that traffic you have to figure out what to do with it.

Organic traffic, by nature, tends to be much more varied, so you have to group your visitors into stages of the buying cycle, figure out what types of content appeals to those stages, create that content, move them down the funnel, capture email addresses, follow up. You do a lot of this with paid traffic too but it tends to be a bit easier. I can very quickly drive PPC traffic for a particular keyword and shut it off if it's not meeting my goals. I can't very quickly get ranked organically to test things out. Which leads to the next benefit of PPC…

PPC is, by far, the best keyword research tool on Earth. Why? Because I can get real information about which keywords are driving traffic, leads, sales, etc. And I can flip keywords off and on at will. That's a level of control you just don't have with SEO. So PPC can provide intel that can feed into your SEO and social efforts.

Finally, PPC can be very profitable. In my 7 years of doing this, there have only been a handful of campaigns we couldn't pull a positive ROI out of, and most of those were low budget campaigns. A larger budget allows more clicks, more testing, and better tracking. I'm confident we could have pulled a positive ROI even out of those campaigns had we been given a proper budget.

I love examples, so here's one. One of our clients was running paid search for a particular service they offer. This client had no idea whether PPC was driving a solid return; they simply didn't have the tracking in place to know.

We optimized the campaigns, setup tracking, and figured we'd do sort of a revenue spot check. We exported all the calls from our call tracking provider for a particular month and the client matched those up with customers who purchased this particular service.

In the end we were able to realize a 450% ROI on that PPC spend. And that did not include any mobile traffic – which accounts for nearly half of all clicks for this campaign – or anyone who signed up for the service with a different number than what was shown on their caller ID. Not to mention the countless other ways customers could have escaped our tracking implementation. We estimated at least 30% of them went untracked. In other words, that ROI was probably closer to 580%.

"But I've tried PPC and it didn't work"

I hear this all the time. About 90% of the time I hear this we end up making it work really, really well. The reasons companies usually fail at PPC are one or more of the following:

  • They try to do it themselves. Horrible, horrible mistake. You will fail if you do this, or, best case scenario, you'll waste a lot of money. This company was managing it themselves and look what happened when they hired us.
  • They hire a sucky provider. Anyone can wake up tomorrow and call themselves a PPC manager. Not everyone can manage a campaign effectively. This is really common with small companies. An auto glass company we just started working with had this problem. We took them from 0 to 10 leads a day in about a week. It's not because we're PPC wizards – I mean we are, but that's not the whole reason – it's because the other company just flat out sucked. Trust me, I saw their keyword list. It was horrifying.
  • They aren't spending enough. Sometimes you just get lucky and hit your stride right away, but most times, it takes a few months to pull out a solid return because you have to test ad copy, landing page variations, and figure out which keywords are working and which aren't. That can take a few months at least, but the lower the budget, the longer it takes to determine what's working and what's not. If you're an attorney with a $200 monthly budget and your clicks are $20 a pop, it'll be practically impossible to get a statistically significant result out of any testing.

How PPC Costs are Determined

I'm going to stick with Google AdWords' search network here just because it would be far too complicated to try and tackle all of PPC in one blog post.

First of all, Google AdWords is an auction system. That means, all things being equal, the position of your ad on the page is determined by how much you're willing to pay per click. To show up at #1, you have to pay more than the guy at #2. But that's not the whole story.

I said, "all things being equal" because Google gives you an incentive to improve performance. Remember, Google's goal is to show the most relevant results at the top of the page. That holds true for PPC just as much as SEO. So, Google rewards you with discounted click costs if it determines you are providing a better experience for the searcher.

What's a better experience? Google uses the following factors to determine that (source:

  • Your keyword's expected clickthrough rate (CTR): The expected CTR is based in part on the keyword's past CTR, or how often that keyword led to clicks on your ad
  • Your display URL's past CTR: How often you received clicks with your display URL
  • Your account history: The overall CTR of all the ads and keywords in your account
  • The quality of your landing page: How relevant, transparent, and easy-to-navigate your page is
  • Your keyword/ad relevance: How relevant your keyword is to your ads
  • Your keyword/search relevance: How relevant your keyword is to what a customer searches for
  • Geographic performance: How successful your account has been in the regions you're targeting
  • Your ad's performance on a site: How well your ad's been doing on this and similar sites (if you're targeting the Display Network)
  • Your targeted devices: How well your ads have been performing on different types of devices, like desktops/laptops, mobile devices, and tablets – you get different Quality Scores for different types of devices

All those details add up to something called a "Quality Score," a number from 1 to 10 that describes how well you accomplish the above items.

Your ads position on the page is then determined by the formula: Quality Score x Max Cost Per Click Bid.

So, let's say you have a 10 quality score and your competitor has a 3. You bid $1 per click and he bids $3 per click. Your ad rank will be 10 x $1 = 10. His ad rank will be 3 x $3 = 9.

In this case, your ad will show up above your competitor's, even though you're paying a third of what he is. This is an incredibly important concept to grasp about PPC and it's why we're able to pull a solid ROI out of the vast majority of campaigns.

An example

Here's a perfect example of what I'm talking about. This is an actual client's ad group. The blue line is average ad position, the orange is average cost per click. Before we started optimizing this ad group we had an average position of 3.4 and an average cost per click of $1.32. So far this month, we have an average position of 2.8 and an average cost per click of $0.50.

Google AdWords Optimization Results

Here's another chart showing average cost per click plotted against average click-through rate for that same ad group. In this case our click through rate went from 0.82% to 4.14%. That change in click-through rate was largely responsible for the huge cost per click reduction.

Average CPC vs CTR in Google AdWords

They key detail here is that we were able to improve our ads position 18%, moving us from the right side of the page to the top of the page for most searches, and we're paying almost a third of what we were before. This means if our competition is still where we were back in November, we're paying a third of what they're paying and we also have a better position.

Ok, ok, how much does it cost already?

Now that I've bludgeoned you with PPC education, let's get back to the question at hand. This isn't an easy question to answer because click costs vary for every keyword. Plus, as you now know, there can be huge discounts at play. I used Google's keyword tool to run a check on click costs for a few common search terms in Cincinnati:

  • Dentist: $8.59 per click
  • Plumber: $13.92 per click
  • Attorney: $7.59 per click
  • Roofers: $27.48 per click
  • Custom homes: $3.67 per click
  • Laser tag: $0.89 per click
  • Mexican food: $1.50 per click

I generally recommend 100 clicks a month at minimum. On top of that, management fees vary greatly, but a quality provider is generally going to charge a minimum of $500 – $1500. Since most of these are local service businesses, let's call it $750. So, total minimum costs might be:

  • Dentist: $859 click costs + $750 mgmt fee = $1,609.
  • Plumber: $1,392 click costs + $750 mgmt fee = $2,142.
  • Attorney: $759 click costs + $750 mgmt fee = $1,509.
  • Roofers: $2,748 click costs + $750 mgmt fee = $3,498.
  • Custom homes: $367 click costs + $750 mgmt fee = $1,117.
  • Laser tag: $89 click costs + $750 mgmt fee = $839 (Clearly you'd probably want to shoot for far more than 100 clicks in this case).
  • Mexican food: $150 click costs + $750 mgmt fee = $900 (Same here. Go for more clicks to make the management worthwhile).

Those are Google's estimated click costs based on historical data. With proper account management, you'll likely see a solid discount on those costs over time.

Additionally, you'll rarely bid on only one keyword at a time. People use a wide variety of terms to find what they're looking for online, so you'll want to show up for all relevant search terms.

Call tracking costs

Most people don't use call tracking. For B2C and B2B service companies, where most leads come over the phone, call tracking is crucial to determining ROI.

You can setup two or three call tracking numbers and, depending on your call volume, it might cost anywhere from $50 – 100 per month. However, that will only give you a count of total calls resulting from your PPC effort. It will not tell you which keywords are driving those calls, which is crucial to fully optimizing a campaign.

For that you need something called "dynamic number insertion." This shows a unique number to each visitor from your PPC campaigns and so is able to keep track of which keywords drove the call and report each call back to Google AdWords as a conversion. Super useful, vital perhaps if most of your leads come over the phone. This usually costs roughly $120 per month minimum and could be up to $200 per month for heavy call volumes (hundreds of calls per month). If a lot of your sales or leads come in by phone, you should factor in this cost as well.

Keeping costs down

Some companies offer low budget pricing for accounts with low campaign spends that don't require advanced reporting. For example, our low budget PPC management fee is $500. That's for clients that don't require advanced reporting and are spending less than $2,000 / month.

Technically, you could cut your click costs. We've run successful campaigns with a $500 management fee and $500 in ad spend, so it's definitely possible, but most qualified companies will only do that for low budget clients spending less than a couple grand.

Need more info on PPC costs?

I just wrote another post that breaks down everything involved in PPC management, including rough hour estimates and a more detailed cost breakdown of management fees you might expect to pay. Check that out here.

John Crenshaw
John Crenshaw
UFO company founder. 15+ years experience in performance marketing.
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