The Cost of Pay-Per-Click (PPC) Advertising—Trends and Analysis

by Jonathan Hochman

Advertisers often ask, How much does PPC cost? These statistics help answer that question. Each advertiser can set a monthly budget, and a maximum cost per click by keyword. We've seen budgets ranging from $50 per month to $500,000 per month and even more.

To provide useful guidance, our benchmark shows average results for a group of approximately fifty advertisers on the Google AdWords ad network. AdWords text and image ads are displayed along side and above the main Google search results, and also on Google's content network sites. Our advertisers include companies in a variety of industries with a mix of local, national and international campaigns. Our data set is not necessarily representative of the entire market, but neither is the Dow Jones Industrial Average. It is still very interesting to look at the data trends over time.

Average PPC Costs

Metric	2005	2006	2007	2008	2009	2010	2011	2012
Cost per click (CPC)	$0.38	$0.32	$0.62	$0.71	$1.03	$1.24	$1.04	$0.84
Click through rate (CTR)	1.5%	0.7%	0.3%	0.3%	0.3%	0.7%	0.4%	0.5%
Average Ad Position	4.0	4.0	3.9	4.0	3.6	3.7	3.0	2.6
Cost per mille (CPM)	$5.56	$2.38	$1.95	$2.16	$3.34	$8.55	$3.97	$4.03
Conversion rate	3.8%	4.0%	7.0%	7.5%	6.0%	6.8%	5.3%	3.4%
Cost per conversion	$10.18	$7.63	$6.41	$7.02	$12.60	$13.14	$19.74	$24.40
Invalid click rate	n/a	3.5%	6.5%	4.9%	5.5%	6.7%	10.9%	8.0%

Within the group, each advertiser may have a different definition of what constitutes a conversion. For some, the conversion action could be a sales transaction, a sales lead, a sign up, or a visitor who navigates to a key page on the site.

The decrease in click through rate (CTR) from 2005 onward is attributable to the growth of Google's content network. Content network sites usually have lower CTR's and low cost per click. In our experience, the content network produces acceptable results if the advertiser avoids over-bidding.

2011 Notes

Most remarkable is the rise in invalid clicks. Either there are more people trying to defraud advertisers by running scam sites, or perhaps Google has gotten better at detecting inimical activity.

The rise in cost per conversion may be the result of a change in business mix, improved ad positions, or a rise in competition. As more and more businesses discover the benefits of PPC advertising, it has become necessary for advertisers to wring every drop of value from each click. That can be done by raising conversion rates or raising the value per conversion..

2012 Notes

In 2012 Google provided more opportunities to target their display network with options such as topic and interest targeting. As a result, we broadened the reach of many campaigns and bought more clicks at a lower cost per click. The market seems to be very competitive and costs per conversion have been moving up.

For deeper analysis of trends in the PPC market, please contact us.

About the Author

After graduating from Yale with two degrees in Computer Science, Jonathan Hochman set up his own consulting company in 1990. He has been an Internet marketer since 1994.

For additional information, please contact Hochman Consultants.