It’s budget season! For some of us, the word budget might as well be a pair of handcuffs on our decision-making process. For others, a budget gives a sense of freedom as we meticulously calculate the perfect budget using sales goals, homesite availability, historical conversion rates, and other forecasting formulas to come up with the perfect budget. Wherever you fall on your perception of a budget with your “budget personality,” there is one thing I am quite confident of in 2022.
Google Cost Per Click will increase 20-40%* in 2022. We have already seen this in 2021; however, the lowest cost per clicks in the image below are due to overwhelming demand and strategies we use to take advantage of the excessive demand.
As demand for homes normalizes, most builders will react by increasing spend on Google & Facebook. On average, Google Ads has simpler attribution and therefore typically higher conversion rates. As a result, Google Ads will be one of the first traffic sources marketers look to when they need to increase spend to make up for softening demand.
Increasing bids is typically necessary to get more clicks from Google Ads. As more and more of your competitors increase their bids, the cost per click for that market will increase. This is the Google Ad Auction at work as well as the foundational economic principle of Supply & Demand. As supply decreases, while demand increases (or stays the same), the cost of the goods and services will increase. In this case, the cost of clicks increases. Our very own housing market has been a perfect case study of this principle.
The cost per click you pay is determined each and every time your ad is displayed, through the “Google Ad Auction.” Three main factors influence the auction.
1. Your Bid: What keywords are you bidding on and what is your bid?
2. Competitor Bids: What keywords are they bidding on and what is their bid?
3. Your Historical Performance & Expected Performance. Google usually refers to this as the “Quality” of your ad - but I have found the word “Quality” is not descriptive enough to allow marketers to communicate to leadership what is going on - so let’s use the word "Performance" instead.
Thinking logically about how Google Ads works - the cost for Google to show your ad compared to a competitor's ad is equal. Either way, ads are going to be shown after someone searches with Google. Google must maximize the revenue per Google Search and keep their users happy with relevant ads. Long story short - builders who keep Google’s users happy, will have the potential to have a lower cost per click compared to competitors who do not. This is where the performance of your ads is crucial. Let’s do some math - in Excel of course! Check out the two images below.
This example takes 3 builders with various levels of performance, as indicated by the Click Through Rate(CTR). Remember, the CTR is the percentage of times your ad is clicked vs how often it is displayed. A higher CTR indicates to Google that your ad is more relevant to the searches and therefore a better user experience.
As you can see, even with Builder A - having the lowest CPC - they still create more revenue for Google!
This example takes 3 builders that provide equal revenue to Google, $200. Even though Builder C has a very aggressive bid of $4.00, their CTR is only 5%. Can you guess which builder Google would favor? Which builder provides a better user experience?
That’s right - Builder A.
Hopefully, you are still with me! Long story short - you cannot outbid your way to more clicks when you need them. While costs will increase in 2022, your Google Ad Performance is still going to be one of your strategies to effectively gain market share and hit your sales goals.