Have you noticed your digital ad costs creeping up lately? It’s a common issue many businesses are facing, and it can be pretty frustrating. If you’re scratching your head wondering why your advertising expenses are climbing and what you can do about it, many others are facing the same issue.
A multitude of factors could be contributing to an increase in your cost-per-conversion. While some of these are beyond your control, others can be managed and optimised.
Let's explore a few common reasons that might be causing your costs to climb.
How Ad Platforms Determine Your Costs
First, you need to understand how PPC (pay-per-click) advertising costs are calculated.
Let’s say two advertisers are competing for the same search term. If all other variables are equal—such as the search query’s wording and the user’s location—the platform considers several other elements to decide which ad to display first.
The cost of showing your ad at the top of the search results depends on how well you address these factors compared to your competition. When deciding on ad placement, the search engine evaluates things like:
Relevance to the User's Search Query: For instance, if someone searches "Best Running Shoes for Flat Feet," an ad that specifically includes "running shoes for flat feet" will likely rank higher than one that only mentions "running shoes." The more targeted ad aligns better with what the user is looking for.
Alignment Between Ad and Destination: If your ad’s call to action (CTA) is “Buy Now” but leads to an informational page without a purchase option, it will likely rank lower. The platform prioritises ads that deliver on the promise made in the CTA.
Web Page Performance: Ads leading to well-performing pages—fast, responsive, and technically sound—are more likely to be favoured by the platform.
Use of Ad Extensions: Ads that utilise features like phone numbers, additional site links, or ratings tend to rank higher as they provide extra value to the user.
Bid Strategy: The platform also considers your maximum bid and how much more or less you’re willing to pay for certain audiences, demographics, or times of day. Your bid strategy can significantly influence your ad placement.
For example, imagine two ads for the search term “Local Plumber Services.”
The ad that ranks higher might specify the neighbourhood, include relevant keywords like "emergency plumbing," and use extensions such as "24/7 availability" or "water heater repair," all of which better address the user’s needs.
Why Has Your Cost-Per-Conversion Suddenly Increased?
Let’s say you’ve done everything right. Your website is optimised, your ads are well-crafted, and you’re following best practices for copywriting.
Your ads have consistently delivered strong results, but now you’ve noticed a dip in performance. That dependable $8 cost-per-conversion has suddenly risen to $11. What’s going on?
Here are a few reasons that could explain the increase in your costs:
Recent Changes You’ve Made: Have you recently adjusted one of your campaigns? Did you start a new campaign, create a new ad group, or launch a new ad? Maybe you followed a recommendation from the ad platform or made some changes to your website. Use analytics tools to figure out when and where the costs started to go up.
Platform Updates: Ad platforms like Google and Facebook are continuously changing. They usually let advertisers know about these changes, but it’s easy to miss a notice about how conversions are tracked or new features.
As you keep an eye on these updates, you might be able to spot what’s driving up your costs. Luckily, there are plenty of resources—articles, videos, podcasts, and social media—to help you stay updated and manage unexpected changes in your ad costs.
While these factors can be examined and adjusted, others are harder to control:
Competition: Have new competitors entered your market, or have existing ones expanded their reach? Did a competitor hire a new agency or marketer, boosting their performance?
As competition heats up, so does the cost of staying on top.
Market Fluctuations: Just like how prices for things like tech gadgets or organic foods can change with trends, advertising costs can fluctuate with market demand.
For example, when kitchen gadgets like air fryers became popular, advertising costs for these items often went up as more brands jumped in and competition increased. If you were advertising before these trends hit, you might notice higher costs as demand and competition grow.
Major Events: Is your industry impacted by significant events like elections or natural disasters? For example, with the U.S. presidential election coming up, many industries see shifts in ad costs. Political campaigns and related ads often drive up competition and increase ad prices, as more organisations vie for attention and ad space.
How to Improve Your Ad Performance
To get your ads performing better and bring down your cost-per-conversion, try these strategies:
Diversify Your Ad Platforms
One way to boost your ad performance is by diversifying the platforms you use. It’s like investing in stocks—if you put all your money into one stock and it starts to lose value, you’re in trouble. Similarly, if you’ve been putting all your budget into Facebook and seeing costs go up while conversions drop, it might be time to try something new.
Here’s an example: Let’s say a company that sells premium software for professionals was only running ads on Instagram. They noticed that their costs were increasing and their results weren’t improving. Instagram wasn’t giving them the performance they wanted.
So, they decided to shift some of their budget to LinkedIn, a platform known for its professional audience. LinkedIn turned out to be a better fit because it’s where many professionals and business decision-makers spend their time.
In this case, LinkedIn’s professional audience provided a fresh avenue for reaching potential customers, leading to a significant decrease in cost-per-conversion and a higher ROAS. With this step, their ad portfolio is balanced which improves overall performance.
A/B Testing
Another important step is A/B testing your ads. Just because you’ve followed best practices doesn’t mean you’ve hit the mark.
Most ad platforms offer A/B testing features, allowing you to compare different ads to see which performs better. If your platform doesn’t support this, you can manually split your budget between two different ads.
Small tweaks—such as changing the headline, creative, or call to action—can make a big difference in how your ads perform. With the rise of generative AI, many platforms now provide tools to assist with this kind of testing, making it a great way to boost your ad results.
Refine Your Ad Targeting
If your ads aren’t reaching the right audience, you’re likely wasting your budget on clicks that don’t convert. To fix this, take a closer look at your targeting parameters and adjust them based on performance data.
For example, if a company sells eco-friendly home products and they’ve been targeting a broad audience. Their cost-per-conversion has more than likely been rising. After analysing their ad performance, they discovered that their ads perform better with users interested in sustainable living and home improvement.
So, they narrowed their targeting to focus specifically on users who have shown interest in these areas, helping the company reach people who are more likely to convert.
Regularly review and adjust your targeting based on data and trends to ensure your ads are reaching the right audience.
Final Words
Navigating the world of digital advertising can be tricky, especially when costs start to rise. Understanding why your cost-per-conversion is climbing is the first step toward getting back on track.
Remember, advertising isn’t a set-it-and-forget-it endeavour—it requires constant attention and adjustments to keep your costs in check and your performance on point.
Stay proactive, keep testing new approaches, and don’t hesitate to adapt your strategy based on what you learn. With the right tactics and a bit of patience, you’ll be able to turn the tide and get your advertising costs back where they should be.
SO, WHERE DO YOU FIND THIS PARTNER?
Well, aren’t we glad you asked! We at DigiCom are obsessive data-driven marketers pulling from multi-disciplinary strategies to unlock scale. We buy media across all platforms and placements and provide creative solutions alongside content creation, and conversion rate optimizations. We pride ourselves on your successes and will stop at nothing to help you grow.
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