Comments:"The declining profitability of Google Adwords | Successful Software"
URL:http://successfulsoftware.net/2013/05/26/the-declining-profitability-of-google-adwords/
The declining profitability of Google Adwords
Published 26 May 2013 adwords , Google , marketing , software Tags: adwords, cpc, CTR, google adwords, marketing, ppc, profitability, ROIGoogle Adwords used to be a great way to get targeted traffic cheaply (if you knew what you were doing). I think those days are well and truly over.
I have been using Google Adwords to advertise my table plan software since 2005. The following graphs show some metrics from my Adwords campaigns over that 8 years. The graphs show 12-monthly cumulative figures (e.g. each point represents the value for that month plus the preceding 11 months). Using cumulative data hides some of the noise, including the seasonal variations that are inevitable in a business related to weddings (more people buy my software when it is summer in the northern hemisphere), and makes the overall trends clearer.
Average cost per click (CPC)
Clickthroughs
Conversions (sales)
Profit per month
The trends are clear and it’s not a pretty picture. Less, more expensive clicks = less profit. I can either pay more and more per click to maintain the same number of sales. Or I can continue to pay the same per click and get less and less clicks. Either way, my profit goes down. It isn’t a trend I see changing direction any time soon.
I think these long-term trends are mostly due to increasing competition. As more and more companies bid on Adwords for a finite number of clicks, it inevitably drives up the cost of clicks (simple supply and demand). It also doesn’t help that a lot of Adwords users are not actively managing their campaigns or measuring their ROI, and are consequently bidding at unprofitably high levels. Google also does its best to drive up CPC values in various ways (suggesting ridiculously high default bids, goading you to bid more to get on page 1, not showing your ad at all if you bid too low – even if no other ads appear etc).
Of course, this is just my data for one product in one small market. But the law of shitty clickthrus predicts that all advertising mediums become less and less profitable over time. So I would be surprised if it isn’t a general trend. Are your Adwords campaigns become less profitable? Have you found another advertising medium that works better?