Why did my CPC increase when I increased my budget?

When clients are seeing great results, we typically start to see significant increases to their budgets to capitalize on what’s working. It makes sense. However, we seem to have the same conversations about the expectations of increasing the budgets and the reality around expecting a linear result with regards to conversion rates and CPC.

Is it that campaigns perform worse at a higher spend? No.

The answers come down to the make-up of the keyword basket and how the percentage of the budget allocated to top performing keywords tends to change as budgets increase. That is not to say that those keywords are getting a lower budget, but the percentage of the whole budget tends to decrease. The effect of this can be that the performance of the campaign appears to fall, but in reality the performance is maintaining and the campaign is shifting from a lower funnel conversion focus to now building your business with a customer acquisition focus.

To further demonstrate this effect, let’s take the actual data from a client and examine the impact of increasing the budget. This particular client had a branded campaign running which had a very low CPC and when we increased the budget, the CPC appeared to have increased substantially. The following chart shows the effect our client was observing:

Overall CPC trend

The CPC trend line clearly exhibits a trend of increasing CPC going from $0.20 to nearly $0.80; a nearly 400% increase. However, it is important to examine this trend deeper and evaluate the performance of the campaign types individually.

CPC Trend by campaign type

Once broken out, it can be observed that the CPC trends are not nearly as dramatic. We are seeing an increase in Non-branded CPC due to competitive pressures in the market and more aggressive positioning, but the Non-Branded terms are only increasing by 68%, not the 400% in the previous chart.

The aggregate performance shows a trend factoring in a shift in budget distribution and the balance of clicks and impressions shifting towards more costly non-branded terms. While it is useful to look at, it could be misleading. The following chart shows how the clicks distribution has shifted from the cheaper branded terms to the higher CPC non-branded terms.

Revenue and ROAS trends

Overall, the account performance has not changed as dramatically as previously thought, but the distribution of traffic went from 20% non-branded traffic to over 70% non-branded traffic as the budget increased by nearly 2125%. The shift in funding drags the overall CPC higher as the lower cost branded terms can no longer skew the CPC lower to the same degree as they once had and the CPC tends to align with the cost of the non-branded terms. The performance of the campaign has not degraded, but is not being skewed by over-performing branded terms that have higher CTR, lower CPC, and higher conversion rates.

We can see the same effect for ROAS; however, this effect is again due to the branded campaigns skewing the data higher and, as the budget increases, the diminishing impact of the ability for the branded campaigns to artificially hold the ROAS and conversion rate higher – although revenue continues to grow substantially.

revenue and ROAS trends

Revenue increased by over 22,800%, providing concrete evidence that the acquisition strategy of the campaign and continued investment of the paid search campaign has been successful.