Clicks, conversions, and Christmas

Online advertisers have noticed that CPCs tend to increase during the holiday season and have asked us why. We turned to Hal Varian, Google’s Chief Economist, for an explanation:

Many advertisers track their average cost-per-click (CPC), but what really matters for the bottom line is the average cost-per-acquisition (CPA): how much you have to spend on advertising to make a sale. The third factor to watch is the conversion rate, which is defined as conversions (sales) per click.

Note that these numbers are neatly tied together by the convenient formula:

CPA = CPC/Conversion rate = (cost/click)/(conversions/click).

Clicks, cost, and conversions all go up during the holidays. As it happens, conversions increase more than clicks, so conversion rates tend to rise. This makes the clicks more valuable, so advertisers raise their bids to reach more consumers. As a result CPCs get pushed up.

(Click image for full-size version)

The plot above shows the median CPC, the median conversion rate, and the median CPA during the 2006 holiday season for those Google AdWords advertisers who use conversion tracking. The series have been normalized so they all start at the same point on November 1.

Last year, Thanksgiving fell on November 23. Note how the conversion rate (green) and the CPC (blue) both dropped on that day which means CPA (red) went up. Perhaps watching football and eating turkey trumped online shopping on Thanksgiving?

Right after Turkey Day, people started on their Christmas shopping so conversion rates started to rise. During this period, advertisers raised their bids in order to get more prominent positions in the ad auctions so they could attract those shoppers. That increased the median CPC (blue). But the conversion rate rose more than the CPC, which pushed CPA (red) down. Even though the clicks cost more, the conversions -- what really matter -- cost less.

The conversion rate peaked on December 11, somewhat before the peak of overall retail sales, since it takes time to process and ship the online orders. By December 23, things were pretty much back to normal. Once Christmas Day arrived, conversion rates dropped to their lowest point of the year -- people were just too busy opening presents to think about buying more things… at least for the next few days.

The bottom line is that is that the cost of clicks does tend to rise during the holidays. But since those clicks are more likely to turn into sales, the CPA goes down, making those seemingly expensive clicks quite a bargain. If you are interested in tracking how your own conversion rates and CPAs change during the holiday season, you can set up AdWords Conversion Tracking on your ads and see how these metrics work for you.

Thanks to Hal for his explanation on how the holiday season can affect the ROI for an AdWords campaign. And remember, you can always visit the AdWords Help Center year-round to read up on tips on how to improve your ad performance.

Posted by Christina, Inside AdWords crew

Just three more shopping months

As we launch into fall, many retailers are already gearing up for the most important sales season of the year -- the winter holidays. It may seem like we have a long way to go before December, but according to the 2007 Holiday eSpending Report, shoppers are hitting their favorite online stores well ahead of time -- some even report that they've already finished their holiday shopping!

With this in mind, it's never too early to start thinking of ways to attract more customers. We suggest creating a separate, fine-tuned winter holiday campaign with specific, narrowly focused ad groups and relevant keywords to attract potential customers. The Keyword Tool is a great resource to turn to for ideas and tips on creating a number of keyword variations.

You may also want to write ad text that appeals directly to the audience you're targeting. After creating multiple ads per ad group, you can look at the % Served column in your 'Ad Variations' table to see what kind of ad text attracts more clicks. And, remember that AdWords will automatically show the ad with the higher clickthrough rate (CTR) more often, so you can experiment with different ad texts to see what works best.

As always, you can visit the AdWords Help Center year-round to find ways to improve your ad performance. Retailers can also check out our optimization tips.

Posted by Christina, Inside AdWords crew

Just three more shopping months

As we launch into fall, many retailers are already gearing up for the most important sales season of the year -- the winter holidays. It may seem like we have a long way to go before December, but according to the 2007 Holiday eSpending Report, shoppers are hitting their favorite online stores well ahead of time -- some even report that they've already finished their holiday shopping!

With this in mind, it's never too early to start thinking of ways to attract more customers. We suggest creating a separate, fine-tuned winter holiday campaign with specific, narrowly focused ad groups and relevant keywords to attract potential customers. The Keyword Tool is a great resource to turn to for ideas and tips on creating a number of keyword variations.

You may also want to write ad text that appeals directly to the audience you're targeting. After creating multiple ads per ad group, you can look at the % Served column in your 'Ad Variations' table to see what kind of ad text attracts more clicks. And, remember that AdWords will automatically show the ad with the higher clickthrough rate (CTR) more often, so you can experiment with different ad texts to see what works best.

As always, you can visit the AdWords Help Center year-round to find ways to improve your ad performance. Retailers can also check out our optimization tips.

Posted by Christina, Inside AdWords crew

Happy Labor Day!

Those of us in the US and Canada are looking forward to a long Labor Day weekend. Whether Labor Day means intense retail therapy in the form of back-to-school sales or simply the end of wearing summer whites, we here at Inside AdWords will be taking a day off to rest in the true spirit of the holiday. We hope you'll find some time to do the same as well.



We'll be back next week!

Posted by Vivian, Inside AdWords crew

Auto Industry Knowledge Center - Rev up your skills

In the spirit of back to school, we’ve launched the Auto Industry Knowledge Center to provide automotive advertisers with the most up-do-date information and learning tools. The Auto Industry Knowledge Center has industry-specific resources to help you get the most out of AdWords. Whether you sell parts online, own a dealership, or host an auto website, you'll find customized tips for success, case studies featuring other auto advertisers, and Google product solutions to help your business.

Another great resource is our new quarterly AdWords Auto Industry Newsletter, which features industry trends and best practices for promoting summer sales. We want to hear and learn from you as well, so please send us feedback by dropping us a line at auto-knowledge@google.com.

Posted by Christina, Inside AdWords crew