Google Search Ad Costs Rise as Click Growth Slows

Google Search remains the leading platform in paid media, but it is becoming an expensive option as the number of clicks continues to decline. In the first quarter of 2024, spending on search ads in the U.S. increased by 17% compared to the same period last year. However, the growth in clicks has slowed down significantly, with only a 4% increase this year, which is half the rate of the last quarter of 2023.

The cost per click (CPC) has risen by 13% over the past year, a higher increase than the 9% seen in the previous quarter. This increase in CPC is largely due to higher costs in both standard and PMax shopping ads. Specifically, PMax campaigns, which are designed to optimize ad performance, showed improved metrics over standard shopping campaigns. They had a conversion rate that was only slightly lower but a cost per click that was more favorable.

Retailers have been particularly affected, with a 40-50% rise in CPCs over the past five years. From the first quarter of 2023 to the same quarter in 2024, the median CPC for Google retail search ads went up by about 20%. This trend is problematic for advertisers as increasing costs and decreasing clicks reduce the effectiveness and affordability of their ad campaigns.

During the peak shopping season of the fourth quarter of 2023, 91% of retailers running shopping ads on Google were using PMax campaigns. This number remained stable into the first quarter of 2024, showing that PMax continues to be a key strategy for most advertisers on Google.

The report on these trends, produced by Tinuiti, uses data from advertising programs it manages. This data reflects consistent advertising strategies and provides insights into the same-client growth but does not necessarily represent the performance across all advertisers or platforms. This rising trend in CPC amidst falling clicks indicates challenging times ahead for advertisers who rely heavily on Google's platform.

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