Google Search Ads Get 13% Costlier: CPCs Soar & Ad Spend Growth Slows

Advertisers spent 17% more on Google search ads in Q1 2024 compared to the same period last year, even though the number of ad clicks grew at a slower pace. Here’s all you need to know.

Google search ads see double-digit spending year-over-year, despite a slowdown in clicks. 

In Q1 2024, advertisers spent 17% more on Google search ads as compared to the same period last year. However, the growth in clicks on those ads slowed down, reaching only 4% year-over-year, a decrease from 8% in Q4 2023.

This trend is mirrored by rising costs, with cost-per-click (CPC) up 13% YoY, compared to a 9% increase in Q4 2023. Specifically, for retail advertisers, the CPC on Google search ads jumped roughly 20% year-over-year between Q1 2023 and Q1 2024.

Why This Matters

Advertisers are facing a double-edged sword. Click-through rates are declining, suggesting diminishing returns on ad spend. At the same time, the cost per click (CPC) continues to rise, putting pressure on campaign budgets. 

This trend raises concerns, particularly considering reports that Google may be adjusting ad prices to meet internal targets, potentially prioritising its own revenue over advertiser success.

CPC Growth

The overall 13% rise in CPC was driven primarily by a surge in Shopping ad costs (including both standard and PMax formats).

This increase is significant, considering the previous quarter’s 6% year-over-year bump. As a result, ad spend year-on-year in Q1 2024 grew to 21%, compared to the 13% increase observed in the same period last year.

Google Search Ads

Retailers are feeling the heat in the Google Search advertising space. Over the past five years, the average CPC for retail brands has skyrocketed by 40-50%. 

This trend continued in Q1 2024, with the median retailer experiencing a 20% increase in CPC compared to the same period in 2023. The rising cost of clicks suggests a more competitive landscape for online retailers, potentially driven by factors like increased adoption of Google Search ads and a growing focus on e-commerce.

Performance Max Campaigns

Performance Max campaigns are closing the gap with standard Shopping campaigns at an impressive pace. Conversion rates for PMax are catching up, sitting only 5% below SSCs compared to a wider 13% and 17% gap in the previous year and Q4 2023, respectively.  

Similarly, PMax’s cost-per-click (CPC) advantage is growing. Currently, PMax boasts a 2% lower CPC than SSCs, a significant improvement from the 11% disadvantage observed in Q4 2023. This trend suggests PMax’s automation is becoming increasingly effective in driving conversions at competitive costs.

Overall, PMax has become a dominant force in Google Shopping advertising. 

During the peak of the 2023 holiday shopping season (Q4 2023), a staggering 91% of retailers leveraging Google Shopping Ads were already running PMax campaigns. This momentum continued into Q1 2024, with PMax adoption reaching an average of 89% among Google Shopping advertisers, a significant increase from the 82% average seen in Q1 2023. 

The rapid growth suggests that PMax is proving its value to retailers, potentially due to its automated optimisation and ability to reach a wider audience across Google’s vast network.

Need a fresh perspective? Let’s talk.

At 360 OM, we specialise in helping businesses take their marketing efforts to the next level. Our team stays on top of industry trends, uses data-informed decisions to maximise your ROI, and provides full transparency through comprehensive reports.

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