Google advertising seems like a great way to build a business, it often gives great returns and is a consistent source of reliable traffic for your business.
However, is this scalable in the long term?
Also: Be sure to check out “How Google works”
Note that the price in this graph is based on the comparison of the original price in 2012. Example: From 2021-2022 the price only actually increases by an average of 44%.
If we look back 10 years of Google-advertising we can see costs of clicks have risen by a lot in various niches. This graph shows that if you paid
$1 for a finance-keyword in 2012, you are now paying approximately
$38. Finance has the highest year-on-year PPC-inflation with 44% averaged over 10 years.
Sure, you are right. The reason CPC-inflation is happening is because businesses are willing to bid higher than one another for sertend keywords. This also means that it must be profitable for some.
However, the cost of clicks back in 2012 was often a few pennies, and there were also few competitors in the market, and they all had high returns on their advertising. Back then it was very easy to bid higher than one another and still make a fabulous return. In 2022 it’s more competitors than ever and prices are really starting to get scary for the amatuer marketer.
For example, a bank in Oslo (where I'm living) now has to pay around
$20 for a click on the keyword “Tjene penger”. If they have a conversion rate of
10%, they actually have to pay
$200 for a customer. In cases like this I always wonder if they actually make any money in the short term.
If you pay for advertising and send them to a page that gives a bad impression, you will for sure lose money in almost every niche. This makes UX (user experience) based web design more relevant than ever now, due to increasing competition.
Tomorrow will be more expensive, less profitable and have more competitors.
I have made this index that shows the competition of a niche on Google based on its yearly CPC-inflation rate. In this index I chose the example of finance, because it’s the highest growth rate of any niche. This competition index starts at 100, and goes closer to 0 when the market is increasing in competition. - Don't get confused yet.
A market becomes still when there's no higher bidding, which means that there’s almost no profits left and advertisers are competing over pennies on the dollar. Compared to 2012 you could easily have a
$40 return on
$1 spent. Which meant you easily could outbid your competitors and still make a great return.
If you look at the flowchart of the difference between the niches. It shows that cost per click for products is not growing as fast as finance, this means that the market competition is closer to its maximum and it's slowing down the bidding process.
If you plan to sell furniture or clothes on Google, I will say “good luck”, because competing with the furniture or fashion industry will be your undoing - I myself will never enter these niches again, it’s brutal.
This trend is scary, because now you really need to know your numbers, otherwise it will for sure be easy to spend money without actually earning profits. Selling is easy, but gaining profits is the ultimate goal of Google advertising.
Right now people are able to get great returns on their small-business advertising, without actually knowing in-depth what they are doing. This is an indication that the market still is untapped, and that CPC-inflation will continue to grow. However at a certain point Google advertising will be a competitive game only for the pros. When we made Teoritentamen on Testen.no it clearly showed us that our competition spends a lot of money on advertising, in fact it was too much for us to compete with.
A professional marketer that truly understands what it means and takes to market a product, service or brand must be respected. If they lived a thousand years ago, they would instead build an army and run an empire.
To scale the economy of sales you must comprehend all the details that are between the product and the sale. Some of these are:
- Customer acquisition cost: The cost of acquiring a customer
- Customer lifetime value: The customer's value over a lifetime.
- Average conversion value: What the customer pays you now.
- Variable cost: Expense that changes in proportion to how much a company produces or sells.
- Fixed cost: Costs that are independent of sales.
- Product margins: How much of the order value is profits.
Your actions must be both creative and based on facts. Analytics will tell you what is needed, and your mind has to invent how.
A good marketer must be creative. See this video of the Tesla Cybertruck launch - They said it would be bullet-proof, but they aren’t really shocked when the window breaks. This is both creative and strategic, due to it gaining them free PR and few actually cares about bulletproof windows. And this marketing-trick is not original to the Cybertruck launch, you can now see it becoming more and more used. - Marketing is like a magic trick, when the audience knows how the trick is performed it doesn't have an effect, so marketers now have to be more creative than ever. These are some of the skills you must wield:
Understanding analytics and seeing opportunities. Make creative strategic plans based on analytic information. Think outside the box
A marketer’s job is to make other people want or think a certain way about something or someone. That means you have to understand and act accordingly to:
- How people think: Find a place in someone’s mind and make a spot for your top-of-mind marketing.
- What people know: What degree of information is possible to communicate.
- What people don't like: What to stay vary about.
- What people like: This is the key to relate to an audience.
- What people think they know: (Example: People trying to be healthy still buy sugar filled protein-bars because they believe it’s good for them).
- Biases (Cognitive biases are systematic patterns of deviation from norm and/or rationality in judgment).
- Fallacies (Fallacies are common errors in reasoning that will undermine the logic of your argument).
- Communication, message and receiver.
And the list goes on.
Year on year it will be more expensive, less profitable and have more competitors. Can you still advertise on Google next year and make money? Yes, probably. But the increasing competition and lower margins makes the role of marketers more prominent in the future of Google advertising. So it can be dangerous to build a long term business based heavily on it.
I will suggest that SEO (search engine optimization) which is building organic results is a better long-term strategy. You can do it yourself for free and you can secure relevant keywords that will gain your business trafikk forever, without having to pay for it.
Thank you for reading my thoughts about the future, and I'd be happy to help anyone if there are any questions around this article.
Henrik Park is the founder of Marketin SEO-agency in Oslo, a Scandinavian digital agency specializing in performance marketing. He has been doing online marketing since 2011 and built his first website back in 2007. He’s become a successful entrepreneur and is now working with some of the biggest companies in scandinavia.