Enhanced CPC is changing: what does it mean for you?

Within any Google AdWords account, at the top right of the screen, there is a section where the advertiser gets to see the latest notifications. In recent days, you may have seen this appearing in this spot:

So what does this notification mean? In this blog post, we’ll be offering a full explanation.

Bidding strategies

There are various ways of bidding within any Google AdWords campaign, but many advertisers are perhaps most familiar with the method that is known as Cost Per Click (CPC) bidding. This is an approach whereby the advertiser decides how much they are prepared to pay for each click received from an AdWords ad. It’s the “standard” way of bidding for many, often seen as the most common approach. But it’s far from the only way of bidding on AdWords.

Tracking conversions

If you have a fully functional AdWords account in place (which we’d certainly recommend!) then you’ll also be tracking the impact of your advertising. Specifically, you’ll be identifying how many of your visitors are converting into leads or sales. Google AdWords Conversion Tracking makes this process pretty simple: you define what you see as being a conversion action and then AdWords tracks precisely which clicks result in conversions.

Hopefully, you’re already using Conversion Tracking, particularly since there is no charge for doing so. For those that have embraced the power of this functionality, there will be an awareness that there is the ability to identify:

• Precisely which keywords are leading to conversions being generated
• Which ad copy variations lead to conversions
• When, during the day or the week, conversions are being recorded
• What type of devices converting visitors are using
• How much each conversion costs, broken down at the campaign, ad group and keyword level

Plus so many other great insights. Put simply: you should be using it!

There are also other areas of AdWords functionality that open up to you when you have Conversion Tracking in place, one of which is: Enhanced Cost Per Click (ECPC) bidding. That’s what the latest notification within your Google AdWords account is all about.

Enhanced CPC explained

The basic concept behind ECPC bidding is that Google AdWords takes your manual CPC bid and then alters it (dynamically, depending upon the search term) in order to try and optimise the bid, on the basis of how likely any resulting click is to lead to a sale. So, in practical terms, the system:

• Uses historic conversion data to ascertain whether clicks on a keyword have previously been likely to result in conversions for you
• If they have, then the system is likely to increase your bid. The theory here is that visits on this keyword are likely to be of greater value to you
• By the same token, if clicks from a particular keyword have previously been unlikely to produce conversions, then the system may reduce your bids

The idea behind this is that an element of automatic optimisation is being applied, in an attempt to help the advertiser to achieve the best results.

Isn’t it a bit risky allowing the system to automatically set bids?

Some advertisers have expressed concerns about allowing AdWords to automatically set bids. In particular, there have been reservations about how transparent this operation is and about whether bids might sometimes end up being set in the interests of Google, rather than that of advertisers. In order to ensure that a level of control was retained, there was a cap in place: this meant that bids would never be raised by more than 30% of your manual CPC level. Let’s use a worked example of how the system operated:

• You have a search term, where you have set a manual CPC level of £1. That’s how much you are prepared to pay for each click. Having turned on Conversion Tracking and ECPC, AdWords identifies that there’s an opportunity to drive increased traffic, with an expectation that such traffic will convert well. In these circumstances, your bid could have been increased by up to 30%, taking it from £1 to £1.30

How exactly does AdWords decide to increase or reduce bids?

There are a number of factors that Google say are used when considering whether to alter a bid. These are:

• Conversion rates for different types of traffic
• Device
• Browser
• Location
• Time of Day

But the precise detail of how it works is not always clear.

Isn’t this the same as Cost Per Acquisition (CPA) bidding?

There are similarities, but ECPC and CPA bids work differently. Allow us to explain:

With targeted CPA bidding, you set a target cost per acquisition that you would like to pay. So you might indicate that a conversion (for example, a lead) is worth £20 to you. Having made that decision, targeted CPA bidding adjusts your bids automatically, seeking to gain as many conversions as possible at your target CPA level. It doesn’t require you to set a manual CPC bid because AdWords automatically adjusts bids, in accordance with your target CPA. This allows the AdWords system to run an automated strategy, where your only real intervention is to set the required target CPA.

ECPC has largely been aimed at those advertisers who don’t feel comfortable handing over that level of control. Rather than allowing AdWords to simpply decide on the bid within the auction, it has allowed the advertiser to set a manual CPC level, knowing that such a level will never be exceeded by more than 30%. In reality, over time, the system has also tended to present an average CPC that is no greater than the manual CPC bid set by the advertiser.

So the difference between ECPC and CPA bidding has largely been one of control.

What does the notification mean then?

In essence, Google has removed the cap on ECPC bids. What this means is that, for those advertisers using ECPC bidding, it is no longer the case that individual bids will never rise more than 30% above the manual CPC bid against a particular keyword.

This sounds somewhat concerning, at first glance. Theoretically, it means that you could set a manual CPC bid of £1, but find that AdWords actually applies to bid of £1.70 or £2.50 at the time of the auction. Doesn’t this open up the possibility that you’ll end spending a lot more than you expected? There are two main mechanisms in place that should still offer protection against this:

Firstly, you will still be setting budgets at campaign level. This provides protection over the course of any given month, meaning that you won’t find your budget being exceeded by a huge amount. Google have also said that:

“ECPC will still respect your manual bid by trying to keep your average CPC below your max CPC over time. For Search and Display campaigns, ECPC will help increase conversions while keeping your cost per conversion the same. For Shopping, ECPC will help increase conversions while maintaining your same overall spend.”

How should advertisers react to this change?

There are a number of possible responses to this change, which we would categorise as follows:

1. For those advertisers who aren’t currently using ECPC bidding, there will be no direct, immediate impact within an AdWords account here. However, CPC levels will need to be monitored over time, as it’s possible that competitors using ECPC bidding will see bids increasing on some terms (and decreasing on others): this could have an impact on your own costs
2. If you are using ECPC bidding within your account, then you’ll note that Google have suggested that safeguards remain in place. This being the case, you may feel comfortable with continuing to pursue the same bidding strategy
3. If you are using ECPC bidding and feel uncomfortable about the loss of control, then you could opt to move over to a manual CPC strategy. This is likely to require more of your own time (or that of your agency) to manage bid levels and to optimise accordingly
4. You may have been using ECPC bidding over time, not quite feeling comfortable with the concept of targeted CPA bidding. Arguably, you’re level of control has just been reduced as a result of this change. You might decide that you may as well switch to targeted CPA bidding. Equally, if you’ve seen strong results with an ECPC approach over time, then this might be the push that you needed to switch to a targeted CPA approach

Conclusions

There have been some concerns raised that this change wasn’t flagged up particularly well and caught some advertisers “by surprise”. Although the lifting of the bidding cap may have set alarm bells ringing, it’s likely to take some weeks before we’re able to ascertain the actual impact of this change for advertisers. In reality, it’s inevitable that there will be some advertisers who “win” as a result of the change, but others will “lose”. Ensuring that you are in the winning camp will mean using the data within your account effectively. It’s a reminder that AdWords accounts on “auto pilot” rarely produce the best results.

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Keith Barrett

With more than 15 years of digital marketing experience, Keith Barrett is a fully Certified Google AdWords Partner. Offering insights into the world of PPC marketing in the UK, Keith is a Senior Consultant here at Search South. If you'd like to hear more of Keith's thoughts, then you can subscribe to our newsletter.