A little about the basics of CPC and auctions –
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To understand enhanced CPC (cost-per-click), let’s recap the concept of cost-per-click and how auctions work.
Cost-per-click is the bidding strategy in Google AdWords. Google, therefore, charges an advertiser only when a user clicks on their ad copy. The link in the ad copy redirects the user to the landing page. Google rules out the cost for displaying the ad in this bidding strategy.
When a user searches for a query on Google search, using the keyword in the query as a cue, Google sends ads of different advertisers to the auction. Also, advertisers define a maximum cost-per-click they are willing to pay for their ad to be shown. This maximum bid is extended up to 30% of its original value to benefit an advertiser to beat the competitors. This is only for advertisers who have opted for enhanced CPC. And this is done only on auctions that Google thinks have a chance of conversion. Based on this max bid and quality score, ad rank is calculated. Google decides which ad is shown on the top using ad rank. And the rest of the ads come next in the order of their ad ranks.
What is the new enhanced CPC?
Google’s new enhanced CPC aims at removing the 30% cap on the maximum CPC bid. Instead, Google adjusts the bid automatically while considering the probability of a click leading to a conversion. Google predicts the conversion probability of that particular advertiser’s account based on the historical data of conversions. Other factors include the match type, keyword-query match, location, language, browser, time of the day, date of the month, etc. Your bid might increase or decrease as needed. Google believes that this automatic bid adjustment strategy will increase the ROI of AdWords campaigns.
The transition from the old strategy to the new –
Even though Google officially announced the launch of enhanced CPC, the shift from the old approach to the new might probably be slow. Especially, AdWords, as per popular reports, might do a split testing first.
With regular evaluation, AdWords will validate the improvements from the test. If these results show significant progress, this new automation might get popular among the AdWords community.
An important note for everyone –
With enhanced CPC being still an experiment, at present, the outcomes are only theoretical. Your spend might, first of all, see a spike in the initial weeks. And probably even out in the months to come. It might also go down drastically initially but burst out later. We furthermore aren’t sure of anything as of now. But at AdNabu, we recommend not switching to E-CPC yet, instead use our in-house Bid Optimizer, at least for your campaigns on AdNabu.