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In the pay-per-click world, value is derived from how inexpensively a lead can be acquired. Many times, a low cost-per-click combined with a high conversion rate can indicate a winning formula. However, sometimes it can seem like a campaign is averaging a high cost-per-click. There are many factors that affect this cost, but the two easiest to understand and control are competition and quality score.
Competition refers to how many other advertisers in a similar industry are bidding on the same keywords. If an advertiser is experiencing a high cost-per-click on a particular keyword, all other things being equal, it could be an issue of the keyword being very popular among local advertisers. If a keyword search yields a ton of ads on the SERP (search engine results page), then it is obvious that there are many others bidding on the same terms, driving the cost up. At this point, the advertiser should consider if it is worth it to pay the high cost-per-click. If the ROI doesn't add up, it may be time to stop bidding on that keyword or choose a similar keyword with less competition.
Quality score has a number of components, but typically the main ingredients are relevancy of keywords, ads and landing pages along with bid. If a high cost-per-click is occurring on an otherwise low competition keyword, an advertiser should review their quality score on the keyword to determine if an improvement could yield a lower price. Better keyword grouping and more relevant ads and landing pages can make your ads more relevant in Google's eyes, which means lower rates! Also, more relevant ads generally result in higher click-through rates, which also affect quality score in a positive way (historical CTR and conversion rates are both factors).
Overall, there are several reasons why a keyword might be suffering from a high cost-per-click, but the two easiest to address might just be competition and quality score. What are some ways you all use to lower your CPC's?