• by Jack Loechner , Staff Writer @mp_research, November 14, 2012

According to an extensive study of the economics of the Google AdWords metrics model, posted by Larry Kim, a 2% to 5% has been the reps’ estimate of a good click through. But a recent analysis by AdWords of over a billion dollars in aggregate spend has produced averages and benchmarks for top-level key performance metrics across the Google search and display networks, including conversion rate and cost per conversion.

In Q3 2012, the average conversion rate on AdWords for the search network was 5.63% across all industries and advertisers. The average conversion rate on the Google Display Network in Q3 2012 was slightly lower at 4.68%.

While Google helped advertisers complete about 13 million total conversions per day through AdWords in Q3, says the report, not all conversions are defined as completed sales. Some businesses may count a range of different activities as leads.

For this reason, the average conversion rates shown in the report are broken down by industry. Businesses within a given vertical tend to define conversion in similar ways. For example, in the finance and insurance industry, advertisers generally use paid search for lead generation, so filling out a form to “get a quote” or to contact the company would count as a conversion. In the shopping industry, on the other hand, conversions are more likely to be completed product sales.

For instance, conversion rates for the top 10 industries that spend the most money on Google advertising are shown as industry benchmarks for conversion rates:

The author’s review of some of the average conversion rates by industry provides these highlights:

• The Internet and Telecom industry has the highest conversion rates on both search and display. The top advertisers in this vertical include AT&T, Sprint, T Mobile, Verizon and Comcast, and may be primarily using search ads to generate leads for mobile plans or selling phones and other hardware
• The finance industry has the second highest average conversion rate, as well as the highest cost per click (CPC), of those shown. Finance and insurance companies like State Farm, Geico, Quicken Loans, and Bank of America spend the most of any industry on Google search advertising and were also responsible for the highest number of complete conversions in Q3, with 1.39 million conversions through Google search and another 268K through the Display network.
• The travel industry has the lowest average conversion rate, at 1.45% on search. Perhaps, opines the author, because people tend to shop around a lot before pulling the trigger on travel purchases like plane tickets and hotel rooms. The largest advertisers in this vertical are Expedia, Hotels.com, Booking.com, Priceline and Kayak.           

Using the above average conversion rates as well as average cost per click data, the average cost per conversion across all of Google is $9.41 for search and $7.26 for display. The average cost per conversion figures for the top 10 industries in Q3 2012 are:

Finance boasts”the highest cost per conversion, at over $50 per. Business & industrial (with large advertisers like Staples and ULINE) has the next highest cost per conversion on search at $39.48, notes the report.

The report concludes that, as a general rule, a conversion rate between 5% and 10% is a good rate to aim for, though the finance and Internet industries show a higher average conversion rate.  And, says the report, a good cost per conversion will vary widely based on your particular business model and the lifetime value of a newly acquired customer. A cost per conversion under $10 is good, but many businesses can afford to pay much more than that for each sale or lead generated and still get good ROI form paid search.

N.B. The author cautions that, as with any benchmark data, it’s best to take these numbers with a grain of salt. They are based on averages of a subset of advertisers. And, these numbers are based on analysis and research by AdWords, and are not official Google data.

For more about this study, please visit the WordStream blog here, or view the complete, detailed infographic here.