Rising Ad Prices: What They Really Mean For Brands

The cost-per-click (CPC) and cost-per-thousand impressions (CPM) in Q2 2021 fluctuated widely on most platforms, from Google to Amazon, Facebook and Snap. While Google’s CPCs across travel advertisers remained flat year-over-year, other verticals — retail, CPG, FiServe, and nonprofit — experienced dramatic increases during the same time frame.

“On social, Instagram CPMs continue to drive efficiencies, decreasing month over month and quarter-over-quarter, while Facebook is the opposite, growing more expensive due to competition,” said Marion Gendron, senior manager with Merkle's search practice.

Google paid-search ad-spending growth decelerated from Q1, as CPC and clicks faced a reversal of last year’s trends, according to Merkle.

The agency’s Q2 2021 Digital Marketing Report noted that spend rose 8.7% YoY -- despite a drop in click growth by 19%.

When asked whether rising CPCs are forcing brands to increase budgets, Gendron said CPCs force brands to reevaluate investments and the tactics worth paying for.



"Sometimes advertisers will reach deeper into their pockets to remain live across the media plan at a higher cost, if it delivers on the business goals," she said. "Other times, brands selectively pause some high-cost, low-performing tactics to concentrate dollars where necessary to drive the strongest results. This is expected to vary by the competitive activity in each vertical."

Because search is a full-funnel channel, with exceptional performance near-conversion and evidence of competitive fluctuation highlighted, advertisers leveraging search-engine marketing value those last few clicks and feel the pressure in the cost of them.

Given the importance of role-of-channel and not wanting to surrender these hand-raisers to competitors, SEM budgets are typically preserved and increased, and only cut when business priorities fundamentally change.

Google CPC prices increased 35% YoY as last year CPC declined by 21% in the first full quarter within the pandemic.

Although Google Search and Other reported that the company generated $35.8 billion in Q2 2021 -- up from $21.3 billion in the year-ago quarter -- Google text and product-listing ad clicks fell YoY, with the ad types seeing 21% and 5% declines, respectively, according to Merkle. PLA CPCs rose 21% YoY, and text ads rose 35%.

Merkle notes that spending on Google desktop searches rose 12% YoY. Increases on desktop were driven entirely by rising CPCs -- up 36% even when clicks declined 17%.

Mobile phone growth was also driven entirely by YoY CPC increases -- up 24% -- but saw lower declines in clicks, down 10%. Tablets' YoY declines continue to be minimized as CPC have increased.

Microsoft CPC prices rose, and spending on Microsoft text ads grew 14% YoY in Q2, rising for the second straight quarter.

Text ad spend was driven mainly by 37% YoY CPC increases as clicks fell.

Similar to text ads, products ads saw 32% Y/Y CPC growth, while clicks reversed course from Q1 -- dropping 31% Y/Y and ultimately leading to a 9% drop in product ad spend, according to Merkle.

Amazon CPC prices rose20% between the first quarter and second quarter for all ad formats, according to Business Insider, citing stats from performance ad agency WPromote.

Price Glomski, executive vice president at PMG, told Business Insider that beauty and retail clients saw high CPM spikes in Amazon's programmatic inventory, with average prices for those clients rising from $3.60 in February to $8.60 in May and June and topping the agency's average programmatic CPM of $4.60.

Clicks and Sales on Amazon Sponsored Brand ads experienced the lowest growth in recent years in June -- 28% and 53%, respectively, according to Merkle.

Facebook CPM prices also rose during Q2 2021. The company reported that the average cost per ad increased 47% YoY in Q2 2021, and warned investors that ad prices are likely to continue to climb in the second half of the year. 

The growth of impressions on Facebook grew primarily in developing markets, specifically in Asia Pacific. WPromote, Business Insider reported, found that ad prices increased 30% from the first and second quarter, with an average CPM of $11.

TikTok CPM prices rose 92%, while Snap CPM prices rose 64% and YouTube CPMs rose 108% year-over-year in July, according to Business Insider, citing Measured.

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