Why Are CPC Prices so High?

Aug 10th

In some markets $5 a click is cheap. Conversion rates are going up. Well run internet businesses have low overhead and are getting bigger cuts from merchants as their businesses scale. Domain Name Wire posted that throughout the first half of this year CreditCards.com earned $4.64 per visitor:

Internet Real Estate Group sold the domain to Click Success in 2004 for 'only' $2.75M. Daniel H. Smith pocketed $97.7M from the sale to an Austin Ventures-backed group in 2006. The purchase by the group in 2006 from Click Success was financed partially with debt from American Capital Strategies (NASDAQ: ACAS).

CreditCards.com's S-1 filing is a treasure trove of information about the company's traffic (they actually have more than one domain driving traffic) and earnings per visitor. In the first half of this year, the company received 5.899M visitors and earned $4.64 per visitor. The traffic was up only slightly from the same period last year, but revenue per visitor increased 46%:

Published: August 10, 2007

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Comments

August 11, 2007 - 5:57am

In the first six months they did $27M in rev...the sales/marketing break was $17M which amounted to PPC, affiliate network, misc advertising, and the employees associated with that. The leftover was $10M rev that could have been generated from either organic SEO or direct nav -- was at least $5M from organic SEO on the rankings they have? I'm inclined to say no, though from the S-1 one cannot derive a definitive conclusion. Their office layout looks nice though.

August 12, 2007 - 5:43am

Graham - yeah, this highlights how SEO can be useful, but I think it's an even more important demonstration as to the importance of monetizing your traffic and having a profitable business model.

A good conversion rate and high EPC will allow a business to consistently outspend their competition on marketing - so long as their marketing is as efficient as their business, they'll kick everyone's tail given enough time.

August 10, 2007 - 3:53pm

THIS is why everyone wants to get on the internet. THIS is why SEO is so important. What start-up can pay $5 per click?

Thanks Aaron!

Graham

Craig Parker
August 10, 2007 - 3:58pm

I have had a similar problem in m market. Bid prices that are so high I was bidding upto £2 (thats $4) and not even seeing first page.
It's basically cost my out of the industry.

Cata
August 10, 2007 - 4:03pm

That's the beauty of the Internet. You need to learn hard for a few years, after which you can become competitive and earn big money (or at least decent).

August 10, 2007 - 4:04pm

I think you guys have this post wrong?

They earned ~$4 per visit to their site. So if 100% of their traffic came from PPC (High? Especially since they rank 2nd organically for 'credit cards') They still made at least 4 or 5 million dollars in the last six months if their Avg. CPC was 3.64

Bryan P
August 10, 2007 - 4:28pm

So when does it stop? I'm afraid it will only get more expensive for the time being. Google's 10-Q filings were $7.535 billion vs. $4.7 billion for last year and online spending is skyrocketing. Wait until you see the holiday sales numbers compared to last year.

So where is Google's revenue coming from? With new rules like the one they just published about using the maximum bid vice actual bid to determine highest placement, it's obvious. Good for them, bad for businesses.

I do want to throw something out there, too... Google is 9 years old. That's it. They've never survived a recession, bubble, CEO-scandle, public sell-off, congressional inquiry, etc. They have only enjoyed good, profitable times. I can't see how long they can squeeze dollars out of businesses while having very scary privacy practices, sub-par customer service, extremely lax corporate atmospheres, and acquisition spending sprees while they push the limits of anti-trust laws, taking on other big corporations (eBay, MS) and creating a public image of "don't be evil".

IMHO, it may take them awhile, but they cannot continue to exist if they don't curb the rediculous scraping of businesses pockets.

Bryan P
August 10, 2007 - 4:28pm

So when does it stop? I'm afraid it will only get more expensive for the time being. Google's 10-Q filings were $7.535 billion vs. $4.7 billion for last year and online spending is skyrocketing. Wait until you see the holiday sales numbers compared to last year.

So where is Google's revenue coming from? With new rules like the one they just published about using the maximum bid vice actual bid to determine highest placement, it's obvious. Good for them, bad for businesses.

I do want to throw something out there, too... Google is 9 years old. That's it. They've never survived a recession, bubble, CEO-scandle, public sell-off, congressional inquiry, etc. They have only enjoyed good, profitable times. I can't see how long they can squeeze dollars out of businesses while having very scary privacy practices, sub-par customer service, extremely lax corporate atmospheres, and acquisition spending sprees while they push the limits of anti-trust laws, taking on other big corporations (eBay, MS) and creating a public image of "don't be evil".

IMHO, it may take them awhile, but they cannot continue to exist if they don't curb the rediculous scraping of businesses pockets.

Jack Norell
August 10, 2007 - 5:45pm

The rise in costs will continue until marginal profit per incoming click comes near 0% incl any PPC management costs incurred by the advertisers.

Google will take the profits via arbitrage.

I'd have to agree, this highlights the importance of SEO, social media, and affiliate programmes.

August 10, 2007 - 6:31pm

Well, they're CERTAINLY not high because the profits are going into MY pockets as a publisher. I made 3 times as much 2 years ago. Same basic traffic or better, and same solid content. That part sucks.

I haven't bought ads for the last 18 months or so. I'll actually be starting to do so over the weekend...but, based on what I've seen in my market, you're right. Top keywords are over 3 bucks a click.

Add to that the fact that I'm quite certain that some folks click on competitors' ads in order to tap their ad budget with no possibility of return, and it does tend to make one skittish.

August 10, 2007 - 8:04pm

Wow, $4+ per visitor. My site has been live for about 18 months. I would be extremely happy with $1 per visitor.

August 10, 2007 - 11:39pm

Just a note, this is not results of SEO. This is most likely results of direct type-ins. The domain industry makes more money with such little work that IT is the real industry. SEO is good, but direct type-in domains is better. Sorry for the let-down.

August 11, 2007 - 3:23am

Hi Nate
I bet CreditCards.com gets more traffic and more conversions from Google than it does from type ins.

August 20, 2008 - 11:56pm

SEO is very important for any website, i have found that it works in two ways, either spend your budget on SEO and get organic visitors or spend it on PPC Advertising to get visitors to your page.

They both have there advantages and disadvantages, SEO is expensive but usually a once of fee(per year) although changes need to be made yearly to keep your site optimized and within the first 3 pages of Google. PPC can produce very good or very poor results and sometime a negative ROI! But it requires either you(the website owner) or your Advertising Network Manager to constantly monetize your ads to give you the best return for you dollar.

But due to growth of big companies and the expansion of the internet it is hard for small players to bid on keywords priced over $5, they don't have the budget to compete at these prices and are sometimes are left on page 10 or page 20, which does not equal good conversions, who goes to page 10 in Google/yahoo....

My company owned a Search Engine for 3 years and decided to go into the PPC advertising industry earlier this year. After months of planning and designing we launched www.ikojo.com in February this year. Because PPC advertising in run on a Auction System keywords in our system start at 10c, a keyword like credit card is around 30c per click for number 1 position in Search and Contextual Ads.(not trying to sell my business but just letting you know there are alternatives out there that do work and don't break your bank)

My theory is that bid price will keep rising, there is going to be a growth of 30% in Online Advertising Spending in the coming year(after around a 24% increase last year), and as we all know, they all run auction system so i think for websites its only going to get worse, look around, there are good alternatives....

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