Google search advertising prices are way up, especially for e-commerce-hungry marketers, according to digital ad specialists, who say the post-pandemic world is having a cascading effect that is wreaking havoc on their digital strategies.

Cost-per-clicks, or CPCs, which are what an advertiser pays to generate one click on a paid Google search result, are up 159% for one desk-maker, according to Ryan Garrow, director of partnerships and client solutions at Logical Positions, which manages search advertising for about 4,300 brands. 

This was over a seven-day period at the end of May, compared to the same time last year, according to Garrow. Meanwhile, the revenue the desk-maker generated from its search advertising increased only 5%, which means the cost to the brand increased more than 500% when comparing how much the brand spends on advertising versus the return it sees, Garrow says.

“We’re seeing CPCs rapidly rising for a lot of advertisers, most of our retailers,” says Andy Taylor, director of research at Tinuiti, a digital marketing, data and analytics firm. On any given day, the cost for Google ads is up 30% to 40% compared to the same time last year, Taylor says.

A nexus event in marketing is driving up the price of ads on Google search, and other digital properties, according to the specialists. Online sales are coming off a boom year in 2020, when retail e-commerce sales, which excludes categories like travel and event tickets, rose 18% year-over-year to $710 billion, according to eMarketer. That represented 14.5% of total retail sales in the U.S. Now, e-commerce is coming a little bit back down to earth, and will account for 7.8% of total retail sales in 2021, according to the research firm. That means that last year, online customers were easy to scoop up, and this year advertisers find they have to compete much harder.

Also, for a period in 2020, two of the biggest e-commerce retailers, Amazon and Walmart, weren’t even buying ads on Google, leaving the field wide open. In March 2020, Amazon shrank its Google marketing spend, as it already had trouble keeping up with organic demand from consumers flooding its site. This year, Amazon is back with a vengeance, according to the ad specialists.

“Amazon and Walmart are two of the names that have a big enough product selection and big enough ad budgets, that if they make big changes to their strategy, it can certainly manifest itself in terms of what other advertisers see in ad performance and how much they have to pay for ad clicks,” Taylor says.

The competition is not just coming from those two giants; the whole landscape has shifted. In March, a comprehensive advertising report from GroupM showed that search advertising spending grew 1.8% year-over-year in 2020, and search advertising spend is expected to grow 19.3% in 2021.

“The overall trend was that CPCs in particular in 2020 were at some of the lowest they’ve been in the past four years, which is understandable as some people pulled back in marketing spend,” says Gareth Cleevely, senior VP and head of search at Dentsu Media U.S. “But CPCs in 2021, especially in recent months, are some of the highest we’ve seen in the past four years.”

Cleevely notes that analyzing Google search spending can get tricky. Some sectors like, say, a niche apparel company could see ad costs diminish, while others like furniture companies or beauty brands see costs rise. Pricing in Google auctions depends on seasonality, sales cycles, competition in the auction place, consumer habits, and more. So, some sectors see lower prices and others see rising prices. In general, this latest profound spike is mostly being seen by e-commerce retailers, according to the ad specialists.

“From a percentage perspective, it changes by vertical,” Cleevely says. “But if we, without mentioning clients by name, take makeup beauty brands, we’ve seen interesting spikes of over 30 cents per click.”

One beauty brand was spending about $1 per click on Google search in January and now those clicks cost $1.40, and year-over-year some prices increased anywhere from 60% to 70%.

Advertisers are dealing with similar increases in the cost of ads all over the internet, according to the specialists. Amazon ad prices increased 50% year-over-year in May, according to Bloomberg News. Facebook’s ad prices are rising too, according to Tinuiti's Taylor.

“We’re hitting a norm that is higher than it ever was,” Taylor says.

The squeeze is mostly felt by the smaller retailers in e-commerce, who have to spend more to drive growth, Garrow says. The retailers that saw the surge in online sales last year, may have forecasted sales for 2021 that were unrealistic, considering shoppers are going back to stores, Garrow says.

To reach those sales goals, the e-commerce advertisers are pouring into Google search.

Dentsu’s Cleevely says that after last year’s shutdown, brands are not at the top of people’s minds. Consumers are searching more for general categories of products not by name brand. As a result, advertisers have to refine their keyword and audience targeting, Cleevely says.

Also, retailers need to analyze their product selection and favor products that are going to perform better. What sold last year in lockdown, isn’t going to sell itself this year. 

Cleevely says that brands have to experiment with the audiences they target on Google, and make sure they are good leads for sales. “Make sure that when you are bidding a premium, it’s for the exact people who are likely to purchase,” he says.

Marketers also need to adjust the levers in every other area of Google’s ecosystem of Shopping ads that sync up to merchants and their product catalogs. The organic presence on Google search, where a website appears freely in Google rankings, is also a factor in marketing success, Cleevely says, adding “there is so much more to the Google landscape than just that paid search spot.”