CPC Campaigns – Relation between Budget and CTRs

We are going to talk about the relation between Campaign Budget and CTR in CPC digital advertising, even though budget shouldn’t affect CTRs in an ideal world.

The above data is for a CPC campaign. The details of the campaign metrics are mentioned in the table above. If you observe in the above data, the click through ratios (CTRs) for the product have ranged around 1.3-1.5% in Apr-Jun’20. However, there is a drastic drop in CTR from July onwards. The only metric that has been changed from June to July was the budget; the budget in July was cut down to half of June. The bid value was competitive throughout and is not a causing factor here. The product actually gained in ratings and reviews during the period of July and August and therefore, if anything, the CTRs have to be better. But, they are down by a big margin.

My hypothesis is: When the budget is reduced, some platforms automatically push up (in ad sequence) other ads with all parameters such as bid value on parity but with higher budgets. This is so that the platform can maximize their ad revenues.

Consequently, the answer that the platform tells us is that CTRs is always a relative performance metric. There are other ads performing better than your ad during this period in this category and that is why the CTRs are lower for your ad. But, that is not necessarily the 100% picture. Or that the budget is getting completed very early for the day, before even the main high intention audience come in for this product.

This is a short example to show how the budget, even though should ideally not influence the position, will influence the position of the ad and therefore the CTRs and also the conversions are impacted. As the ad goes lower, the CTR will drop. The lower the ad is, the higher the chance that the person has already visited other links and has made up the mind to buy something else already. So, it becomes that much more difficult now to convert that traffic. So, as the ad goes lower in sequence, the conversion too will drop which is a big impact on any marketing objective. So, ultimately you will start losing on sales and you will end up paying for non-converting clicks.

I can understand that a higher bid should be incentivized in the sequence, just like how a television commercial just before the program and just after the program is more expensive than other ads in the sequence. But, prioritizing basis budget may not be completely righteous for advertisers.

Everything considered, budgeting for advertising isn’t a one-time task but is an ongoing process that needs tweaks basis the objectives and performance. An acceptable way to decide on a daily budget is to find out how many visits are required to generate a sale. Giving a campaign its own separate daily budget, it’s easy to control costs and prioritize campaigns based on their level of importance and performance.

Hope this is useful, thank you.