Google’s Research on PPC vs Organic Clicks

Filed under: News,Pay Per Click — Brian

Google recently released a PPC research report they conducted on whether paid PPC ads cannibalize your organic traffic: in other words, should you have PPC ads when you also rank well for a search result. The papers lays out their methodology well, but there’s one vital aspect they didn’t test for that renders the results a little deceptive for people just reading headlines and overviews.

We’re going to dig into the paper a little bit today and look at the results of the research, and the very, very important qualifier in them. Then we’ll take a look at the mathematical equationthey give us to test whether it’s worth paying for an adwords campaign if we already rank organically for a search result.

Google Research Results

The broad overall result that Google found from their study of 446 sites whose data validated their mathematical models (this is a good thing, by the way) showed that overall 89% of PPC ad traffic is completely unique traffic that you would not have gotten with your organic search results. Only 11% of the PPC ad traffic cannibalized from organic results.

On the surface, that looks like very good news for PPC campaigns — the cannibalization effect is minor. And it’s worth noting that many PPC & SEO professionals over the years have reported that it’s worth paying for ads even when you rank — but it’s always on a case by case basis.

Unfortunately the Google research results do not demonstrate that it’s good to pay for ads even when you rank. They just demonstrate that on average, it’s good to pay for PPC ads.

The Problem with the Results

Here’s the big problem with Google’s results: they didn’t take organic ranking into account.

In other words, they didn’t answer the real question: how does PPC cannibalize organic traffic when you rank well for those search terms. I don’t need research to tell me that PPC will net me more traffic when I’m not on the first page, or above the fold, for the search result.

In the Meta-Analysis Results section on page 3 of the report, Google said this:

A low value for IAC may occur when the paid and organic results are both similar and in close proximity to each other on the search results page. … Close proximity occurs when the ranking of the organic result is high, placing it near the paid results.

In other words that 89%, the percentage of PPC traffic that is unique and doesn’t cannibalize from organic, is much lower if you actually rank well for that search term. They go on to say that just because the IAC (Incremental Ad Clicks) is low doesn’t mean that paying for ads is necessarily bad — but it certainly gets less attractive the lower that number is. Remember, the lower IAC is, the more traffic your PPC ad is stealing from the organic results — in other words, the more traffic you could get for free that you’re paying for instead.

How to Decide of PPC is Worthwhile

The Google paper did, however, note that you should evaluate your PPC program independently to determine if paying for search was worthwhile. They even provided a simple equation to help you determine if it’s a good idea.

To use the equation, you must first have a PPC campaign, and measure the paid and organic click throughs both with the campaign running, and with it paused. Here’s what Google says:

So with the equation above, as long as the value of the left side is greater than (<) the value of the right side, then PPC is a good idea. Here’s a run down of what you should plug in for each variable:

  • v: Your value for the variable v is the amount of revenue you get from a paid click. Generally this is going to be your average PPC sale amount multiplied by your PPC conversion rate. Note that PPC, organic, referral, and direct can all have different conversion rates from each other.
  • c: The average cost of a single paid click, your cost per click.
  • PH: The number of paid clicks you get while your PPC campaign is running.
  • r & rv: I recommend ignoring r and for rv just use the value of your organic clicks: the average organic sale amount multiplied by the organic conversion rates.
  • OH: The number of organic clicks you get while your PPC campaign is running.
  • PL: The number of paid click when your PPC campaign is not running. This is probably going to be zero.
  • OL: The number of organic click you get while your PPC campaign is not running. This should be higher than the OH number.

If the left side is greater than the right side, then you will make more revenue by using PPC. Note however this does not take profit into account — if you want you can replace the values for v and rv with the average profit, rather than the average revenue.

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1 Comment | Leave a comment

  • I agree. It’s hardly worth paying attention to, let alone be featured. If you have no organic presence, and you run a paid ad, then you will start getting more clicks. Duh.

    Do you happen to know of anybody who has addressed the cannibalism issue (paid search vs top organic placements)? We deal with it by turning off those ads (with top organic placement), getting a number for incremental clicks, and calculating a cost per incremental click – which is usually a lot higher than the nominal cost per click. At that point, with the true cost per incremental click, we look for PPC terms that cost less AND where we have no organic presence already. With this method, we have vastly increased our search traffic when organic and paid search numbers are combined (which is how they should be reported anyway).

    Comment by Chris G

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