During the AdWords exam, a question serves the purpose of thinking how the budget limits the campaign functionality.
If there is a follow up to the conversions in a budget limited campaign is performed, and the CPC increases without surpassing the budget, what would be the most probable result?
We will analyze this question step by step in order to get the most out of it and understand what we are talking about and how to answer it correctly.
In order to start, we have to understand that the question belongs to a theoretical model in which the converstion rate is constant (which means, nothing in the question suggests that a more expensive click converts higher or lower). To help you answer this, we will assume that the conversion rate is 5% (every 100 clicks we get 5 conversions).
First part of the question
A follow up of the conversión rate in a budget limited campaign is performed
“budget limited” means that all the budget for the day is being consumed. If I have $1000 assigned, it will consume them all. If each click pays $0.50, we get 2000 clicks. Assuming our 5% conversion rate value we will get 100 daily conversions.
100 daily conversions with $1000 equals a CPC of $10.
Second part of the question
CPC increases without surpassing the budget.
Lets assume we double the CPC and now we pay $1 for each click.
$1000 = 1000 clicks
Let’s assume the conversion rate has not changed.
1000 clicks at a 5% conversion rate = 50 conversions.
$1000=50 conversions. CPC=$20.
Third part of the question
what would be the most probable result?
With the given examples, the answer is right under our nose. With $1000 we bought 2000 clicks, now when we increase the CPC we can buy less clicks. If the conversion rate is constant, the lesser amount of clicks we have, the lesser amount of conversions. Thus,
In a budget limited campaign, increasing CPC would generate a decrease in the amount of conversions and an increase in the average conversion cost.
To finish my explanation, here is a graph extracted by the AdWords Keyword Planner. In this example I chose the keywords with the most amount of traffic and a limited budget of $50 a day.
In the vertical axis, we find the amount of clicks that we will get. In the horizontal axis, the maximum CPC. As we can see, as the maximum CPC increases…
The expected clicks tend to decrease