Handling inflation and being ready for a recession

If you’re in the U.S. and haven’t been living under a rock, then you’re probably aware that the economy isn’t in the best shape (I blame it on abandoning the Gold Standard in 1933, but I’m not an economist).

So between increasing inflation and a looming recession, advertisers are saying to themselves: “How do I afford to stay online with search?”

Two scenarios with two impacts

While there is a district correlation between inflation and a recession, you can only do so much, and the solutions aren’t the same.

First, let’s break it out, and how it relates to search marketing:

Inflation

In PPC, most commonly, this is referring to a noticeable uptick in costs (CPCs), whose growth, grossly outpaces that of traffic demand.

The impact will be directly on front-end metrics, but can directly lead to declines in back-end efficiency (An informal analysis of my current client’s data, showed 75% saw YoY CPC increases, and 50% saw CPC increases of 20% or more.) 

In conjunction with this, you may also see: 

• No change, or even a decline in competition.
• A flat or decline in search impression share.
• A decline in impressions while clicks remain constant or go down, does not have a positive impact on your Quality Score.
• Unless return/ROI downturns substantially (~25%), this is unlikely to impact an enterprise-level advertiser search budget.

Recession

For PPC, this typically impacts demand.

As searchers stop to review their own personal finances, leading to a decline in search volume for “non necessities” (think: luxury goods, new cars, international vacations, etc.).

A decline in search volume often leads to declining search volume, which means proactively or reactively, PPC budgets will decline.

When this is observed, expect the following:

• As much as 50% of advertisers (typically non-enterprise brands) will bow out of the marketplace.
• CPCs will not decline substantially; at best they will remain flat to -5%. However, those remaining live will become more ruthless in their bidding, and there is a chance CPCs may increase out of annual cycle growth.

Historically during financial crisis in the past, we’ve seen demand increase and decrease, with a direct correlation to unemployment rates. The higher the unemployment, the higher likelihood ad budget is pulled back and/or decline in demand for your keywords. 

In my 17 year career, I’ve seen one or the other hit advertisers, now we’re in a perfect storm, where a number of brands will feel the pinch of both, at the same time.

What should you do

Concerned? Good, this impacts almost every advertiser under the sun in a negative way.

But being concerned doesn’t mean you need to panic. There are many other things you need to get worked up over, such as but not limited to:

• Facebook changing its name to Meta.
• Declining demand in Pinterest despite a great ROI.
• How disappointing my NY Jets will be this year.
• Spending 30 minutes trying to understand GA4.
• Attempting to understand any degree of insights on Pmax and then feeling confident in it.

Now that I have that soap box rant off my chest, let’s talk about how to deal with rising CPCs and declining demand.

Approach to inflating CPCs

There are various theories as to why they are going up (especially brand keywords), ranging from big G and M/B messing with algorithms around RSAs, to more aggressive competition.

Which is true? Not for me to say. But we have found ways to combat these upticks in costs:

Brand keywords

Unless you share a name with a popular brand in a completely unrelated category, we have found the solution is a bit on the simplistic side (and honestly a lot of folks may already be doing it): Migration of strategy from [current bid strategy x]-> manual with first page bids->max clicks with an uncapped CPC->max clicks with a capped CPC (last phase is optional)

• Max clicks are set to stretch your dollar out the furthest, so it is in the engine’s best interest to seek the cheapest CPC possible.
• If you aren’t already in manual, you’ll want to spend at least 1-2 weeks in it, to get a good baseline of data.
• Max clicks should be a minimum of 2-3 weeks before considering a CPC cap.
• If possible, based on budget (or other factors), I recommend setting up mirror brand campaigns, using remarketing lists, for repeat visitors/converters vs. first timers, you’ll see them perform and act very differently.
• If you’re targeting max impression share at the moment, then rising CPCs are your own fault and you get no right to complain.
• Max conversion strategy on brand is often pointless as you have granular/niche keywords that are considered high intent, coupled with rising costs lead to rising CPA’s which will drive down spend volume.
• Conversion value, same issue as a max conversion strategy.

Non-Brand keywords

This gets dicey and incredibly nerve racking fast.

Yes, a max click may help reduce your CPC’s, but depending where in the funnel/the niche level of the keywords sit in the sales funnel, you may be forced to do a few different approaches.

So I like to break them into standard marketing 101 categories:

Bottom of the funnel/long tail

Call these “brand junior”. They are high intent, just not as cheap.

I recommend going the brand route on these as noted above. However, the capping of the CPC is mandatory here.

Mid-funnel

We do a cyclical strategy here, kind of a “reset.”

Odds are, you’re doing a max conversion or TCPA strategy, and that isn’t wrong. But if you look over time, you may see CPCs rise considerably (if they aren’t then keep on keeping on). If they are, and you are in a max conversion or TCPA strategy, then make a circling approach.

Migrate from current strategy to manual with enhanced CPC for 7 days (no more/no less). Then 2 weeks at max clicks. Check week two CPCs vs pre-rule changes (if they aren’t lower, give it another week, if they are, then progress to the next step).

After max clicks, return to max conversions for 2-3 weeks. After max conversions go to TCPA, with a CPA cap 20% higher than you started, and walk it down by 5% points every 2 weeks.

Why do all this to end with the same rule as you started?

Simple, CPCs rise when competition increases and/or volume decreases.

TCPA rules can stifle volume. So here, you are able to reset, throw more volume on it, and get more conversions (yes, you will take an “L” on their efficiency for a bit), and this allows the conversion and TCPA rules, to start operating off the higher volume, making them learn faster, and become wiser.

High funnel

The reality is, that you likely don’t convert all that well on the high funnel, but you can.

So the key here is to split the high funnel into 2 groups:

• First-time visitors: First-time visitors move to manual CPC->Max clicks->Max clicks with CPC cap. Why? Because this is the highest volume, and if your ad copy is on point, it’ll do the filtering, so you want as much of these as possible, for as cheap as possible.
• Repeat visitors: once the remarketing list is deemed substantial enough, follow the first-time visitors’ approach, but replace the final step with max conversions. A CPA target will stifle volume at the top of the funnel, so the key is to move max conversions. This group shouldn’t be all that high of volume, as they are more likely to filter onto mid-funnel rather than repeat.

Approach to the impact of recessive behavior

For brands that plan on “staying in the game,” there are typically two approaches you can take. First though, you need to have a direct and honest conversation with the leaders with the brand on what could happen and decide if you want to stay in or not.

There are no trademarked names for these approaches, so I am literally going to call them “Cash in the Bank” or “Profit”. Interestingly, the two approaches go in opposite directions, but do make a horseshoe and will intercede down the road.

Cash in the bank

Fairly straightforward method, ignore declining demand, and press on. If anything you take on more funds that are being reallocated (if not from offline, then from the display, or social).

With searches slowing, your new focus is to be front and center for all possible searches and get that revenue.

Yes, the CPCs will go through the roof, and ROI will likely turn negative. That is fine, get that money to pay the bills first.

Plan to do this for at least two fiscal quarters, but potentially three. Then, slow everything down, and focus less on the revenue (by now the bills are paid).

Become less aggressive on the bidding, CPC’s to come down and then focus on your ROI. Expect to reduce, if not cut outright non-brand and/or high funnel keywords, to help make up the ROI.

Profit

Fairly straightforward, make yourself as profitable as possible. This does not necessarily mean more revenue, but just higher ROI. Here is where you expect to cut everything but the bottom of the funnel non-brand (even that should be reviewed) and brand keywords.

Stop spending in auctions that are competitive, and costs are rising. Just wait it out, and be quiet.

Capture the bottom of the funnel/brand-aware audience, and make a little money as well. But essentially, hold out until everyone else in the category has spent it out trying to get a tiny bit of traffic.

Then, in two quarters, open up and return to normalcy. By then, you have a high enough ROI (hopefully), that you can focus on maximizing revenue at think profitability (or even break even), to get you back to what you consider solid footing. Only do this, if you have enough revenue on hand for normal business operations for two to three quarters.

There are some that will have a good time

I should note, based on history and common sense, that this is always true. Financial issues cause stress. Consumers turn to what will make them feel better/less stressed. This is why I say it impacts almost every advertiser. 

A small number of verticals will avoid suffering in this scenario and actually thrive.

We put this into an umbrella category of “vices”. Not to sound morbid or predatory, but if you run pharmaceuticals, QSR/fast food, alcohol and/or gambling brands, you might see an uptick in CPCs, but for the most part, you will be fine.

In the end

You know your business the best (or so I hope). You need to decide with your operation the best approaches to dealing with all this.

Yes, rising costs and dwindling demand are scary, but they aren’t insurmountable.

You just need to make sure you plan out in advance, which issue you want to tackle, do you have a contingency plan in place, and what you can truly afford to pull off.

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Opinions expressed in this article are those of the guest author and not necessarily Search Engine Land. Staff authors are listed here.

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