Digital Advertising Cost Effectiveness: Recent Trends and Google’s Impact

Digital advertising is increasingly costly, and return on investment (ROI) has notably declined since 2022.

The consensus among industry analysts is that digital advertising effectiveness continues to face pressure from increased competition, privacy changes, algorithm updates, and the integration of AI in search results, which collectively diminish both organic and paid visibility while increasing costs.

The average cost of acquiring a customer through Google Search ads has increased by approximately 27% between 2022 and late 2024 according to data from the Interactive Advertising Bureau (IAB). Merkle reports that Google Search pure cost-per-click (CPC) rates increased by 22% in that same period, while conversions did not keep pace so overall efficiency diminished (Merkle Digital Marketing Report, Q3 2024). GroupM research published similar numbers, reporting that digital advertising costs rose by 15-20%, outpacing improvements in conversion rates (GroupM Global Media Forecast, 2024).

So, there is general agreement on the magnitude of Google’s slide. But other platforms have experienced diminishing returns as well, exemplified by Meta’s 17% decline in average return on ad spend (ROAS) across their advertising network from Q1 2022 to Q2 2024 (eMarketer, 2024).

The trend continues. In Q4 2024, Google Search ad spending increased 10% year-over-year, while clicks only grew by 3%, leading to a further 7% CPC rise. Forecasts anticipate CPC increases of 15-30% in 2025, and sectors like education may see hikes as steep as 50-100%.

There is more to it than simple arithmetic on CPC and conversions. Let’s look at details on how the advertising market is changing and how to cope with Google’s outsized role in pricing and effectiveness.

How Google Search Algorithm Changes Have Impacted ROAS

The landscape in Search Engine Results Page (SERP) – how results are ranked and displayed – is changing dramatically. This has a significant impact that some advertisers will find disadvantageous. It also makes direct comparison to previous performance history difficult for planning and budgeting purposes.

Zero-click Searches: When a user finds an answer directly on the SERP without needing to click anything, it is a zero-click search. Google’s featured snippets, knowledge panels, and other features have increased zero-click searches by approximately 30-35% from 2022-2024 (SparkToro & Search Engine Journal, 2024). This reduces traffic to advertisers’ websites even when they pay for top ad positions or rank well organically.

Google AI Overview: The rollout of this AI-generated prediction of what the searcher wants to know (formerly Search Generative Experience, or SGE) has reduced organic visibility for previously high-performing positions. AI Overview has reduced available ad inventory in traditional positions by approximately 22%, creating scarcity that drives up costs through basic supply and demand dynamics (Sistrix Visibility Index, October 2024). Studies from SEMrush (Q2 2024) show that websites previously ranking in positions 1-3 have seen click-through rates decrease by 18-25% in markets where AI Overview is active.

Similarly, Microsoft reported that AI integration in Bing has resulted in a 14% reduction in traditional ad inventory availability, though they claim higher engagement rates on remaining placements (Microsoft Advertising Insights, August 2024).

Ad Position Volatility: Algorithm updates have created more volatility in ad positioning, with advertisers reporting that maintaining consistent ad positions requires 15-20% higher bids than in 2022 (Merkle Digital Marketing Report, Q3 2024).

Quality Score Emphasis: Google’s increased emphasis on quality scores and landing page experience has raised the barrier to entry for competitive keywords. Advertisers with lower quality scores now pay 25-40% more per click than those with higher scores (Search Engine Land, August 2024).

Core Web Vitals Impact: Sites failing to meet Core Web Vitals standards (a set of metrics that measure how well a website performs for users) experience 17-22% higher bounce rates and corresponding reductions in conversion rates, directly impacting advertising ROI (Chrome User Experience Report, Q2 2024).

It is more important than ever to pay attention to the basics of ad composition, website performance, and tracking. In addition, you’ll need to learn how to appear in – or in spite of – AI Overview.

How AI is Influencing the Cost of Search Ads

Beyond SERP real estate intrusion and ranking changes, AI in the ad ecosystem is directly and indirectly changing costs for digital advertising.

Automated Bidding Sophistication: Google’s AI-driven Smart Bidding systems have become increasingly sophisticated, with 76% of advertisers now using some form of automated bidding (Google internal data, cited in Search Engine Land, September 2024). While this improves targeting efficiency, it has also driven up competition and costs for high-value audiences.

Keyword Competition Dynamics: AI-powered campaign optimization tools have led to convergence on high-performing keywords, increasing competition and costs by an estimated 28% for these terms compared to more niche keywords (WordStream, 2024).

AI-generated Ad Content: Google’s AI-generated search ads have shown 12-18% higher click-through rates than human-created ads in early tests, creating pressure for advertisers to either adopt these tools or face higher costs to compete (Google Marketing Live announcements, 2024).

Generative AI in the Auction: Google’s incorporation of generative AI in its ad auction mechanics has improved ad relevance scoring but created a more complex bidding environment that favors sophisticated advertisers with data science capabilities, effectively raising the barrier to entry (Journal of Digital Advertising, Q3 2024). Google’s MAX campaigns limit manual control of ad placements, affording smaller advertisers less ability to manage where prospects see their ads.

Allocate time to keeping informed on the latest AI impact on advertising. That is easy to say and challenging to achieve. AI has advanced more rapidly than any other technology in history, and the pace of change is accelerating. Using AI tools and techniques ahead of your competitors is now a key performance indicator across every market segment.

How Do You Compare?

Here are the latest available benchmarks for B2B and B2C companies. You are falling behind if you don’t routinely achieve these ROAS numbers. But don’t be complacent if you are doing better, because the rapid turns in market dynamics.

B2B vs. B2C Differences

B2B digital advertising has experienced more stability, with only an 8-12% decline in ROAS compared to B2C’s 18-24% decline over the same period (Forrester Research, 2024).

According to Nielsen, B2B advertisers have managed to maintain better efficiency by shifting budget toward content marketing and account-based strategies, while B2C advertisers remain more dependent on direct-response advertising models (Nielsen Digital Ad Ratings, Q2 2024).

B2B ad spend on LinkedIn maintained stronger performance metrics than B2C-focused platforms, with CPCs increasing only 8% year-over-year compared to 15-20% on predominantly B2C platforms (LinkedIn Marketing Solutions data, cited in Harvard Business Review, September 2024).

B2B Digital Advertising Benchmarks

Average ROAS: B2B advertisers are seeing average ROAS between 3:1 and 5:1 (300-500%) for search advertising and 2:1 to 4:1 (200-400%) for display and social advertising as of Q3 2024 (Insider Intelligence, 2024).

Platform-Specific Performance:
Google Search (B2B keywords): 4.3:1 (430 %) average ROAS, down from 5.1:1 (510 %) in 2022 (WordStream, 2024)

LinkedIn: 2.8:1 (280 %) average ROAS with substantially higher performance for targeted account-based campaigns at 4.2:1 (420 %) (LinkedIn Marketing Solutions Benchmark Report, Q2 2024)

B2B email marketing: 38:1 (3,800%) average ROAS, making it the highest-performing digital channel for B2B marketers (Content Marketing Institute, 2024)

Industry Segment Variations:

SaaS and technology B2B companies achieve higher ROAS (4.7:1 or 470%) on average) compared to manufacturing (3.2:1 or 320%) and professional services (3.9:1or 390%) (Forrester Research, 2024).

B2C Digital Advertising Benchmarks

Average ROAS: B2C advertisers are experiencing average ROAS between 2:1 and 4:1 (200-400%) across channels, with significant variation by industry and campaign type (eMarketer, 2024).

Platform-Specific Performance:

Google Shopping: (3.8:1 or 380%) average ROAS, showing more resilience than text ads (Merkle Digital Marketing Report, Q3 2024)

Meta platforms: (2.7:1 or 270%) average ROAS, down from 3.3:1 in early 2022 (Meta for Business Insights, Q3 2024)

TikTok: (2.2:1 or 220%) average ROAS, with significant improvement for brands using creator partnerships (4.1:1 or 441%) (TikTok for Business, cited in Business of Fashion, August 2024)

Amazon Advertising: (5.1:1 or 551%) average ROAS for established sellers, making it one of the highest-performing platforms for direct commerce (Marketplace Pulse, 2024)

Industry Segment Variations: E-commerce retailers in fashion see average ROAS of (2.3:1 or 230%), home goods (3.1:1 or 311%), and beauty/personal care (3.8:1 or 381%), while travel and hospitality sectors achieve (4.2:1 or 421%) (Statista Digital Market Outlook, 2024).

How to Optimize Digital Ad Performance

Here are suggestions on how to optimize your digital ad expenditures:

Hire Experts – Market Vantage is a specialized digital marketing agency, so this may seem self-serving. But as marketing becomes more complex, there’s an increasing need for deep expertise in specific areas such as SEO, paid media, and analytics. Specialized agencies can offer this focused knowledge, leading to more effective campaigns.

Move Fast – Rapid cycles with continuous optimization are essential. For instance, organizations implementing agile marketing methodologies have reduced campaign optimization cycles by 62% and improved ROAS by 21% through faster iteration and learning (Agile Marketing Alliance, 2024).

Make First-Party Connections – Use CRM and marketing automation rigorously to capture email and postal addresses along with social media IDs. Once you’ve paid for advertising that established the connection, why pay again? Remember the statistic from above – email marketing has 3,800% ROAS!

Fix Your Infrastructure – Website technical details matter. Make sure you are not overpaying for ads and losing conversions due to an easy-to-remedy website fix.

Enrich Your Content – The quality and quantity of text, video, audio, and imagery that represent your brand is the backbone for all marketing programs. Content that matches advertising will increase quality scores and reduce costs. More importantly, content that captivates visitors is the critical first step in a profitable customer journey.

Employ AI – Explore the options for improving productivity with AI in all aspects of marketing, from content creation to product research to customer satisfaction. For more information about the next big evolution –– AI agents ( a.k.a. Agentic AI) –– check out this blog post.