The past year has been painful for advertisers: average cost‑per‑click (CPC) on Google rose to US$5.26, a 12.9 % year‑over‑year increase, and 87 % of industries saw CPC increases[1]. For small businesses, higher CPCs directly translate to higher costs per conversion and tighter margins. Many PPC managers blame Google’s new generative AI search experience for shrinking the pool of available clicks. While AI Overviews and other search‑generative features do cannibalize clicks, the story is more nuanced. Below is a breakdown of why CPCs are rising in 2025 and how you can adapt your campaigns.
What’s Changing: How AI and Generative Search Affect Click Supply
In May 2025 Google expanded its Search Generative Experience (SGE) and AI Overviews, generative summaries that appear above the organic results. These answer users’ questions directly and often reduce the need to click on ads or organic links. Recent research shows:
Bottom line: Google’s generative features reduce both organic and paid click volume. With fewer clicks available and more advertisers chasing them, CPCs rise due to simple supply‑and‑demand pressure[10].
Beyond AI: Other Forces Pushing CPC Higher
Generative search isn’t the only culprit. Several structural factors are driving CPC inflation:
More advertisers and higher budgets. The pandemic accelerated the shift to e‑commerce and digital marketing. Paid search spending has grown steadily; WordStream data shows average CPC increasing for 86 % of industries in 2024[11]. As more brands compete for the same keywords, bids naturally rise.
Economic inflation and budget expansion. Rising costs of goods and services have forced companies to increase marketing budgets. According to PPC Hero, ongoing inflation means each pound or dollar of ad spend buys fewer clicks than it did a few years ago[12].
Declining ad‑click supply beyond AI. Rich results such as answer boxes, product listings and maps satisfy queries without clicks. Search ad impressions dropped 15 % year‑over‑year even as ad spend rose 4 %[13]. Google now inserts multiple ads from the same advertiser on one SERP, raising competition and further shrinking available inventory[6].
Auction dynamics and automation. Google’s shift to Performance Max, Demand Gen and other automated bidding tools can produce aggressive, less predictable bids. Search Scientists note that AI‑powered campaigns offer less manual control and sometimes pay more per click if the system predicts a conversion[14]. Internal documents surfaced in a U.S. antitrust trial revealed that Google executives discussed raising ad prices by 10–15 % through auction tweaks[15].
Privacy changes and tracking limitations. The phase‑out of third‑party cookies and the introduction of server‑side tagging and Privacy Sandbox reduce targeting precision. Advertisers cast wider nets, leading to lower efficiency and higher CPCs[16].
Is This the New Normal? What Advertisers Can Do
While AI‑generated answers and increased competition are here to stay, you are not powerless. Here are actionable steps to protect ROI in a high‑CPC world:
1. Prioritize high‑intent and long‑tail keywords
Fewer clicks mean you need more from each one. Focus budgets on keywords that show strong purchase intent. Long‑tail phrases can have mid‑range CPCs with better conversion rates[17]. Use negative keywords to exclude irrelevant traffic and prevent wasted spend.
2. Improve Quality Score and ad relevance
Google rewards ads and landing pages that deliver what users expect. Enhancing relevance through responsive search ads with sitelinks, callouts and structured snippets can expand your ad footprint[18]. Optimize landing pages for speed and clarity; even small improvements boost conversion rate, offsetting higher CPCs[19].
3. Leverage first‑party data and smarter targeting
As third‑party cookies disappear, rely on your own CRM lists, website audiences and customer match data. Combine these with Google’s AI signals to target high‑value users more efficiently[20]. Server‑side tagging ensures accurate conversion tracking[21], which helps automated bidding systems make better decisions.
4. Diversify your advertising mix
Generative search shrinks Google’s ad inventory, so don’t rely solely on search ads. Explore:
Microsoft Advertising – often lower CPCs and similar intent[22].
Meta, TikTok and programmatic display – rich targeting and video formats. BrightBid notes that Google Display Network and Demand Gen campaigns are growing quickly[23].
Local channels like Google Maps, Google Business Profile posts and email marketing[24].
A cross‑channel strategy reduces dependence on a single click source and keeps your brand visible even when zero‑click searches rise.
5. Optimize for conversions, not just clicks
Track metrics like cost per conversion and return on ad spend (ROAS) rather than focusing solely on CPC. Conversion rate improvements can offset higher click costs. Use remarketing to re‑engage visitors[25], and test multi‑format campaigns (search, shopping, video) to create a full‑funnel path to purchase[26].
6. Monitor generative search impact and adapt content
Use Search Console and AI Overview tracking tools to identify pages impacted by generative summaries[27]. If an important keyword frequently triggers an AI Overview, consider:
Updating content to become a trusted source that AI models cite (generative engine optimization). Clearly structured information, expert quotes and statistics increase citation likelihood[28].
Targeting related paid keywords that still drive traffic.
Producing videos or visuals that stand out in visual search results.
7. Stay agile with bidding and budgeting
Adjust bids based on performance and seasonality. Test automated bidding strategies like Target CPA or Target ROAS, but monitor them closely for overspending[29]. Regularly audit campaigns, refine audiences and creative assets, and allocate budget to channels yielding the best return[30].
Conclusion
Google Ads CPCs are rising because the supply of clicks is shrinking and demand keeps growing. AI Overviews and other generative features do reduce traffic and push ads lower on the page, but inflation, increased competition, auction mechanics, and privacy changes all contribute to the cost surge. This is the new reality of search: fewer clicks but, potentially, higher‑quality visits. Advertisers who prioritize relevance, leverage first‑party data, diversify channels and optimize for conversions can continue to achieve strong results even as the landscape evolves.
CPC inflation shouldn’t scare you into abandoning search advertising—it should motivate you to adapt. By embracing a more holistic, data‑driven strategy, you can combat rising costs and thrive in the AI‑powered search era.
Sources
[1] searchengineland.com
[2] adexpert.io
[3] britopian.com
[4] benchmedia.com
[5] definedigitalacademy.com
[6] searchengineland.com
[7] theusim.com
[8] theusim.com
[9] semrush.com
[10] ppchero.com
[11] ppchero.com
[12] ppchero.com
[13] ppchero.com
[14] searchscientists.com
[15] ppchero.com
[16] searchscientists.com
[17] adexpert.io
[18] adexpert.io
[19] adexpert.io
[20] searchscientists.com
[21] searchscientists.com
[22] brightbid.com
[23] brightbid.com
[24] adexpert.io
[25] definedigitalacademy.com
[26] definedigitalacademy.com
[27] adexpert.io
[28] britopian.com
[29] brightbid.com
[30] searchscientists.com