According to Efficient Frontier the average Cost Per Click (CPC) was up 20% in Q4 2010 compared to the same time period in 2009. This rise in average CPC’s is not new, as competition has increased since the release of the AdWords auction system CPC’s have risen gradually. However if the rise in CPC and thus the cost to acquire new customers outpaces the firms ability to either raise their own prices or become more efficient and increase margins marketers will be forced to themselves become more efficient and diversify.

Currently many marketer’s have a loose grip on their Pay Per Click (PPC) marketing campaigns, both in terms of structure/optimization and cost. Their ability to track the actual cost of acquiring new customers is often lost in the fact that new business is coming in. This is most pervasive in small to mid companies where often one person is tasked with the management of online marketing in addition to their usual day to day duties.

While no one can predict the future I would guess that the rise in PPC advertising will continue to increase as more firms begin to jump into the fray and become more aggressive in advertising. As this happens successful marketers and firms will be judged on their ability to become more efficient in their PPC advertising as well as their ability to diversify their online marketing strategies. The first option of becoming more efficient involves two key tasks. First is creating PPC campaigns that are optimized and meet or exceed all best practices. This will involve either time on the part of the individual(s) working with PPC in house, the hiring of additional staff, or the outsourcing of some or all of the work to an outside vendor. Creating optimized campaigns gives the firm the ability to pay the least per click, only buy converting keywords, and reach the target audience. All of these lead to paying the smallest possible amount to acquire a new customer and convert more “visitors” into “leads” into customers.

The second option is the diversification of online marketing tactics, currently many small and mid size firms still rely heavily on paid search marketing. I believe this is do mostly because of the relatively low learning curve to begin and the idea that they are creating highly targeted campaigns and spending their marketing budgets as wisely as possible. Truth be told, while the learning curve to starting an account and creating ads is low, the learning curve to creating truly optimized campaigns is beyond the time constraints of what an already full time employee has. Small and mid size firms who realize that shifting some of their marketing budgets into Search Engine Optimization (SEO), social media, etc will be rewarded in the future as they no longer have to rely so heavily on paid search. The key to diversifying for these firms will be creating though out, strategic plans which will give a much higher rate of success. SEO and social media do not have the immediate impact and visibility that paid search has, so it will be key that the plans allow for progress to be measured overtime. In the long run even if initial plans fail, well thought out strategies have the ability to adjust to the actual reactions seen in the marketplace and the firm will see lower a cost per acquisition for new customers and will no longer be tied to one online marketing strategy.