If you are involved with pay-per-click advertising, one of the metrics you should be concerned with is click-through rate. Click-through rate is the percent of ad views that result in clicks, and it is one of the key factors in Google’s search engine results ranking formula. Ads with higher click-through rates get better quality scores and higher placements in Google search results.
This doesn’t mean, however, you should aim for the highest click-through rate possible. Why? Because each click costs you money. If your conversions aren’t keeping up with you click costs, then you will be losing money.
So, what’s a good click-through rate then?
Your ideal click-through rate takes time to determine. It’s not the same for everyone, and average CTR  depends on such factors as your industry, keywords, and conversion rate.
Still, it’s helpful to have some general guidelines for starting your AdWords campaign.
Earlier this year, a Google employee said that beginner advertisers  should shoot for a 2% click-through rate. This figure is not set in stone, he said, but a reasonable starting point. Then, as the advertisers get more involved with their campaigns they should focus more on their return on investment than their click-through rate, the employee said.
Other PPC experts recommend a 2% to 5% click-through rate for competitive industries and a 5%+ click-through rate for non-competitive industries. The click-through rate is higher for non-competitive industries because customers with fewer choices are more likely to click on a pertinent ad. For example, someone looking for a pink vintage pinball machine is more likely to click on a relevant ad than someone looking for a printer.
If you're curious about your own CTR, you can use the AdWords Performance Grader  to measure your click-through rate and compare it to that of your competitors.
What should I do after setting a CTR starting point?
Say you follow Google’s advice and decide to target a 2% click-through rate for your house painting business. You determine your target keywords, bid on these keywords, and set up your ads and landing pages with these keywords.
- First, after a few weeks look at your ads’ click-through rates. This information can be found within the dashboard of your AdWords account. See how close the rates are to your 2% goal.
- If they are below your goal, consider the text of your ads. Is it enticing? Is it clear? Does it contain enough of your keywords? If you don’t make your product or service appealing or easy to understand, customers won’t click on your ads. Also, consider whether your keywords are the best ones for your offering. Maybe customers aren’t clicking on your ad because your offering isn’t quite what they want.
- If your click-through rates are above your goal, look at your ad spend and conversion income. It’s obviously easier to determine income resulting from sales conversions than income resulting from lead conversions. If your income is significantly higher than your ad spend, you are doing something right. Your higher-than-intended click-through rates are actually a good thing.
- But if your ad spend is higher than your conversion income, your higher click-through rates are probably a bad thing. This likely means you are getting a lot of unqualified traffic, and it is costing you. Modify your ad text so it weeds out shoppers who won’t convert. For example, specify that your gold rings start at $200, and those with limited funds won’t click on your ad in the first place.
- Monitor your click-through rates and conversions following any changes to your ads. If your income is greater than your click spend, consider shooting for a higher click-through rate. You can do this by improving your ad text, choosing better keywords, and incorporating negative keywords into your AdWords campaigns. These actions should increase your number of qualified ad impressions, click-through rates and conversions.
- Over time, your goal will change from a 2% click-through rate to the click-through rate that provides you with the best return on investment. If you determine, for example, that you achieve a record 30% profit margin from a 7% click-through rate, try to maintain that 7% rate. The rarer your product or service, the more relevant and inexpensive your keywords, and the more gripping your ad text, the higher your ideal CTR will likely be. And the higher your click-through rate, the higher your Google ranking will be.
Here are a couple of additional things to consider when determining your ideal click-through rate:
- Typically click-through rates for search ads are higher than click-through rates for ads on the content network. That’s because ads on the content network have fewer qualified impressions, and are often more about generating brand awareness than immediate conversions.
- Bing search ads have a higher click-through rate than Google and Yahoo search ads, according to a recent WebVisible report .
- Ads tied to “softer” conversions, like downloads, newsletter sign-ups, and forum user name registrations, tend to generate higher click-through rates.