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Quote:Online advertisers have noticed that CPCs tend to increase during the holiday season and have asked us why. We turned to Hal Varian, Google’s Chief Economist, for an explanation:

    Many advertisers track their average cost-per-click (CPC), but what really matters for the bottom line is the average cost-per-acquisition (CPA): how much you have to spend on advertising to make a sale. The third factor to watch is the conversion rate, which is defined as conversions (sales) per click.

    Note that these numbers are neatly tied together by the convenient formula:

    CPA = CPC/Conversion rate = (cost/click)/(conversions/click).

    Clicks, cost, and conversions all go up during the holidays. As it happens, conversions increase more than clicks, so conversion rates tend to rise. This makes the clicks more valuable, so advertisers raise their bids to reach more consumers. As a result CPCs get pushed up.