Pay-per-click (PPC) advertising is a strong and increasingly useful method for your company to gain exposure and land new clients. For many companies, the question is not whether PPC ads are useful (it’s clear they drive results), instead, the challenge often comes down to budget.
How much — or how little — should you spend before seeing results? Is it worth it to expand your budget to include more popular search terms? Let’s dive into what you need to know before you can determine your budget, and what your budget can do for your paid search campaigns.
Understand Your Goals
To start planning your PPC budget, first identify the goals of your campaign. For most companies, the goal of a PPC campaign is to attract a certain number of new leads. To properly link leads to your PPC efforts, your company needs to answer the following questions:
- What is our current conversion rate from search engine traffic?
- How much money do we expect to earn from the average new customer?
- How much is our cost per lead (CPL), or the cost of signing up a new customer?
- How long does it take to sign up a new customer (e.g. buying cycle)?
- What are the characteristics of our target lead segment (e.g. location, frequency)?
Calculating Budget by Leads
After you understand more about your leads, it’s time to work backward to calculate what you need in lead generation. Let’s use the example of an inbound marketing firm that wants to land new clients — we’ll call them Excellent Marketing, Inc.
The company set their PPC advertising goal to be the following:
“Close 10 new clients per month”
The company determined its cost per lead (CPL) is $30.00, and that its historic close rate has been 5%. The company then calculates the number of new PPC leads it needs to bring in each month, in order to reach its goal:
10 closed leads / .05 close rate = 200 PPC leads needed per month
If the company’s campaign can bring in 200 PPC leads per month, and they close at a rate of 5%, then Excellent Marketing, Inc. will hit its goal of closing 10 new clients each month. How much will it cost to pursue this goal? Next, the company multiplies the number of monthly PPC leads it needs by the cost per lead (CPL):
200 PPC leads X $30 CPL = $6,000 PPC Budget
By working backwards, this marketing firm has determined they need to spend $6,000 per month on PPC advertising, in order to generate the business they’re seeking.
The Importance of Keyword Selection
One drawback to the above method is that it doesn’t take into consideration the number of search terms the company wants to include in its campaign. Keywords are just as important for PPC efforts as they are essential to your content marketing. Launching PPC campaigns with the wrong keywords can easily burn through any budget, with little to show at the end. Free tools like Google AdWords’ Keyword Planner can give you a general idea of the traffic various keywords receive, and also provide related search terms. Your company will also need to answer the following questions:
- How many keywords do you want to include in your campaign?
- What is the search volume of those keywords?
- How many people see, and click, on paid advertisements?
Calculating Budget by Keywords
Our example marketing firm, Excellent Marketing, Inc., has decided to include 50 search terms in their campaign — they’ve chosen relevant and popular terms that each generate an average of 300 searches per day:
50 terms X 300 daily searches = 15,000 monthly searches
With an average of 15,000 people searching for these keywords monthly, the company’s PPC ads will be seen by plenty of consumer eyes. The firm next calculates the number of people who will actually click on their ads. Convince and Convert reports that about 33% of visitors click on paid advertising, and that Google and Yahoo! account for 80% of all search engine volume. Using this information, the firm calculates:
15,000 monthly searches X .33 click rate X .8 search engine volume = 3,960 potential clicks
While this sounds great, the marketing firm remembers that this is the number of potential clicks, not the actual rate. Let’s say the firm’s historical click-through rate (CTR) is 3%. The company calculates a realistic expectation based on its usual CTR:
3,960 potential clicks X .03 CTR = 118 clicks
Now, the firm has determined the number of clicks to realistically expect from their campaign. It’s time to assign a value to each click, known as the cost per click (CPC). This is what will help them determine how much they’ll need to spend to bring in the expected 118 clicks. The firm knows that its historic average CPC is $2.50. It’s recommended to add a 30% buffer to account for competition:
118 clicks X $2.50 CPC X 1.3 competition buffer = $383.50 PPC Budget
Reflecting and Fine-Tuning
While the above processes are useful, reliable ways to estimate your PPC budget, remember they will only give you an estimate. Your own previous PPC campaigns can provide more detailed insight into opportunities and challenges for your company. If you can see that certain keywords weren’t worth the investment in past campaigns, shift your budget towards better-performing ones.
While doing the math is fun (for some of us, at least), there are also online calculators available from sites like Pear Analytics, to get you started. Like any other marketing or advertising method, PPC is a process that requires constant measuring and adjusting. Monitoring your campaigns, assessing results, and pivoting based on those results is the only way to ensure you’re getting the best bang for your buck.
Looking for more tips on PPC? Download our eBook: PPC Landing Page Best Practices