As one of the most reliable and transparent digital marketing strategies, Pay-Per-Click (PPC) advertising is a highly effective way to drive high-quality traffic to your website and generate leads. To the uninitiated, however, it can be a daunting affair. If not effectively implemented, budget can quickly evaporate, giving little in return.
Before delving into the ins and outs of PPC campaign optimisation, the first step is to determine exactly what that PPC budget should be. Setting a budget that aligns with – and has a chance of achieving – your goals requires careful analysis and planning. Here’s a step-by-step guide to help you determine a PPC budget for your business.
How Does PPC Work?
PPC is an advertising strategy whereby businesses bid on keywords to appear in certain locations – for instance the top of the search results – and pay a fee each time a user clicks on their ad. It operates through platforms such as Google Ads and social media networks. Advertisers compete in an auction for each keyword, where factors like bid amount, ad relevance, and quality score determine the ad’s placement.
1. Define Your Advertising Goals
The first step of any marketing campaign is to outline what you want to achieve. Common goals of a PPC campaign include:
- Increasing website traffic
- Generating leads
- Boosting sales or conversions
- Building brand awareness
Your PPC goals will influence your budget. For instance, targeting for a brand awareness campaign may need a larger budget than a lead-generation campaign as it requires a wider net.
2. Understand Your Industry and Competition
One of the largest influences on your PPC costs is the competitive landscape The average Cost-Per-Click (CPC) in your industry is dependent on the following:
- The number of competitors
- Industry-specific strategies (some lend themselves more to PPC)
- Competitor bidding strategies
- Trends or seasonality
Use tools like Google Ads Keyword Planner and SpyFu to analyse trends and competitor activity. If your competitors are spending a lot, you may need to allocate more funds to compete.
3. Calculate Your Maximum Cost-Per-Click (CPC)
Use the following handy formula to determine how much you can afford to pay for each click while maintaining profitability.
Max CPC = (Average Revenue per Customer × Conversion Rate) × Target Profit Margin
Conversion rate refers to the proportion of website visitors who go on to make a purchase.
For example, if your average revenue per customer is £200, your website conversion rate is 5%, and you aim for a 20% profit margin:
Max CPC = (£200 × 0.05) × 0.20 = £2
This means you can afford to bid up to £2 per click while staying profitable. Pay any more and it’s unlikely in the long term your advertising efforts will not be profitable.
4. Use Your Max PPC to Calculate Your Monthly PPC Budget
Once you know your maximum CPC, estimate your monthly budget using the expected number of clicks:
Monthly Budget = Estimated Clicks × Max CPC
If you plan to drive 1,000 clicks per month and your max CPC is £2:
Monthly Budget = 1,000 × £2 = £2,000
Google Ads Keyword Planner can help you estimate the number of clicks you can expect.
5. Leverage Historical Data (If Available)
If you’ve run PPC campaigns in the past, use their performance metrics to refine your budget. Some of the key metrics include:
- Click-Through Rate (CTR)
- Conversion Rate
- Cost-Per-Acquisition (CPA)
- Return on Ad Spend (ROAS)
If you find certain keywords or campaigns performed well in the past, you might want to allocate more budget to those high-performing areas.
6. Start with a Test Budget
One of the greatest fears in PPC (and advertising in general) is wasting budget. If you’re new to PPC, use a small(er) test budget to begin with. Run contained campaigns for 1-2 months and monitor their performance. It’s a great way to find out whether your analysis and strategising has – or hasn’t – worked before you committee more funds.
7. Adjust and Scale Over Time
PPC budgeting isn’t a ‘lock and leave’ decision; it requires continuous evaluation and adjustment. Monitor your campaign performance on a monthly or weekly basis and make tweaks where necessary. Alter bids, keywords, and ad placements to improve results. Follow your intuition: scale up successful campaigns while reining in underperforming ones.
If you need to commit more budget, return to your calculations and make sure the numbers add up.
Top Tips to Optimise Your PPC ROI
To get the most out of your PPC budget, whatever it may be, make sure to implement the following:
- Use negative keywords to filter out irrelevant traffic
- Optimise ad copy for a better CTR and Quality Score
- Continuously refine audience targeting
Final Thoughts
By setting objectives, analysing the competition and using the above straightforward formulas you can quickly and accurately set an effective PPC budget. Don’t forget to refine it as you go and scale up – or down – as necessary.
We hope this article has helped with your PPC budgeting – good luck!
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