If you know anything about pay-per-click (PPC) advertising, chances are that you know that it all hinges on the planning. Your resources are valuable, so the last thing you want is a poorly conceived PPC campaign.
So whip out your calculator and get your business hat on; we’re going to show you how to calculate your PPC budget with the best methods to help you work out the money and time you need to invest in order to smash your marketing goals.
Jump to
- The importance of setting a PPC budget
- How to estimate your PPC budget
- How to maximise returns
- Conclusion
Why should you set a PPC budget?
When you first take the plunge into PPC, you should at the very least allocate an experimental budget for your advertising spend, taking the time to research how much different models of PPC management cost and how that will factor into your overall business finances.
If you do this well, you will swiftly see the benefits and want to integrate it into your toolbox of long-term marketing strategies. By spending your budget carefully, you can tap into an average 200% ROI, which you can increase via the help of an experienced PPC agency.
PPC doesn’t have to cost an arm and a leg
There’s a misconception floating around in the digital marketing space that PPC campaigns require a humongous budget to succeed. But spoilers: that’s a complete myth. It’s possible to achieve returns at almost any level of PPC budget.
Sure, you can scale campaigns to inflate profits with bigger investments, but in the realm of small business PPC, you’re likely to see a positive return at pretty much any rate. In fact, Google operates under the “conservative assumption” that a company can achieve £2 revenue for every £1 they spend on Google Ads – very impressive!
For small businesses, it’s more about setting a realistic budget and using best practices to ensure every £ goes as far as possible. But how do we achieve that? Read on to find out…
How to estimate your PPC budget
The best place to start is thinking about what you set out to achieve and how much you are willing to spend.
When you log into your keyword tools you will be able to see the cost of an average bid alongside standard industry conversion rates. Set this data against how much revenue your business makes and your return-on-ad-spend (ROAS) goals and you will be able to create an achievable forecast. More on this later, but first…
How much do businesses usually spend on PPC?
I’d love to give a clear-cut answer to this question, but with so many factors at play there’s no one-size-fits-all figure or range of figures to provide. And especially as all markets are different: budgeting PPC for a local accountant, for example, will be different to the PPC strategies used by an e-commerce site.
As a general rule, company size plays a significant role in building out a PPC budget – larger companies with larger revenue reserves and requirements will rely on more or scaled-up campaigns, whereas small organisations need to be more efficient and more targeted with their funds.
However, as long as your budget is affordable for your company and your PPC campaigns are executed effectively, you should be able to achieve your goals with PPC.
Key considerations for setting budgets
To determine the right budget for your business’ PPC campaign you need to consider the following:
- Defining relevant benchmarks and milestones i.e. industry benchmarks and conversion rates (CVRs)
- Your website’s average CVR, of visitors to sales, leads or downloads
- Company size and number of customers
- PPC management costs: will you manage the campaign yourself or hire an agency?
With this information in hand, you will be able to build the necessary formulas to calculate a realistic budget that you can use to steer an effective an actionable PPC campaign.
PPC budget formulas
Here are some straightforward paid advertising budget formulas to get you started.
For the first one, we’ll need two parts as we figure out how many customers are required to hit your goals. It looks like this:
Number of Customers (NOC)= (Revenue target / Number of sales periods campaign will run) / Average order value
From here you can pop it into your PPC budget formula, which should be as follows:
PPC Budget = ((Number of customers / CVR Lead-to-Sale) / Website CVR) * cost per click by ad platform
Another way of looking at things is using your gross margin percentage ((Revenue – Cost of Goods Sold)/Revenue = Gross Margin). See below:
Number of Sales * Average order value * Margin – Budget = Profit
Choosing the right type of budget for your business
Now we’ve come to a crossroads as it’s time to choose which type of budget is best. With regard to paid search budgets, there are three main options:
Budget 1: Prior-year based
You set your budget based on a certain percentage of the previous year’s total sales or average sales from the last few years.
Budget 2: Percentage of sales based
You set your budget according to competitive or industry benchmarks.
Budget 3: Objective and task based
You set your budget based around your planned advertising activities.
How to maximise returns: quickfire PPC budgeting tips
Launching a pay-per-click campaign is fairly simple. However, just because you can put one together quickly by following Adwords’s step-by-step process, doesn’t mean you will have instant success. What you need is a well-thought-out strategy.
Here are our top tips for maximising returns:
Get granular with your targeting
You might be head over heels for your current ad campaign, but if your keywords aren’t reaching enough people or the right people, your efforts are going to waste.
Ensure that the keyword research you carry out is detailed, local and accurate. The key to this is focusing on keywords that have both a good search volume and immediate purchase intent – those with higher intent will have a higher conversion and click through rate.
Selecting keywords
If you’re especially limited with your budget, you will need to weight up your targeting options to ensure your bids are well spent. This means selecting the right keyword match types for your audience and marketing goals. A good place to start is to choose between phrase match (exact match) or broad match targeting.
Phrase match targeting vs broad targeting
A broad keyword match refers to when your ads appear in the SERPs for queries related to the meaning of your keyword but may not contain the exact terms. In contrast, phrase match keywords match up your ads with queries that have the same meaning as your keyword or a more specific form of this keyword.
The key difference between these two lies in audience reach. Broad match keywords reach wider audiences, but searchers might not be looking for exactly what you’re offering. Phrase matches reach smaller audiences that are more geared towards your keywords.
So if you’re a small business testing the water with PPC, you might want to start out with well-researched exact match keywords in order to reach your specific audience while avoiding needless spend on irrelevant clicks.
Start forecasting
In the world of PPC, forecasting denotes the ways in which you use data to make informed predictions. The bread and butter of PPC forecasting is acquiring as much information as possible, which is then used to build a well-informed picture of what impacts certain scenarios might have on your campaign.
Often included in PPC forecasting reports is your cost-per-click (CPC), conversion rate, industry trends and competitor metrics. Ensure that you make use of all the tools, metrics and features available to you in order to run and optimise your campaigns and strategies.
For instance, we recommend that you use Google’s Smart Bidding to streamline the process. Put simply, Smart Bidding is a subset of automated bid strategies that utilises machine learning to automatically optimise for conversions in all of your auctions. We promise you this will save you bucketloads of time – time which you can then use for thinking about your strategy.
When you’re ready to dig even deeper into the nitty gritty of PPC, you can then look into third-party tools to run your campaigns like a pro.
Flexibility is key
When running a PPC campaign, you should be frequently checking in with your data and metrics. If you spot an ad that isn’t performing as well as expected (look for lower-than-normal CTR), there might be improvements with the ad copy to be made.
Or perhaps your energy would be better spent on a more specific, targeted keyword. Either way, the answer will rear its head after some probing. You could even carry out some A/B testing between similar ads to identify areas of improvement.
Top tip: If you’re still uncertain about your performance, it’s worth checking out the Google Ads benchmarks for your specific industry to see if you’re on track for success.
Analyse your past performance
Jumping off from the previous point, another great way to identify areas of improvement or holes in your advertising campaign is to analyse your past performance.
If you’re using a paid search programme, there will be a metric called “impression share (IS) lost due to budget” or similar. Use this to work out whether your budget is high enough to exploit the potential of every keyword theme you are bidding on.
If this metric displays any figure above 0, it means that your ads aren’t as visible as they could be due to budget constraints. In this case, you may want to re-evaluate your PPC budget.
Pair with SEO efforts
PPC works especially well when paired with local SEO – by using these powerful strategies in tandem you will increase your visibility in search results by a great deal, allowing you more opportunities to drive valuable leads to your website and generate conversions.
Let us take you under our wing
Ready to reach new heights with your advertising campaigns, minus the bother of managing the PPC budget yourself? Let our swarm of digital marketing specialists take you under their wing.
We’ll use our expertise to refine your strategy, so you avoid wasting money on Google Ads and hit your company targets with potent and profitable PPC campaigns.
