What Should Your Pay Per Click Advertising Budget Be This Year?

PPC Unplugged

In simple terms, pay per click advertising is a way of generating inorganic traffic to your business by paying for every click a visitor makes on your ads. These ads will be placed in various search engines and social media platforms, and you end up paying a certain amount, every time an ad is clicked and the user is directed to your website.

PPC budget is the amount that you are willing to set aside to pay the service provider, on the achievement of the required number of clicks. Placing ads in sponsored links increase the probability of getting clicked since these ads will be placed in the lists in the case of searches that contain the chosen keywords.

Goal Setting For Effective Budgeting

Goal setting is the stepping stone to budgeting. Asking yourself a few basic questions will help in deciding goals and your overall pay per click advertising strategy for the year.

  • Are trying out PPC as an option or is it an integral part of your overall sales strategy?
  • Have you identified your target market and understood people’s buying personas?
  • Do you have a list of engaging keywords that represent your business?
  • What is the worth of a single customer to your business?
  • How good is the existing brand awareness for your business?

These basic questions will help in narrowing down the goals in order to set your PPC budget. In finding answers to these questions, it is important that there is no room for any objective bias and the results are validated by numbers.

What Is The CPL (Cost Per Lead) Acquired From The  Pay Per Click Advertising Spend?

The cost of acquiring a lead is the CPL, also called as online lead generation. It is a deciding factor that justifies the PPC budget. If the amount of acquiring a lead is cheaper in PPC than in other advertising models, your existing budget can be continued or even increased. For example, you spend $ 1000 for 15 days in PPC and acquire 50 leads.

Here the CPL is $20 and if this cost brings you a sustainable profit margin, you can consider the exiting budget sufficient. It is important to state that the concept of CPL is different that of the cost per sale advertising models, where the ad agency bears the responsibility of sale. In PPC it is limited to number of leads that are directed to your business and it is up to your business to get the lead converted.

The Size Of Your Target Market

How big is the market that you target is very important in the determination of the PPC budget. The cost of advertising increases with the geography of your target market. The cost per click of keywords vary for local and international markets. Also the number of cities or countries you target also influences the magnitude of your PPC budget.

Measuring The Impression Share Metric

Technically speaking, impression share is the proportionate number of impressions received to those that you were due to receive. It is an important yardstick to determine or enhance your PPC budget and also functions as a metric of control when the keywords chosen by you do not bring you the results. An impression occurs when your ad displays for view and action by the user. The action to click happens only after the impression. A poor rate of impression share means poor performance of keywords and you might need to opt for premium keywords by expanding your PPC budget.

What Is The Profit Margin Associated With Each Customer?

It is not the sales but the net margin from each sale that needs to be looked at for planning your advertising budget. For example if an average customer can bring in a profit margin of $40, then your business needs 20 such customers through PPC  to attain break-even against an ad spend of $800.

Your PPC spend must be able to bring leads that can account for sales up to the break-even mark, at least. Similarly, expected customer lifetime value is another important determinant of the PPC budget. Customer LTV is the amount of revenue brought in by a customer through his entire tenure of brand association with your business.

What Is The Impact On Conversion Rate?

The impact of pay per click advertising on your conversion rate is a crucial factor based on which you can determine your future budget. If conversion rate had been positively impacted post an allocation of resources to PPC advertising, then it is worthwhile to expand past budgets. If the results are not evident, then you must look at shrinking the budget. However the conversion rate must be adjusted for industry and seasonal fluctuations. Compare with your non PPC campaigns and evaluate the Cost Per Click Charged by search engines, in light of this.

The Industry Standard For Different Keywords

While freezing on the pay per click advertising budget, it is worthwhile to understand the cost of industry-specific keywords. The pay per click advertising budget differs between professionals and businesses. While some keywords may hold relevance for a few industries, the same keywords may not hold relevance in others.

Use Keyword Planning And Traffic Estimation  Tools To Decide The Prospective Spend

Tools like Google Keyword planner can be used to arrive at an optimum budget for PPC. The PPC budget is a function of cost per click, time frame and number of clicks that you require. For example if Facebook charges an average CPC of $2 and a target of 15 daily clicks for a fortnight will cost you $450, that is your fortnightly PPC budget.

It is true that money saved is tantamount to money earned. But investing in a channel that suits your business, its target market and spread of customers, is not a wild guess. Planning your pay per click advertising budget without allowing for the above considerations, will end in conjecture and entails huge financial losses. The maths behind it all becomes a lot more simpler once the above pre-cursors are understood in the right sense.