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Dollars and Sense: How to Calculate The Right PPC Budget

Dollars and Sense: How to Calculate The Right PPC Budget

If you’re spending money on PPC ads, you’ll need to understand how to calculate your PPC budget and spend it wisely. Overspending on the wrong PPC ads is a huge waste of money, and underspending will likely not even get you enough data and feedback to understand what’s working and what isn’t (and in turn make it impossible to make important adjustments to your ad copy, keywords, or targeting).

So how do you set the correct budget for your PPC ads? The short answer is that it takes some goal setting and planning, some basic calculations, and some trial and error – with quick adjustments along the way.

In this guide, we’ll talk about all the elements you need to consider when calculating and choosing the ideal PPC budget for your ads.

How Does Your PPC Budget Influence Your ADS?

PPC Ads like Google Ads work based on an auction. You don’t just get to “order” the ads and watch them automatically show up.

The process is as follows:

Once your ad is created and approved, it goes through the auction process, where the Google Ads system will first place your ad into a pool with all the other ads that match the same search keywords. Google will then ignore any ads that aren’t eligible, such as ads that target a different country or are in violation of some policy. Next, Google will analyze the “Ad Rank” of the remaining ads and will typically display only those which rank the highest.

What is Ad Rank? It’s a combination of your bid amount, ad quality, the Ad Rank thresholds, the context of a particular users’ search, and the impact of various ad extensions and additional ad formats.

Here’s the kicker – EVEN if you get outbid on a particular keyword, you can still rank higher in the auction, winning a higher position at a lower price, if your ads are highly relevant and well-constructed.

PPC Influence

How Much You Should Spend on Ads?

The amount of money you should spend on PPC ads varies widely and depends on a number of factors, including your sales goals, the size of the geographic area you’re targeting (are you a local business or a national business), the search volume of the keywords and the overall competitiveness of the industry you’re in. Your ad spends, depending on these factors, could be as low as $50 per month or higher than $10,000 per month.

Let’s look at some of the major factors which will determine how much you should be spending.

Choose Your PPC Campaign Goals

The first step towards determining your overall PPC Ad spend is to really ask yourself what your exact goals are, and then really calculate what the cost would be to achieve that goal. Many businesses who really take the time to go through this exercise will be shocked at the answer.

Before you even dive into the “Goals” within Google Ads, you’ll need to think about the overall marketing goals for your business. Take the time to look into where you’re effectively driving revenue at the moment. Are you an established business with great word-of-mouth? Are you a new business trying to reach a highly-targeted market via social media growth? Or are you spending on direct mail, radio spots, and other forms of “old school” marketing? Once you have an idea of roughly what percentage of your total marketing budget you’re willing to put towards PPC ads, you can move forward with selecting a “Goal” as you’re creating your campaign in Google Ads.

Regarding your Goals, you can only choose one goal per campaign, so if you want to bring in leads and get sales, you’ll need to set up two separate campaigns – one for leads and one for sales. When you choose a specific goal in Ads, Google will help you with set up by showing you relevant and recommended features and settings to help you achieve those specific goals.

The different kind of goals you can choose for search PPC ads include:

Sales: Drive sales or conversions, with features that facilitate purchasing or start the conversion process.

Leads: Drive potential customers to sign up for your newsletter or provide their contact information to you for future marketing.

Website Traffic: Drive potential customers to your website.

Each of these goals will have a different bidding strategy and will likely require a different budget.

When you’re deciding on your goals, be realistic. If you’re running PPC ads in a very competitive industry with highly sought-after keywords (you can use the Google Keyword Planner to find out how much competition there may be, more on this later), you’re going to need to spend a substantial amount of money on ads each month. With less competition (if you’re in a very niche industry, or if you’re only advertising locally), your budget is not going to need to be nearly as high.

You need to make sure you’re aware of the competition out there for the keywords you’re targeting, or else you’ll run the risk of severely undershooting your budget (so none of your ads will run) or overshooting your budget (you’ll spend much more money than you’d need to, to achieve your results).

For example, if you’re a new company that makes their own protein powder, you’re going to have a significant amount of competition for keywords, the Cost Per Click (CPC) is going to be substantial, and your ad spend will likely need to be very high. But if you’re a local surplus store without much competition in your area, CPC for specific relevant keywords if you’re simply targeting people locally won’t require that you set an enormous budget to get the results you want.

Compare Your Goals With A Possible Budget

Now that you’ve got a basic goal, you’ll need to figure out what your possible budget would be to get there. First, you’ll need to figure out what kind of web traffic you’re going to need to achieve your goal, whether your goals are Sales, Leads, or simply Website Traffic. Obviously, the last one is simpler to calculate, but if sales or leads are your goals, you’re going to need to do some calculations based on what your expected conversion rates might be.

Let’s look at an example.

Let’s say you own a local closet building company. You decide that you want to acquire 50 new leads per month. You’ve done some local events, put some ads in the paper, and done well with word-of-mouth marketing, but you want to start focusing on PPC Ads to see if they can help you achieve your goal.

But how effective are your other forms of marketing, and how much of the marketing load do you need PPC ads to carry? Are you looking to totally supplant your other forms of marketing, or are you simply looking to supplement them with some extra online traffic?

Once you have an idea of what your goals are, you’re going to need to research the keywords that will likely get you to that goal, and come up with a sample budget based on your cost per click.

Launch test ADS

Testing ads can be somewhat tricky because if you’re not testing within the right parameters (budget and time) that make sense for the competition you’re up against and your overall goals, you might test for too short of a time to see any quantifiable results. That, or you might simply not spend enough to get good feedback either.

You’re going to need to have some data at your fingertips to figure your test Ads, budget, and time frame out. You’re also going to need to make sure you’ve got your Google Analytics set up and you’re able to track your conversions from your ads via the correct Google tags on your site.

If your goal is sales, you’re going to need to know how long your typical sales cycle is. If it’s longer than one month, then you’re going to have to test your Ads for longer than one month. If you’re just looking for leads, testing will likely not take as long.

Your testing time frame is also going to depend on your overall budget and your industry. If you’re only willing to spend a small amount, you’re likely going to need to test for longer to get any sort of reliable data to use to make adjustments.

Your Budget Via The Keyword Planner

As we mentioned earlier, Google provides you with an incredibly useful tool to figure out how much your competition is spending on the keywords you may want to target. It’s called the Keyword Planner, and it can help you with a wide variety of important elements for your ads, including finding relevant keywords, seeing what the search volume is for each keyword, determining the average cost per click for each keyword, and even helping you to organize keywords so they fit in well with your overall campaign structure.

The types of keywords you’re going to want to utilize will depend on your campaign goals. Want to generate leads? You’re probably going to want to use somewhat general top-of-funnel keywords. Trying to generate sales? You’re going to want to look into “high-intent” keywords, such as ones that include words “buy,” “discount,” “coupon code,” “free shipping,” etc.

Once you determine the keywords you’re going to be using, Google will generate a section on the upper right-hand side of the page called “Your Plan” that will help you estimate an effective budget. Pretty cool right?

Honestly, without utilizing this tool, you’re pretty much flying blind, so you’ll want to really dig into the Keyword Planner and gather as much information as you can. Google wants you to be successful with your PPC ads, because the more successful you are, the more money you’ll want to spend! Take their help whenever you can get it, the tools they provide will lead you in the right direction.

google keywords research

What PPC Budget Structure Should You Use?

Now that you’ve researched all the keyword CPC information via the Keyword Planner and you’ve got a good sense for a testing time frame, you’re going to have some more data to work with then it comes to choosing your PPC budget. But of course, it’s a balancing act, because you don’t want to overspend on ads only to realize that while people are clicking on them, they simply aren’t effective and leading to the results you want.

You’re setting a daily budget within Google Ads, so you’ll be able to continually make adjustments day by day, but it’ll be important to continue checking back in on this as you go along.

Check Whether Your Current Budget Is Enough to Generate Views

While you certainly don’t want to overspend before you’ve adequately tested your ad performance, you absolutely don’t want to under-spend either. If you’re not spending enough money to win any ad auctions, you’re not going to get any good feedback. So if your average cost per click is $7 but you’re only willing to spend $10 per day, you’re just not going to get enough data to be able to determine if your ads are working.

Check Your Campaign Structure

If you want to want to get the most out of your PPC budget, you need to make sure you set up your campaign structure correctly. Make sure you have a different campaign for each goal (as we mentioned above), but also make sure you’ve structured each campaign properly down the line, including your ads group level with geo and language targeting, your ad copy, and relevant keywords. For a full rundown on how to organize and properly structure a PPC campaign, check out this article.

Remember, a well-structured campaign can significantly outperform a poorly-structured one, so if you’ve got this component really nailed down, you’re likely going to save a lot of money. Notice that the eCommerce PPC agency can save your money because of the right campaign setting at the start.

Calculate Your ROI

So now you’ve likely got a decent idea of how much achieving your goals via PPC Ads will cost. But is it worth it? Is the value of the leads you’ll generate, or the customers you’ll acquire, higher than the cost of your PPC Ads? Luckily, if you’ve structured your ads well, chosen keywords intelligently, and written compelling copy, there’s a really good chance your ads will generate a great return on your investment.

To calculate your ROI, it’s pretty simple. Just take the revenue that’s resulted from your ads, subtract by your overall costs, and then divide that number by your overall costs. The equation looks like this: ROI = (Revenue – Cost of Goods Sold) / Cost of Goods Sold.

Remember, you’ll only pay for performance (hence pay-per-click) and with the adequate testing and necessary adjustments, you’ll be able to make sure the performance is in line with your goals. Remember, Google wants you to be successful!

Choose Your Budget

So you’ve tested your ads, you’ve got a good feel for your daily budget, and you’ve calculated your ROI. You’ve now got just about everything you need to determine your budget for a longer period of time. But remember, this can always change, you can always make adjustments, and nothing is set in stone!

PPC Budget Structure

Conclusion

PPC Ads can be a remarkably effective and critical part of your overall marketing strategy. But it’s certainly not a “set it and forget it” type of situation. You’re going to need to plan effectively, structure your campaign well, and then continue to monitor your overall performance to determine if you’re optimizing your PPC budget. As a business owner, this may seem like too much to have on your plate. That’s where we come in at Catapult Revenue, as our PPC experts can help you adequately structure, strategize, and budget the most effective Ad campaigns for your business. Contact us today and we’ll get to work helping you maximize your marketing ROI and bring in new customers!

About the Author
Yuriy Skotarev

Yuriy Skotarev

Yuriy oversees Catapult Revenue’s marketing team, ensuring all SEO, PPC, analytics and development work is executed with precision.

Expert in: ecommerce marketing campaign ecommerce marketing strategy ecommerce marketing services marketing for ecommerce business ecommerce digital marketing agency ecommerce marketing digital marketing for ecommerce
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