A Quick Guide: How To Calculate Your PPC Budget In 4 Simple Steps

Each successful paid advertising campaign must be well-planned. By incorporating a workable strategy into your budgeting process, you can successfully harness the potential of your company’s digital activities. And when it comes to PPC ads, you will need a cost-efficient outline of how much you are willing to spend.

What Should Be Your PPC Budget?

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A predetermined/forecasted PPC budget is very helpful for defining benchmarks and targets, long-term planning, and remaining on track with your approach. Despite this, there shouldn’t be a minimum spending requirement for sponsored advertising. Both objectives and expenditures, as well as budgets, are flexible.

However, in general, your budget will be significantly impacted by a small number of important elements, such as the conversion rate of your website, the cost of keywords in your industry, and the typical lifetime value (LTV) of your customers.

4 Steps On How To Determine Your PPC Budget

Even if there might not be a specific number that will work for every company, you still want to avoid going in blind and squandering your entire budget with no return on your investment. Let’s go over a 4-step strategy that will clarify how to choose the right PPC budget for your business.

Step 1: Identify The Best Keywords For Your Marketing Objectives

Before deciding on an appropriate PPC budget, specifically for a Search campaign, you must first identify the search terms that prospective customers are using to find your product or service.

While this is typically straightforward for businesses like e-commerce websites, things can become challenging if your product is a tailored response to a particular problem. You must make a decision regarding the best way to track the efficacy of your marketing spend under these circumstances.

Now, focus on keywords with a recent purchase intention as your initial focus. High-intent keywords will likely have a higher click-through and conversion rate.

Step 2: Run The Keyword Planner Report

The Google Keyword Planner is a useful tool for figuring out your target audience and budget. It offers a variety of features that enable you to generate fresh keyword ideas, combine keyword lists, evaluate click and cost performance, and show data on search traffic and trends.For each option, you will receive a list or report that you can filter based on various criteria, including the typical monthly searches, the percentage of ad impressions, and suggested bids based on the CPC other advertisers are paying for keywords with the same setting as yours.Alternatively, one-stop shops like Ahrefs or Semrush are excellent for your SEO and PPC requirements. They provide access to precise keyword data, insights, and thorough filters through their keyword tools.

Step 3: Do The Math

Several PPC specialists employ a sequence formula to determine an appropriate advertising budget. As a general rule, multiply the monthly average search volume for all relevant terms (based on your Keyword Planner report) by a targeted search impression share, typically 50% or 70%.

This will show you the potential number of impressions your advertising could get across all research-related keywords. As soon as the impressions are sorted, the prospective click volume is determined. In this case, you should multiply the impressions by the anticipated CTR (click-through rate). The moment has come to determine your PPC budget now that you know the prospective click-through rate. To achieve that, increase the anticipated click volume by the keyword planner report’s average CPC.

Step 4: Estimate Your Profitability

Most marketers resort to return on ad spend (ROAS) as a proxy for determining how well digital advertising performs. In essence, it’s not as difficult as it would seem to calculate goal ROAS. It is the ratio of the money spent on an advertising campaign to the overall revenue it generates.

Here’s where things could get complicated: ROAS normally only includes the cost of a customer’s initial purchase in calculations of ad campaign revenue. For SaaS companies operating in the subscription market, determining profitability requires taking ROAS and customer lifetime value (LTV) into account.

Generally speaking, the LTV calculation will be based on your revenue strategy and business plan. The average sale value, profit margins, churn rates, average number of transactions per client, and average customer longevity must still be estimated in light of this.

You must also compare the customer’s LTV to the customer acquisition costs (CAC) for each campaign to determine which would be the most profitable (or the average cost you pay to acquire a new customer). Ultimately, a customer’s lifetime value should be around three times higher than the cost of obtaining them.

Top 3 Tips To Remember When PPC Budgeting

Although having a budget for advertising is essential, creating one can be a daunting undertaking. Here are three suggestions to help you along the road as you work on your budget.

Choose The Best Budget Type

Companies have a variety of alternatives when it comes to setting budgets for paid search. The following are typical strategies used by marketers and advertisers:

  • A budget that is based on the previous year’s sales or the average sales over the preceding few years is calculated as a percentage of that year’s total sales.
  • The advertising budget is calculated as a percentage of sales and is determined in accordance with market or competitive benchmarks.
  • The PPC budget is set based on the anticipated marketing and advertising activity. It is objective and task-based.

All things considered, marketers frequently combine various strategies to determine a final budget. This can frequently result in a more accurate estimate of the costs necessary to achieve your PPC objectives.

Consider Forecasting

Forecasting in PPC is the process of using data to generate predictions. The main objective of PPC forecasting is to gather as much high-quality information as you can to produce an informed prediction about the potential effects that various situations may have on your PPC Marketing campaigns. For instance, a common type of data in forecasting reports is the Cost Per Click (CPC).

Be Flexible

Being adaptable when it comes to PPC budgeting enables you to quickly react to market changes, emerging possibilities, and existing issues.

You can allocate more of your budget to a certain media if it produces most of your revenue. Also, you may increase promotional spending during growth or decrease it during periods of decline.

Conclusion

You must establish a budget for each PPC campaign you run, regardless of whether you manage a small business or a larger organisation. Why? Because you won’t know how much money you have to spend and won’t be able to determine your cost per convert without a defined budget. 

FAQ

What is the formula to calculate PPC?

The basic PPC formula is: Pay-per-click ($) = Total Advertising Cost ($) ÷ Number of Ads clicked. There are two ways to think about how you want to handle your advertising strategy regarding cost.

What is a typical PPC budget?

PPC pricing can vary depending on various factors, like your industry or ad network. While budgets vary dramatically, on average, small and mid-size companies spend around $15,000-$20,000 per month on PPC campaigns with an average cost-per-click (CPC) of $2.59, based on data from WebFX.

What is the most important indicator of successful PPC?

The Average Click-Through Rate Clicks are a vital indicator of your PPC campaign’s success. Simply put, people click on your ad if they consider them relevant and valuable. Based on ad clicks, many marketers decide whether to pause their campaigns or boost their bids.