Stop Guessing And Start Succeeding: Master PPC Budget Calculation

Table of Contents

Paid advertising campaigns require careful planning to succeed. You can effectively unlock the potential of your company’s digital activities by including an actionable strategy in your budgeting process. 

This article will further examine your PPC budget calculation process and learn helpful pointers to help you along the road.

What Should Be Your PPC Budget?

PPC budgets are useful for setting benchmarks and targets, long-term planning, and staying on track with your strategy. There isn’t and shouldn’t be a set amount that you must spend on sponsored advertising. Budgets are subject to change as well as objectives and expenditures.

Nonetheless, as a general rule, your budget will be heavily influenced by critical factors, such as your website’s conversion rate, the cost of keywords in your sector, and your consumers’ typical lifetime value (LTV).

4 Steps On How To Determine Your PPC Budget

Even though there may not be a certain quantity that works for every company, you still want to avoid blowing your entire budget with no return. Let’s go over a 4-step structure that will help clarify how to determine the appropriate PPC budget for your company.

Step 1: Identify The Best Keywords For Your Marketing Objectives

Determine the search phrases potential buyers use to find your product or service before you can set a suitable PPC budget, specifically for a Search campaign.

While this is usually simple for companies like e-commerce sites, things can get complicated if your product solves a specific need. In these situations, you must decide how to track your marketing budget’s effectiveness effectively.

You should start by concentrating on keywords that have a recent buy intention. High-intent keywords are likely to have a better click-through and conversion rate.

Step 2: Run The Keyword Planner Report

The Google Keyword Planner is an effective tool for determining your target market and spending limit. It provides several tools to find new keywords, merge keyword lists, estimate click and cost performance, and display information on search volume and trends.

You will receive a list or report for each option that you can filter depending on several factors, such as the average number of monthly searches, the share of ad impressions, and proposed bids based on the CPC that 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 detailed 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 how many impressions your advertising could get across all research-related keywords. The forthcoming click volume is determined as soon as the impressions are sorted. 

In this case, you should multiply the impressions by the anticipated CTR (click-through rate). Now that you know the prospective click-through rate, the moment has come to determine your PPC budget. Increase the anticipated click volume by the keyword planner report’s average CPC to achieve that.

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.

You must also compare the customer’s LTV to the customer acquisition costs (CAC) for each campaign to determine 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 daunting. 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 searches. The following are typical strategies used by marketers and advertisers:

  • The budget 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 per 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 campaigns. For instance, a common data type in forecasting reports is the Cost Per Click (CPC).

Be Flexible

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

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

Conclusion

You must establish a budget for each PPC campaign, regardless of whether you manage a small business or a larger organization. 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. 

Do you have any concerns? Let us know down below!

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 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. Many marketers decide whether to pause their campaigns or boost their bids based on ad clicks.

We'd Love To Hear From You!

If you have any questions, please do get in touch with us! If you’d prefer to speak directly to a consultant, Book A Call!