When the PPC campaign takes over the budget, eventually the campaign will fail. It’s impossible to
realize any return on investment when the bids on a keyword skyrocket. And because there is no
ROI, your company is likely to cut your PPC campaign completely from its advertising budget, or
if you’re an individual, you could end up deep in debt chasing the best keywords.
That’s why it’s essential to start with the budget when designing your PPC campaign. Only with a
well-thought-out and strategically planned budget can your PPC campaign be both effective and
profitable.
Before you can begin to determine your PPC budget, you must first determine what a goal conversion
is worth to you. Determining the value of a conversion can be a bit tricky. Note, too, that the
value of a conversion is different from the cost per conversion. The value of a conversion is how much
you stand to make when one of your PPC ads leads to a conversion.
If you have an e-commerce business, it should be easy for you to determine the value of a conversion.
It’s equal to the average profit per order. So, if your average profit per order is $5, you can
assume that the value of a goal conversion associated with your PPC campaign is $5.
If you’re not running an e-commerce business, determining the value of a conversion might be a little
more difficult. For example, if you’re operating a content site your targeted goal conversion might
be a newsletter sign-up. What’s the value of that newsletter sign-up to you? It varies from company
to company, but if your newsletter draws advertisers, your advertising income might be what your
conversion value is based on. So, as an example, if your monthly newsletter has 10,000 subscribers
and your advertising income is $10,000 a month, then a subscriber is worth $1. Therefore, a good
value to assign to your goal conversion (which in this case is for a site visitor to sign up for your
newsletter) is $1.
With your conversion value determined, you can begin to determine your PPC budget, and it starts
with determining how much you want to spend on PPC overall. This amount (whether it’s $50 or
$5,000) is your firm limit. Very often, PPC costs can increase over time, so it’s important that you
pay particular attention to your maximum spend.
Now, to budget for your different keywords, you need a few additional metrics for each keyword:
- Average conversion rate
- Goals for number of conversions desired
- Cost per keyword
To find the average number of conversions, you need to multiply the number of clicks per day by
the percentage of conversions associated with that keyword. And finally, to determine your daily
budget for a keyword, multiply the average value of a conversion by the average number of conversions
in a given day. To find the monthly budget, multiply the daily budget by the number of
days in the month. The whole equation should look something like this: (The numbers used here
are for example purposes and have no corresponding metrics.)
Average Number of Conversions = 15 (clicks per day) × .08 (% conversion rate) = 1.2 (conversions
per day)
Daily Keyword Budget = $5 (average conversion value) × 1.2 (conversions per day) = $6 (daily
budget)
Monthly Keyword Budget = $6 (daily budget) × 30 (days in the month) = $180 (monthly budget)
One more thing about these equations: The budget illustrated would be your absolute maximum
budget because spending that amount would equate to spending all of the profits that you’re making
with your PPC campaign. Obviously, you won’t want to do that. Breaking even is not the point
of PPC advertising. Making a profit is. Therefore, it would be more realistic to expect to spend about
$3–$5 a day on that one keyword. That would make your keyword budget in a 30-day month
$90–$150 each month.
That’s for a single keyword, however. So if you’re bidding on 20 keywords, and you choose to pay the
same amount for all those keywords, your overall monthly PPC spend would be $1,800–$3,000 per
month. Most small and medium-sized business can’t afford to sink that much money into a PPC
program, so you’ve got to find a way to reduce that amount. That’s usually accomplished by beginning
with a few of the keywords that you’ve defined and then replacing the ones that don’t work
with others from the list that you’ve defined.
It’s important to remember, however, that PPC shouldn’t be the only element within your SEO
budget. In fact, PPC should equate to only 20 or 30 percent of your total SEO budget. Other SEO
efforts should also be ongoing, so that over time your organic keywords and other SEO efforts
become as effective as your PPC and other paid marketing campaigns.
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