We collaborated with Justin Wagner at Adfinitely on this post. Adfinitely is an Atlanta-based company that provides marketing technology to multi-location businesses.
If you’re interested in running a PPC campaign, it’s first important to figure out if running PPC for your business will even be profitable. Your margins will depend on myriad factors, and whether or not you have a sufficient budget to run a profitable campaign is one of the biggest.
With too little budget, you run the risk of not seeing enough volume to reach profitability. And with too much spend, you’ll likely conclude that you need to put your dollars into other channels to drive sales, as there just aren’t enough relevant searches a day to meet your intended budget.
So, how much money should your business be spending on PPC? Below, we outline some beginner tips for figuring out how much you might need to spend to run a profitable paid search campaign, along with some tips for maintaining that profitability as you scale.
Looking to get your head around PPC management rates? We wrote about that here.
7 rules for preparing a PPC ad spend budget
1. Research search volume trends
Proper research is one of the most important steps when you’re thinking of running a PPC campaign. The number of times your ads can be shown is completely dependent on search volume, or how many people are searching for your product at any given time. Without sufficient search volume, Google won’t even show your ads.
That said, smaller search volume can often be advantageous, especially for small businesses, as this usually equates to lower costs and light or non-existent competition. This could mean that building a campaign to ensure you’re always showing for these keywords could be both attainable and lucrative. If search volume is high, it’ll often mean costs and competition are both high, and that means you’ll likely need a larger initial investment to break into the space.
2. Research CPC (Cost Per Click) estimates
While researching search volume (via Google Keyword Planner for example), you’ll also come across cost-per-click estimates. These are estimates on how much you’ll be paying every time someone clicks one of your ads. As we mentioned above, high search volume often comes with a high cost-per-click. This isn’t always bad, though. With enough data, you can figure out whether or not it will be be profitable for you to invest in winning these clicks. We’ll talk about calculating profitability a little later.
3. Be specific with keyword selection
What kind of keywords are people using when looking for your product or service? This can be pretty straightforward for some, like if you’re running an e-commerce store or selling just a few products.
But figuring out the answer to that question gets complicated quickly when your product is a solution to a niche problem –– think “how can I track the effectiveness of my marketing dollars?” or “what’s the healthiest food for dogs?”
Your first focus should be on keywords that show immediate intent to purchase. For example, “Buy blue cowboy hat,” has more immediate intent than, say, “Cowboy hats.” When you’re building a keyword list, start with high-intent keywords and experiment with higher-funnel, low-intent keywords later on, when you’re ready to scale your operations.
4. Target geographic areas important to your business
This is going to vary by business, but if you’re a local business, it’s probably in your best interest to just target a small radius around your business to start. Maybe there’s an area nearby with a demographic that your products cater to particularly well. Conversely, if your goal is to run a nationwide campaign, using your geographic targeting to start with a smaller area, then expanding your campaign based on success, can often be a good strategy for scaling your campaigns profitably.
5. Run ads at specific times to your business and industry
Once you’ve been running a campaign profitably, a great way to boost your campaigns is to start limiting the timeframe in which your ads are showing to only the most profitable hours of the day. Is your business looking to drive calls in addition to website visitors, or online purchases? Try scheduling call extensions or call-only ads to only run when your phones will be manned.
6. Target devices that are specific to your customers
This has a bit more of a niche use case, but start thinking about what devices your prospects are using for research and purchases. Oftentimes you’ll see lower-ticket items both researched and purchased on mobile, but with higher-ticket items, most purchasing is done on desktop. Using this sort of info, you can bid more aggressively and less aggressively for these kinds of traffic based on where they are in your sales funnel.
7. Monitor your position, ad spend, and conversions
Lastly, once we’ve got our campaign up and running, it’s time to monitor our core KPIs (key performance indicators), to gauge the success of our campaign and to figure out ways to improve it. Are certain expensive keywords not converting into sales or leads as often as is needed to be profitable? Are certain keywords performing better at lower positions than in higher positions on the SERP (search engine results page)?
These are the kinds of indicators we want to monitor to manage and improve our campaign.
Will PPC be profitable for you?
So you’ve done your research, and it looks like there are some reasonably priced keywords for your product along with a good handful of people searching for those keywords each month. The next step is to take a look at your products, customers, and site analytics. For some businesses, looking at products means average order size. For others, it might mean lifetime customer value. The takeaway here is you need to know the value of driving one potential customer to your website, whether it’s $30 or $3,000.
Next, you want to look at your site analytics to determine your conversion rates, or the rate at which people are turning into customers. How often does a new site visitor become a customer or purchase your products? The higher the rate of purchase, and the higher the ticket price on an individual sale, the more we can afford to spend on driving traffic to the site.
For example, if we know the average order size on our website is $100, clicks are roughly $1, and our conversion rate is 2%, then for every 50 people we get to the site, one will make a purchase. This leaves our profit for those 50 clicks at $50, if we already have our margin baked into average order size. But if we can bump our conversion rate up to 7%, we get 3.5 purchases on average for $350 in total sales, equalling $300 in profit.
PPC budget calculator, plus budgeting tips
Once you’ve determined your campaign will be profitable, you can take calculations one step further and start to think about what a reasonable budget would be.
Let’s say, for example, when using the Google Keyword Planner, you learned that ~5,000 people search for products like yours every month, using a variety of different keywords in their queries. Let’s also say the average cost per click for those search terms was just $1.
Let’s also take a guess at an average click-through-rate for these keywords (the rate at which people will click your ad when they see it on the page). When figuring out a click-through-rate, you can consult various charts and websites that give averages per industry, but as a whole, it’s going to vary wildly, so we’d recommend starting with 5% then adjusting your calculations based on real-world data when your campaign starts. Now, with a 5% CTR (click-through-rate) and ~5,000 monthly searches at $1/click, you could expect to see roughly $250 in spend.
That seems simple enough, but remember that all of these numbers can vary wildly, from clicks costing more than $25 to CTRs both above 10% and below 1%. The beauty of PPC, however, is that you can monitor all these factors continuously and only spend money on clicks and keywords that you know are going to be profitable.
So how much should you spend on PPC?
The real answer here is: As much as possible, so long as you’re staying profitable. If your campaigns are driving more revenue than they’re costing, why slow down?
To start, you can use the tips and calculator above to at least get an approximation of how much you could spend and whether not you should even try in the first place.