Last Updated on 2021-04-24 by ppcguybklyn
Before deciding to open a PPC account, the most common question we encounter is: "How much money should paid search advertising cost?". Unless you have set a clear advertising budget, most of the time you will face the dilemma of not knowing how much you should spend on PPC. Spending too much could be a waste of money, but spending too little could also miss opportunities for more profit. In this article, I will sort out two budget planning methods that I think are the easiest and straightforward, and how to use them.
Things you should know before setting an advertising budget
Before setting an advertising budget, there are two things I think must be known:
It takes time to develop highly effective PPC ads
PPC is an advertising model that takes time to test and learn. Whether it is looking for the most appropriate copy and keywords, or finding the best bidding model, it is unlikely that there will be immediate results in a short period of time. Therefore, when setting the advertising budget at the beginning, try to hold the mentality of "a large part of this money will be spent on testing traffic", and treat the advertising budget with a long-term business perspective. You should not cut the budget right away when the results are not good so that ther performance of the advertising account can have time to be improved.
It’s not just keywords and copywriting that affect ad performance
There are many factors that affect the effectiveness of paid search advertising. The overall website design, changes in the overall search volume, and the consumption habits of potential customers may cause fluctuations in the effectiveness of advertising. Sometimes these factors are beyond the control of advertisers. What we can do is to find the best combination of keywords, copywriting, and bidding prices, then optimize advertising efficiency to a certain range. Because sometimes there are not many factors that can be controlled, when setting advertising budgets and expected results, you should not exaggeratedly say how much profits can be made with just how much money you spend. Reasonable analysis and calculations would be a more appropriate approach.
After clarifying the mentality that we should have when estimating advertising budget and effectiveness, we can begin to discuss the exact budget calculation method. I think the simplest methods are the following two:
Method 1: Calculate the expected traffic from PPC
If the website itself has stable organic traffic and other traffic sources, we can use these traffic to determine the amount of traffic we hope to obtain from PPC, then use the industry average CPC to calculate how much it would cost. In order to calculate these things, we need to refer to the following values:
Total website traffic or organic traffic
Generally speaking, in order to prevent the website from relying too much on paid search advertising, we hope that the paid traffic will account for about 20% – 25% of the total website traffic. We can also presuppose that we want to get traffic similar to the size of organic search from PPC. No matter how you calculate it, unless the competition for organic search is really fierce and the amount of traffic that can be brought in is limited, I think we should try to set the goal of PPC advertising based on the principle that paid traffic should not exceed organic search traffic.
Industrial benchmark CPC
With the expected traffic, we can refer to the average CPC of the industry to calculate how much it will cost to bring such traffic.
For example, if the current average monthly total traffic of the website is 10,000, we hope that PPC can bring 25% of the total traffic, which means we need 2,500 clicks. Assuming that the industry’s average CPC is $2.00, then in order to bring in 2,500 clicks from the keyword ads, an advertising budget of $5,000 is required.
Method 2: Calculate from website conversion rate and average conversion value
If we want to calculate the advertising budget in a more profit-oriented way, then we can use this method. We can use the overall conversion rate of the website and the average conversion value to calculate the advertising budget and expected results.
Conversion rate
In general, the overall conversion rate of a website is usually not too different from the actual conversion rate of PPC ads, unless the website itself attracts a lot of irrelevant traffic, in which case the conversion rate of PPC ads may be relatively high. In any case, the overall conversion rate is a good basis for estimating the conversion rate of paid search ads.
Average conversion value and industry CPC
With the conversion rate, we can use the average conversion value and the industry CPC to calculate how much paid search advertising should cost if we want to get the expected profit.
For example, suppose the overall conversion rate of our website is 2.5%, the average conversion value is $150, and the industry CPC is $2.00. If we want to earn a conversion value of $6,000 from paid search advertising, how much should it cost?
To earn $6,000, we will need 6000/150 = 40 conversions
From the 2.5% conversion rate, we can calculate that to achieve 40 conversions we need 40 / 0.025 = 1,600 clicks
Multiplying 1,600 clicks by the industry CPC of $2.00, we can know that we should spend $3,200 on the advertising budget.
We can organize this information into a spreadsheet of advertising budget
| Exp. Revenue | Avg. Con Value | Con | Avg Con. Rate | Est. Clicks | Avg CPC | Est. Cost | Est. ROAS |
| 6000 | 150 | 40 | 2.50% | 1600 | 2 | 3200 | 1.875 |
When calculating the budget, we can put other possible numerical changes in the spreadsheet. Here is an example of a higher conversion rate and a lower CPC:
| Exp. Revenue | Avg. Con Value | Con | Avg Con. Rate | Est. Clicks | Avg CPC | Est. Cost | Est. ROAS |
| 6000 | 150 | 40 | 2.50% | 1600 | 2 | 3200 | 1.875 |
| 6000 | 150 | 40 | 2.50% | 1600 | 1.5 | 2400 | 2.5 |
| 6000 | 150 | 40 | 2.50% | 1600 | 1 | 1600 | 3.75 |
| 6000 | 150 | 40 | 3.00% | 1333 | 2 | 2667 | 2.25 |
| 6000 | 150 | 40 | 3.00% | 1333 | 1.5 | 2000 | 3 |
| 6000 | 150 | 40 | 3.00% | 1333 | 1 | 1333 | 4.5 |
With such a table, we can have a clearer basis for the goal of PPC advertising optimization in the future. Although the pursuit of low CPC and high conversion rate has always been the general rule of paid search advertising, we can have a better view of where we should strengthen in order to further enhance the effectiveness of advertising by creating a detailed spreadsheet.
