If you want to boost your digital marketing efforts, pay-per-click (PPC) advertising is a great way to reach your target audience. But before you get started with a paid search campaign, it’s important to come up with an ad spend budget to help you stay on track.
Before calculating your PPC budget, it’s important to consider how much you’re willing to spend on your campaign. However, determining an amount depends on a number of factors, such as your goals, traffic, how large of a geographic area you’re targeting, search volume, and the competitiveness of your industry.
- What are my goals for new leads, revenue?
- How much traffic do I need to reach my goals?
- Is there a spending gap?
First, identify new leads that will result in revenue. If you want to acquire 50 new customers per month compared to last year. If your goal is much larger than your current results, how much you spend on PPC to acquire new leads is equally significant.
To calculate how much it’s going to cost you to acquire traffic, consider the average cost-per-click (CPC). Let’s say you run a quick search for relevant keywords using the Google Keyword Tool, and the results show that the average CPC for keywords in your industry is around $6. That means with a budget of $1,500 per month, you can expect to get about 250 visits to your website. By understanding the cost of acquiring traffic, you can better determine the PPC budget you need to hit your goals.
Next, take a deep dive into your Google Analytics to determine your site’s average conversion rate. When it comes to retail services sites, conversion rates generally fall in the 10% range. This means that for every 10 form submissions, you can expect to receive somewhere between 10 and 30 phone calls. Consider using call tracking as one of your conversion rate optimization solutions to track where your prospects come from and how they behave on your site. For e-commerce sites, conversion rates are usually much lower, falling in the 1-2% range. However, this can vary depending on the quality of your site and how well it’s designed.
Lead conversion is all about how effective you and your staff are at converting leads to customers. To calculate your conversion rate, take the total number of leads and divide it by the total number of new customers. If you have 30 leads and 18 new customers, your lead-to-customer conversion rate would be 60%. Leads converted to customers can range anywhere from 50-90%, depending on the industry and the channel used.
Leads generated through Google search queries tend to be more pre-qualified and have higher conversion rates than those coming from social media platforms, such as Facebook or Instagram. Because customers searching through Google are actively looking for a specific product or service, the conversion rates are higher, while those on social platforms are typically there for other reasons. If your rate is lower than desired, prioritize addressing any operational issues that may be affecting it before taking the next step to determine your PPC budget.
The next step is to make sure your campaign budget is going to result in profit and cash flow. If not, you’ll need to:
- Improve your margin
- Increase your website’s conversion rate
- Improve lead-to-customer conversion rate
Imagine your PPC budget is $4,000 with the goal to generate 48 new customers who, on average, each bought products worth $500. This generated $24,000 in sales revenue, resulting in a return on ad spend (ROAS) of 600%. But what about when you take into account the expenses associated with producing those sales? That’s when your PPC ROI comes in.
Let’s assume you have a 50% margin on $24,000 in sales, meaning it costs you $12,000 in labor or parts to produce those sales. Subtracting your campaign expenses of $4,000 from the gross profit of $12,000 leaves us with an ROI of 200% and $8,000 in cash flow.
Once you calculate your PPC budget based on your goals, traffic, and other key metrics, consider and adjust the following variables as you go:
- Cost to acquire a customer
- Website conversion rate
- Lead to conversion rate
By optimizing these important metrics, you can find ways to improve your marketing campaign and get more profit out of your strategies.
To help you measure PPC campaign success, consider these essential cost-per-click benchmarks.
At Web Sprout, we offer complete paid lead generation solutions, from helping you determine a PPC budget to managing and improving a campaign that delivers revenue—not just leads. If you’re not sure where to start with budgeting for your ad spend, our team gets started swiftly, yet carefully. Contact us today to schedule an appointment to discuss performing a free Google Ads audit. If you don’t have a Google Ads account, we can perform a Facebook assessment. If you don’t have any paid ad accounts, we can perform an opportunity assessment and come up with a plan.
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Web Sprout is a woman and veteran-owned business that treats you like a partner, not just another client, nurturing your PPC campaign with TLC to deliver revenue—not just leads.