Setting a Budget for PPC

Setting a budget for PPC can be easy — pay what you feel you can afford. Few advertising options give you this flexibility. But PPC ads have a lot of moving parts, and that can make it hard to determine the best budget for your needs.

Paid search, CPC, or PPC — it all means your company pays  to place ads online in response to visitors’ search behavior, either on the SERPs (search engine results pages) or on websites, and pays only when someone clicks through from the ad to your sales page. Since the ads only show to people who are actually looking for what you offer, PPC is highly effective. It’s also very easy to track your results with paid search.

Banner ads and the related smaller ads placed on a website show to everyone who visits, not just to people searching for your goods and services. Our clients have sometimes seen impressive results from banner ads on just the right website; people who read beauty blogs are very likely to be interested in make up, so a good match can get excellent results.  However, we’ve also seen long-running ads with very little payoff. Sometimes banner ads are sold on a pay per click (PPC) basis, but they don’t show up anywhere except on the website where you’ve bought the ad, and they are shown to all visitors.

The distinction between the two is important for this discussion, and it’s easy to see:

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Paid search ads show up in search results or along the side of a website, in response to the search terms a particular user has typed in and (in some cases) the content of  the website they’re visiting; as you can see in the example above, they can include photos like the bottles of shampoo, or just text like the search results with small yellow “Ad” notices. Banner ads, including both the small banners and the small square ads you can see in the right sidebar of the website screenshot above, show because someone paid for them. They may rotate, but they will not change depending on the behavior of the person visiting the website.

The budget for banner ads is pretty simple. The webmaster of the website has a price, and you pay it. You supply the ad or perhaps they will do the creative work for you, and the ad links to your sales page or website. You may per per click or per impression, but a flat fee is more usual. It may run $50 a month or thousands of dollars a month, depending on the traffic and authority the website has to offer, but you usually know what you’re going to spend going in, and the question is simply whether it fits into your marketing budget.

For PPC, it’s more complicated. You set your budget for the day or month, typically, and then work on making that amount profitable in terms of the value of the ads’ performance. So how do you decide how much to spend when you start?

Google Adwords offers tools that allow you to find the point at which you can expect to get the best results. We can program it with a variety of settings and see what results we might get. Lets look at some examples of this tool in action.

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That blue line shows the number of clicks this imaginary client might get at different keyword bids and different budgets. We could start them at $2.00, the amount shown at the left side of the screen. We can see that a higher bid on the keywords we’ve chosen will get us more action up to about $10 per click. After that, there’s no benefit in going for a higher bid. And we can also see that, while there’s a very big difference between a $2 bid and a $9 bid, there’s really not that much of an improvement between $9 and $10. In fact, we found that $7 is about where we stop seeing a significant benefit from raising the maximum bid. The actual cost per click might be much lower, but we would plan to bid on this keyword at $7.00

We found that $50 a day was a good budget for this scenario, and that Google figures the actual cost would bet more like $25 to $35 a day. The settings here are for a hospital in one city advertising one kind of surgery, with relatively little local competition. They could expect to get their best results for this campaign with a monthly budget of about $1500. If they have more in their PPC budget, we should use it for other campaigns: another kind of surgery, for example, or a brand awareness campaign for the hospital.

 

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Our second example shows a $50 a day budget for a private doctor serving one county. The keywords we’ve chosen are fairly general — the doctor’s specialty —  because our imaginary doctor doesn’t have prior experience that would tell us what more specific offers would work best for her practice.

We found that a $3.00 maximum bid would work best. However, the gray area of the chart shows that, with a $50 a day budget, we would be missing out on some possible clicks. Increasing our bid won’t make a difference, but increasing our daily budget might.

In this case, we’d recommend starting out at the chosen budget — the same $1500 a month as in our first example — and working to identify the most profitable keywords. Based on our experience with online marketing for doctors, we expect that there could be on-site changes that would make a big difference in her quality score and in the performance of her ads, so we would work to get the most impact and the most information before we recommended increasing the budget.

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Our third example is a national chain offering emergency medical service. We’ve set them up with a bid of $3 for their fairly general keywords and a budget of $100 a day. We didn’t see a big difference when we increased their bid, so we can keep them at that cost per click, but this budget will only put them at #3 in the search ads. We have to keep in mind that this is an imaginary company, so Google isn’t using their quality score to make predictions. If they were a real company with a strong website, they might do better.

Based on this information, though, we would want to see a higher spend. A national chain probably can and should go beyond the $3,000 per month we budgeted. If not, they might be better off directing those resources toward other marketing efforts, such as regular blogging and social media to improve their organic search results.

There will always be a point at which increasing your bid and budget won’t bring better results. We’ve been talking with a company which sees no drop-off in their predictions (with a $5 maximum bid) until they spend $2,000 per day. If they achieved a 4% conversion rate at their sales page, they’d be looking at a cost per acquisition of about $125. They offer a service that starts at $25 per month; if their typical customer stays with them for three years, then they’d be spending $125 to acquire $900 in revenue — not a bad result. In this case, their budget for PPC should be as high as they can afford to make it up to a cap of $2,000 per day — unless they can’t handle that level of growth.

Clearly, the best budget depends on a multitude of factors, from the conversion rate at your sales page to the value of a new customer, as well as your cash flow and Google’s predictions. If any of the moving parts improves, your results can improve.


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