Setting a budget for PPC (pay per click, like Google ads) 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. You pay 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.
Pay per click vs. banner ads
The distinction between the two is important for this discussion, and it’s easy to see:
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.
PPC pricing
For PPC, it’s more complicated. To keep it simple, let’s stick with pay-per-click, even though you can now pay per conversion and other metrics. 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.

That blue line shows the number of clicks this imaginary client might get at different keyword bids and different budgets. In this example, we’ve said that we want to cap the bid at 64 cents. Google is telling us that if we spend $1,700 per month, we can expect 2,65o clicks in that month.
We can see that spending more will get us more action all the way to more than $7,000 per month. This imaginary client is selling something that is greatly in demand. Google figures that as long as we’re willing to show the ads, people will click through, even at a fairly low cost per click.
Our second imaginary client sees a leveling off around $11,000 per month. After that, there’s less benefit in going for a higher spend. While there’s a very big difference between a $3,000 a month spend and an $11,000 spend — about 5,000 clicks, there’s really not that much of an improvement between $11,000 and $22,000.
If our imaginary client wants to spend $22,000 per month on PPC, they should cap this campaign around $3,000 per month and add other campaigns.
Our third example shows a $10 a day budget. We can see that spending more will give more clicks — but doubling the spend won’t double the clicks. We’ve got a gentle slope here. Sometimes the prediction will level off or even fall as we propose a higher spend. The more like a hickey stick the line becomes, the more clearly we have a sweet spot for the budget.
We can also adjust the cost per click bid, improve the landing page, and tweak the ads to make them more relevant and compelling. It often makes sense to start out with the budget Google suggests and work to improve results. Over time, we end up with more information and can make better predictions.
On the other hand, Google is a for-profit company. It’s in their best interests to suggest a higher spend, and we have to take that into account.
How much is too much?
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.
Leave a Reply