How To Set Your Budget For PPC
When building a PPC search advertising campaign for our clients, the most important conversation we have with them is around their pay-per-click budget and their expected ROI. In this article, we go over how we help them arrive at their budget.
What Does A PPC Budget Cover?
Most PPC advertising platforms like Google Ads or Microsoft Ads ask their users to set a daily budget for their ad spend. Every time a user clicks on your ad, it will cost you a small amount and reduce the available budget for the rest of the day. This means that the more you spend, the more clicks your ads can get. But you want to make sure you are getting a good return on investment (ROI) for your ad spend.
How To Ensure ROI
Because not every click on your ad is going to result in a lead or a sale, it is important to make sure that you are not overspending on clicks and to be aware of the percentage of users dropping out of the sales funnel.
As an example, if you were a double-glazing installer looking to advertise online using PPC ads, the first thing to consider would be the profit margin on one of your jobs. Say you make £100 profit on each installation, then £100 is the maximum you could spend on acquiring each customer without losing money by doing so.
But obviously you want to be making a profit, not just avoiding a loss. This is where percentages come in to play. For instance, if you know that on average, for every quote you send out to a potential customer, one in four turns into a sale, then immediately the amount you can spend on acquiring each lead is cut to a quarter. So, for a £100 job, the maximum you could spend on acquiring each lead is £25.
From here we can start thinking about click costs…
How To Set Your Click Costs
As we said, not every user that clicks on your ad and visits your website is going to convert into a lead. In fact, the current industry average is 3.48%. At Carden Digital, our ads often outperform this average by several times, but for the sake of this exercise, lets round it to an even 5%.
If you are running a campaign targeting users in your local area, you need to be mindful of who your competitors are and what they are spending on their ads. Click costs for online advertising in London will normally be much higher than they would be somewhere less crowded.
So, with a 5% conversion rate, for every 20 clicks on your ad, you’ll get 1 lead, and let’s say that for every 4 leads, you’ll have one actual sale. That means you need 80 clicks on your ad to get a single sale. To have a positive ROI in this scenario, the cost per click would need to be less than 1/80th of your profit margin. If the profit margin is £100, then the maximum you should spend per ad click in order to break even is £1.25, and ideally, you’d want to be aiming for quite a bit below that price in order to maintain a profit.
Confused? Carden Digital Can Help
We know that calculating percentages, conversion rates and ROI isn’t everyone’s strong point, but not being great at maths doesn’t mean you can’t take advantage of online advertising. By partnering with an expert PPC agency like Carden Digital, you can have success with your campaigns, without the stress.
Just let us know your monthly advertising budget and your average profit margin per sale, and we’ll do the rest. We calculate the optimum cost-per-click to maximise your ROI, as well as building your ad campaign, managing it and tracking the results.
We hope this has been a useful overview of how to approach your PPC budget and ROI. If you’d like to learn more about our PPC services, speak to our team today.
