Everything you Need to Know About PPC Budgets and Bidding
If you are thinking of running a PPC campaign, you must have a budget and a bidding strategy. You need to know how to make PPC budget estimates. You also need to know how to balance your bids. You’ll be competing with other businesses for the same audience, and random budgets and bids are not going to work.
PPC bidding is a game of skill and strategy. If your bids are too high, you will not be able to run your PPC campaigns long enough. If they are too low, you risk getting low ad placements or no placements.
The good new is that ad ranks are not solely dependent on bids. There are other factors that determine how high or low your ad is served. That means your ad can be served at high ranks, even if your bid is not the highest.
That’s where you need to bring your A-game to ensure you keep getting that traffic without spending too much.
How to Come up with a PPC Budget
Each PPC campaign is unique and each marketer has different goals and objectives. As such, there’s no one perfect way of PPC budget forecasting. However, there are a couple of guidelines you can use to make sure your estimates are correct.
1. Create Measurable Goals and Objectives
You need to come up with measurable goals and objectives. You will be dealing with numbers when coming up with a budget estimation. The easiest way to come up with a measurable goal is to set a profitability target.
For instance, you could decide you want your PPC campaign to generate a profit of $10,000 from 100 sales in one month.
That goal is measurable in terms of “how much” and “how long”.
You have to do some calculations in order to relate your goal to your budget.
The first thing to consider is your order value. The order value is the price paid by a customer when they make one order. Your orders could have different prices though. In such a case, you need to calculate the average order value.
Average Order Value (AOV) = Number of orders within a given period / Total revenue collected from the orders
You also need to establish how much is your profit margin.
Percentage Profit margin (PPM) = (Total Revenue – Cost of products sold) / Revenue
You also need an estimate of the cost per acquisition. Cost per acquisition is the amount it costs to convert one sale from the traffic generated by your PPC campaign.
You can estimate the cost per acquisition from your previous PPC campaigns. If you have never ran any PPC campaign before, you can use the estimates of another business that is similar to yours.
Now let’s do the math.
Let’s say your AOV is $500 and your PPM is 50%.
Profit = No. of sales * AOV * PPM – Budget
If your profit goal is $10,000 from 100 hundred sales, the math would look like this
10,000 = 100 * 500*0.5 – Budget
Budget = $ 15,000
Cost per acquisition = Budget / No. of sales = $150
What this means is that if you have a PPC budget of $15000 and you manage to make sure your cost per acquisition never goes beyond $150, you will achieve your goal.
In this case, if the estimated cost per acquisition is higher than $150 you should know it will be difficult for you to get the profit aimed for.
That being said, you should know that the cost per acquisition is dependent on how well a PPC campaign is optimized. Even if a previous campaign has a high cost per acquisition, you can study it and find ways through which you can lower that cost.
2. Keyword Research and Analysis
You should not settle on any budget unless you’ve done proper keyword research and analysis. The keyword theme you use will determine your ad expense.
If your selected keywords do not have enough search volume, you will struggle to reach the number of sales you’ve targeted. Again, previous campaigns can give you an idea of how much search volume is needed to get a given number of sales. That will help you with your keyword research.
You can use keyword research tools such as Google Keyword Planner and SEMrush to find keywords with the among of search volume you need to achieve your sales target.
These tools will show the search volume for each keyword and the estimated CPC (Cost per Click). The CPC metric gives you an overview of how expensive or cheap targeting a particular keyword is.
From the metrics provided, you can find the keywords that would provide a balance between traffic volume and ad spend.
As you explore the volumes and costs, do not forget to consider the search intent. Focusing on the volumes and costs only can make you target the wrong audience and end up getting very little to no conversions.
None of the two methods of PPC budget estimations described above can work on its own. Each of these methods will not give a reliable cost per acquisition estimate. However, you can get a much better and reliable cost per acquisition estimate if you combine the two methods.
A lot of businesses are forced to first run a test PPC campaign in order to get important insight and metrics. If you’ve never run a PPC campaign before and you have no way to access another business’ data, the best way to obtain some important metrics is to run a test campaign.
You should then analyze the data collected from your test campaign and use the outcomes to make important decisions.
3. Analyzing the Performance of Previous PPC Campaigns
If you’ve run a PPC campaign before, it will be easier to come up with budget estimates. You could also run a test campaign, as mentioned above. Previous campaigns can even help you reduce your ad spend. You need to get in there and critically analyze the performance of that campaign.
In your analysis, you should be looking for critical metrics such as:
- Total ad spend within a given duration
- Number of clicks the Ads got
- Search volume of the keywords used
- Number of impressions the Ads got
- Number of conversions from the Ads
You could simply divide your total ad spend with the number of sales you got in that period to get an estimate of the cost per acquisition of that campaign. That would be a more reliable figure than any other you could get from other sources that are not related to your business.
Apart from estimating the budget, analyzing the performance of your previous campaigns will give you other important insights into how you should run your new campaign.
For instance, you can explore which keywords could work best for the new campaign. Most people tend to go for the keywords with the highest search volume. Although high traffic is great, it does not always lead to profits.
You might compare the impressions, clicks, and conversions of your different ads got and realize some keywords with a lot of traffic do not lead to any conversions. You can also find some keywords that do not have high traffic but have high conversion rates.
After coming up with a budget estimate, you need to create a bidding plan. Your bids are going to determine your ad spend and how far your budget goes. Remember your budget is attached to some goals. You need to make sure you get to your goal before you blow up your entire budget.
PPC Bidding Guide
Google Ads and other PPC platforms have bidding automation. Automatic bidding is becoming quite popular, but manual bidding is still important. Manual bidding allows you to remain in full control of your spending.
If you are operating on a tight budget, manual bidding is the way to go. While bidding manually, you can bid at the ad group level or at the keyword level.
Bidding at the ad group allows all the keywords in that ad group to share the same bid. Keyword level bidding means every keyword within the ad group has its own bid. Bidding at the keyword level gives you more control over your ad spend.
If you are just getting started, it is better if you first bid at the ad group level and collect some data. The insight you get from such data will help you make informed decisions while bidding at the keyword level.
Google Ads has the Keyword Planner tool that shows you the estimated maximum CPC (Cost per Click) for each keyword that you are targeting. You can base your bids on that information when you are setting up your initial campaign.
Collect some performance data from the initial campaign until you have 100 clicks from your target keyword. At that point, you should have enough data to determine how much you should bid for that keyword.
You should be aware that setting a bid does not mean that is the actual amount you’ll be charged. It only means you’ve put a threshold on what you can spend per click. Your actual CPC will be a lot lower than your bid if you maintain high ad quality.
Finding the Best Bid
Your ad position will be determined by your ad rank. Ad rank is calculated from your ad quality and CTR (Click-through rate). The ad with the highest ad rank gets the top spot.
That means placing a high bid will not guarantee that your ad will appear on search results. A high bid only helps when competing ads have the same ad rank. The ad with the higher bid gets a higher ad position.
Competition analysis will help you find the optimal bid. Analyze the competing ads appearing above your ad and find ways to make your ad better. If the ads ranking above your ad have lower bids, it means there’s a lot you can do to improve the relevance and quality of your ad.
If you feel you’ve done the most you can do in terms of ad quality and relevance, and the ads above your ad have higher bids, you could now result in slightly increasing your bid. Don’t try to outbid your competitor right away. Raise your bid by a small margin and observe whether your ad position will change. You might end up ranking above your competitors without outbidding them.
You need to find that delicate balance between ad spend and visibility. Increasing or decreasing your bid depends on your goals. For instance, if you are aiming to reduce your ad spend, you could try decreasing your bid. That might lead to less visibility and less traffic through.
The best bid is the bid that results in enough visibility for your ad, enough traffic, and enough conversions for you to achieve your measurable goal, without outstretching your budget.
You could also bid based on the kind of audience you are targeting. For instance, if you notice that the audience targeted by a particular keyword has a high conversion rate, you might want to increase your bid for that keyword.
You can also vary your bids based on factors such as;
- Location
- Time of day
- Audience
- User’s device (desktop or mobile device)
Final Thoughts
Budgeting is a crucial part of any PPC campaign. Your budget estimations might be off when you are getting started, but they should become more precise as you get more ad performance data. Bidding is the art of balancing ad expenditure and ad visibility.
You have to keep a keen eye on your ad’s performance and change your bids regularly. That will ensure you get the ad visibility you need without overspending your budget.
Budgeting and bidding can make or break your PPC campaign. You need to work with PPC experts to ensure you get results from your ads expenditure. You could use our PPC management services.
Our PPC experts will help you make precise budget estimations and place optimal bids. They can also take over your PPC campaign. They’ll allow you to sit back, relax, and watch amazing results start trickling in within a short duration.