There are a lot of questions you need to consider when determining your optimal advertising budget. As you begin this process, you’ll likely be looking at one of two common scenarios:
1.) The budget is what it is — Your boss has told you how much she wants to spend on a specific pay-per-click channel, and it’s up to you to maximize that investment. This is common with larger companies.
2.) The budget is flexible and will fluctuate based on results — Your company wants to try pay-per-click but doesn’t know quite what to expect. The initial investment is flexible but a strategy must be in place in order to minimize risk of wasting money.
I mention the first scenario because it’s quite common. Larger companies will often determine budget allocation at a high level, and often not based on the real potential value of various per-per-click channels.
The second scenario is preferable because of the flexibility to reallocate budget based on performance.
Making Budgets Accountable
Calculate your necessary return on investment. Let’s assume you need to at least break even on your investment. This means the following things:
- You must be able to estimate your conversion rate
- You must know the value of your conversions
Your conversion rate will give you a sense of what to expect in terms of response. Your conversion value will allow you to apply a revenue number against your pay-per-click spend.
With these numbers in hand, you can do some quick calculations:
- Conversion Rate – 2.00%
- Value per Lead – $100
- Budget – $10,000
So, you have to make $10,000 in order to break even. This means you need to get 100 conversions for your budget. To get 100 conversions, you’ll need 5,000 clicks at your estimated conversion rate.
- 100 X $100 = $10,000
- 2% Conversion Rate = 1/50 clicks converts
- 1/50 = 100/5,000
- To get 5,000 clicks for $10,000 you’ll need an average cost-per-click of $2.00.
Google AdWords Keyword Planner:
Strategize Around Your Conversion Funnel
As we’ve seen, different pay-per-click networks correspond to different user intent, and each network has particular application for specific stages of the conversion funnel.
If you have a limited budget and need to hit a target return, you should consider where that return is most likely to come from. Once you’ve maximized your exposure in a high performing area, expand to the next level of relevancy. The larger your budget, the wider a net you’ll be able to cast.
Be Cautious In Making Performance Assumptions
While it’s crucial to establish expectations when planning your budgets, it’s also important to realize that your campaigns may produce different results than you’ve seen from your other channels. This may seem obvious, but it’s easy to make the mistake of developing expectations based on prequalified segments, such as direct traffic. Assuming you’re using an analytics solution of some kind to assess conversion rates, it’s a good idea to filter out your direct traffic. This will give you a more realistic picture of how new pay-per-click channels may perform.
Best Places to Start
- Search Networks – Usually the best place to start if you have a product or service users will actually search for, and assuming you can adequately communicate your value in a text ad.
- Remarketing -Traffic is prequalified.
- Determine how much flexibility you really have before making a plan.
- Make conversion rate and value estimates in order to estimate performance expectations and assess whether your goals are realistic
- Consider funnel stages when choosing networks
- Start with what’s likely to work best and expand from there