How To Calculate PPC Budget [Formula Inside]
Calculating the right PPC budget can be a tricky process when all factors are taken into consideration. However, there is a quick and dirty estimate that can be achieved, and we'll show you how.
If you're serious about achieving revenue growth and scaling, then PPC advertising should absolutely be a part of your marketing stack to achieve it.
PPC is fast and provides instant feedback and data with which you can evolve your campaigns to deliver some incredible PPC returns. This data can also feed back into your other marketing channels and activities to further boost their results too.
Whether you like it or not, marketing is both a science and art. Sure, creativity is required to help you capture attention, and the hearts and minds of your prospects and customers. Science, in the form of testing and measuring, provides the backbone of data from where intelligent decisions can be made.
Each test will deliver a result - neutral, positive, or negative.
It's your job to spot the trends and patterns along the way, and to adjust accordingly.
But where do you even begin? How do you calculate your PPC budget?
A good place to start is by using two formulas to understand your requirements at a simple level:
Calculating the number of customers you'll need each period
Calculating PPC budget
The formula to calculate PPC budget
The first of these calculations is as follows:
Number of customers required = (Revenue / Sales Period) / Average Order Value
And the second of these calculations is this:
PPC Budget = (Number of customers / CVR Lead-to-Sale) / CVR x CPC
As you can see, there are a number of variable inputs that you will need to gather. Let's take a look at those:
Number of customers
Each customer should bring with them revenue either one-off or recurring. From knowing what this looks like, you can determine how many customers you need over a period of time.
In this case, we use revenue growth goals and divide by the period of time in which to achieve this revenue. We then divide by Average Order Value (AOV) to determine the number of customers we require per period.
Sales period
The period of which your sales revenue target will be split over. Since we're budgeting by calendar months or by quarters, this will split your total target down.
If you want to calculate an annual budget, simply set this period to 1.
CVR Lead-to-Sale (%)
How effective your sales team is will determine how many qualified leads you'll require to hit your growth goals. This conversion rate looks at how many of those leads are likely to turn into customers.
Never accept a figure plucked out of thin air as this will almost always be inflated. Instead, look at previous data. If you don't have any, then whatever figure is decided upon, halve it. Best to be safe.
CVR (%)
This top of funnel conversion rate refers to the effectiveness of your website of landing page in converting a visitor into a lead, before your sales team are involved.
Note that this is likely to be lower than your CVR Lead-to-Sale, given that many more visitors are likely to be landing on your website than in conversation with you directly.
Here is a post on measuring important metrics through Google Analytics that you might find useful.
Cost Per Click (CPC)
PPC advertising is based primarily on a bidding system - businesses bid money for each click. In very simple terms, the highest bidder is at the top of the pile, and those who underbid are lower down (or nowhere at all).
There are ways to spend less on Google Ads, and these are worth checking out. You can use Google's Keyword Planner to search for average CPCs related to your product, service, or niche.
How to calculate PPC budget
Now to put some numbers in place of text, and to start working out your PPC budget!
How to calculate PPC budget example
In the example above, we've taken the figure of £1,000,000 in new revenue, and we've set a sales period of 6 months, with an Average Order Value (AOV) of £10,000 for ease of maths.
Our sales team converts leads at 19% and our website converts visitors into leads at a rate of 2%. After conducting some research, we know that our keywords are averaging £3 in click costs.
To hit our goal of £1m within 6-months, we need to acquire 17 new customers per month, which will require an estimated investment of £13.1k per month to achieve.
This is a quick and dirty way to estimate your PPC budget quickly. Use caution though, as there are many variables to consider along the way.
These might include your competitors' ad budgets - in this case if your competitors are spending way more than the £13,157.89 suggested by our formula, this will impact on our ability to have our ad shown, and likely our click-through rate too. We may have to bid higher to counteract our comparatively weaker position.
Similarly, seasonality and macro economics/politics can play a part too. I won't say the 'B' word that is an obvious choice, but if you look at how the property market has experienced a slow-down, this theory would also likely apply to the PPC landscape too - perhaps less clicks, or the same clicks but less conversions into leads.
Perhaps these remain the same, but your sales teams are just struggling to get commitment. All of these factors play a part, and that's why it's important to continuously measure and review your numbers to obtain an accurate forecast.
Here are some other questions that people are asking around this subject:
How do you calculate PPC?
PPC performance can be calculated by Return On Advertising Spend (ROAS). Take your revenue (generated through PPC) and minus your PPC spend from this. Then divide this number by your PPC spend to give a percentage.
How much do companies spend on PPC?
There is such a huge variation that no single figure or range of figures would be correct - all markets are different. Companies spend on PPC what they require to achieve their goals. The objective is to run a PPC campaign that converts so well, that you can outspend your competitors.
How does Google calculate advertising budget?
This is controlled by a bidding system whereby businesses compete for a keyword. Each business suggests an amount of money that they are willing to pay for one click. Over time, competition drives the click costs up, so running a high performance campaign is vital to the sustainability of this marketing method.
How much should I budget for PPC?
Budget what you can comfortably afford to invest over a worthwhile period of time. You can adjust as necessary, but it's important to have a healthy enough budget that you can compete. Budgets that are too low are shown too infrequently and results are typically poor as a result.
What is a daily budget?
In PPC, this refers to the amount of money your campaign will spend, per day, on average, serving ads to your potential customers. It's important to note that this is not absolutely fixed and that bidding platforms such as Google Ads will sometimes spend more or less than your average.
Those are a just a few extra tips to help you to calculate the right PPC budget for your goals.
If you have a PPC budget of at least £1,500 per month and your stuck trying to figure out how to use it, we can help identify:
Your suggested monthly ad spend
Growth strategies to help you achieve your goals
Your bespoke Growth Plan to get you there
A realistic and achievable timeframe to plan for
Simply start up a conversation and we'll do the rest. Alternatively you can head over to our Growth Calculator to calculate your revenue growth potential and to discover the two key objectives that you need to achieve to send your revenue skywards.
