The exact amount to spend on pay-per-click advertising depends on the nature of the campaign to be run. As the name suggests, with the PPC campaign, advertisers are required to pay every time someone clicks on it. It is the popularity of the keyword that will determine the cost you have to pay.
Below, we’ve outlined a framework that allows you to calculate a realistic budget. This framework can be categorized into two stages, namely testing and potential return on investment (ROI).
Stage 1: – Testing
It is absolutely impossible to calculate the budget that will be spent at the initial stage. You have to test many ideas and analyze the result to know which campaigns might work and which ones might not. As an exception, the profitability of certain campaigns can be determined at the initial stage. However, this happens in rare cases, when the level of competition for the target keywords is low. Explore, test and research your campaigns by investing a decent sum in this phase with no expectation of return.
A proper understanding of certain basic components is vital before testing your campaigns.
Cost per click for target keywords:- The PPC model takes an approach where no matter how many times your ad appears, you are guaranteed to pay only when someone clicks on it. The cost varies depending on the keywords, and Google offers an estimate of how much you should lose for each click. For example, the keywords “athletic shoes” and “body deodorant” have a CPC of AED 5 and AED 6 respectively.
Prepare a comprehensive list of keywords you want to test and use the Google AdWords Keyword Planner tool to calculate a rough estimate for each keyword. Please note that this is only an estimate and not an actual cost. There may be an increase or a decrease.
How long can the testing phase last?
The mistake many PPC campaign managers make is to restrict the testing phase. Although there is no specific time period for the testing phase and the amount of referral that will be spent during the testing phase, it highly depends on the industry and the chosen keywords. For keywords with higher search volume, the results are visible in a short period of time. When the search volume is low, the testing phase is long and therefore it will take time to get meaningful information.
Prospective Sales Conversion Rates:- Come up with a rough estimate considering that it would be 1 in 100 people who will see the ad and click on it and another 1 in 100 people will become customers. Although this is only an estimate, in reality, your ad could have more or less traffic.
How to arrive at a test budget?
The first thing is to figure out the cost of the keywords to test. If you can convert 1 customer through 100 clicks, then the cost per sale should be inferred by dividing the cost per click by 1 percent. For a keyword that costs $5 per click, the cost of an estimated sale is $500.
Stage 2: – Potential return on investment (ROI)
After the testing phase is complete, the goal is to improve the return on investment of AdWords. Many have doubts regarding the tone of investment to be made in the ROI stage. If you assume that your ads are profitable and earn maximum returns, you can inject more investment.
It is crucial to strengthen the quality of your ad copy to increase your ad quality score in order to lower your cost per click rate. On the other hand, it is equally important to focus on earnings per click. Earnings Per Click provides an indication of how much your business can pay for each keyword. Your campaign is considered profitable when you pay less.
Once you identify the potential ROI, it’s time to create a conversion-focused PPC strategy for your business. And, this should be very accurate and should have taken into account all the insights gained during the testing phase. The strategy thus developed must be in tune with the overall business goals. And only then does it make sense.