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how to determine a ppc budget

How to Determine a PPC Budget and Why It Matters

Written by LaFleur

There are plenty of reasons to invest in pay-per-click (PPC) advertising: you’ve decided to offer a new service or debut a new product — or you just need more leads. Whatever the reason, you know it’s time to invest in a PPC campaign. You are ready to put the line item in your budget, but how much money should you set aside?

This question is a complicated one, and we won’t be able to provide all the possible solutions in a single blog article. But we can break the problem down into three fundamental questions and provide clear answers.

Question #1: Can’t I just set a fixed budget based on what I want to spend and let Google take it from there?

Yes, you can. Google promotes this approach. However, many companies try the set-it-and-forget-it method for PPC and find it doesn’t work. We know this from experience, because many of our PPC clients at LaFleur come to us after trying a fixed-budget approach and getting poor results.

Why would Google steer you astray? Keep in mind that Google is also trying to sell their search advertising services, so they’re not going to highlight the challenges inherent in PPC. The reality is that setting an arbitrary PPC budget and failing to adjust it over time will often amount to throwing money away. You need an expert (or preferably, a team of experts) who can not only update your budget as necessary but monitor your campaigns to look for waste and opportunities for improvement.

Question #2: Where’s the simplest place to start?

To answer this question, you’ll need to gather some data. For starters, you should determine the following:

  1. How many new clients or sales transactions do you expect your PPC campaign to generate?
  2. What kind of close rate does your business see for new leads?
  3. Based on your answers to questions 1 and 2, how many people do you have to reach to achieve the business goal you set when answering question number 1?

Here’s an example. Let’s say you want to reach 100 new clients, and your company has a close rate of 5%. In that case, you would need to reach 2,000 new leads to get those 100 new clients (2,000 leads * .05 close rate = 100 clients). Now that you’ve determined you need 2,000 leads, it’s time to find out how much your competition is already spending to reach the clients or customers you want.

How do you determine competitors’ budgets? You’ll need special PPC research tools for this task, and most of those tools require paid subscriptions. At LaFleur, we’re fans and avid users of SEMRush. Another popular tool that we’re familiar with and can recommend is SpyFu.

Let’s assume you used one of these tools and found that your competition has an estimated cost per click (CPC) of $9. This means that for each click your competitors’ PPC ads receive, they spend $9.

Now, you know that to beat your competitors with a campaign that uses similar keywords and targets a similar audience, you’ll likely need to bid more than $9 per click. Why do we say “likely”? Because the PPC bidding process is automated and dynamic, so bids won’t always match a set amount in the real world. But for the purposes of our example, we’ll keep things simple and assume we’ll be bidding around $10.

Now, we can multiply the estimated required reach of 2,000 by our estimated $10 cost per click to get our budget: $20,000. Depending on the size of your business, that could be exactly what you had in mind or far out of reach. If the budget you’ve come up with is unrealistic, it doesn’t mean you can’t afford PPC advertising, but it does mean you’ll need to either find a different strategy (target different keywords, for example) or adjust your expectations regarding how many people your campaigns will reach.

Question #3: If my cost per click is based on my competition, how do my competitors figure out what to spend?

Great question! The short answer is that your competitors are basing their budgets on the spending habits of their competitors, who are likely your competitors too.

If you’re new to PPC, you might not realize that everything is based on bidding. Earlier, we determined that you might spend around $10 per click when your competition is paying $9. But because the bids are dynamic and the bidding process is automated, you might end up only needing to spend $9.38 as opposed to the estimated $10.

Why? Because a bid of $9.38 is enough to beat the bid of your initial competitor’s $9 and the bid of a new third competitor whose automated bid went up to $9.37. The automation factor in PPC bidding means you don’t end up spending $10 when you only needed $9.38.

However, automation can be a double-edged sword: if you don’t take care when setting the parameters for bidding, you might end up spending much more than your $10 estimated CPC when the automated system determines it makes sense. The constantly fluctuating nature of CPCs is why it’s best to work with an experienced team who can monitor your bids and adapt your strategy as needed.

Also, relying on brute force and trying to outbid your competition all the time isn’t necessarily a wise approach to PPC. As we mentioned earlier, you only need to try and outbid the competition if you want to target the same keywords and the same audience. If the amount you’d have to bid to compete directly seems too high, you can adjust your strategy or focus instead.

As an example, you could outbid your competition only for an audience that’s 10 miles closer to you than to the nearest competitor (yes, you can target geographically with PPC). Or, maybe you’ve found that your website gets the most traffic between 4 p.m. and 9 p.m. In that case, you might want to bid aggressively against your competitors only during those hours.

Another CPC Variable: Your Industry

As you can see, there are a lot of variables to consider when trying to set a PPC budget: time, geography, business goals. Also, PPC budgets tend to vary widely by industry. More competitive industries in densely populated geographic regions have higher cost-per-click rates than niche industries or businesses in rural areas.

We know from both agency experience and nationwide data that the legal industry is one of the most competitive for pay per click advertising. So, if you want to advertise your personal injury law firm in Los Angeles, California, you’ll need a much bigger PPC budget than if you want to advertise artisan woodworking services in Dacula, Georgia. If your business operates on a national scale, things can get even more competitive.

In general, the stiffer your competition and the higher the budgets, the more you need an experienced PPC advertising team to help you get the most out of your spend.

Make Your PPC Campaigns More Efficient With LaFleur

At LaFleur, we believe in a dedicated and holistic paid digital advertising strategy. Our PPC experts have years of experience managing diverse campaigns for businesses of all shapes, sizes, and industries from around the United States. If you’d like to discuss developing new paid digital advertising initiatives or optimizing existing campaigns, please contact us by calling (888) 222-1512 or completing this brief form.