How Much Should I Spend on PPC?

Estimated Reading Time 9 minutes

Paid Search (PPC) like Google Adwords and Bing Ads are important for businesses of all sizes. Today we look at how much we should invest to get the best return.

A typical scenario: You are looking for pay per click (PPC) help. Whether that be hiring in-house or engaging a new agency you possibly have a list of questions and unknowns longer than your arm.

As a long serving agency in this space we have worked with large and small organisations across many industries, we are often asked the same questions. Sometimes it can be difficult to get the answers you are looking for, so you have come to the right place.  

The number one question we get asked:

How much should I be investing in pay per click?

It isn’t an easy question to answer but let’s deconstruct this question and look at it this way;

Firstly you need to establish what market you are in. By that I mean how competitive it is, how much the average CPC (cost per click) is, how many people are searching for your products, services and solutions. Once you have established this, we can run some models to help understand how much you should possibly spend on your pay per click campaigns.

Taking a CTR of 2%, if your CPC’s range on average from £0.10 to £0.50 and the volume of people searching for relevant keywords is over 500k per month, you would expect to receive 10,000 minimum monthly clicks. At £0.50 per click, this equates to £5,000 media spend.

However…

If your CPC is more like £5 to £10 per click, on the same volume of searches (500k), then your spend may look more like £25-50K per month. 500K clicks @ £5 per click = £25k media spend.

In order to spend the ‘right‘ amount, you now need to look at your goals and targets to reverse engineer the numbers and work out how much you should be investing.

First gather all of your relevant metrics:

Average Order Value (AOV) = £800

Previous revenue = £2m

Sales last year = 2,500

Conversion rate = 5%

Then pin down your goals and targets:

Target revenue increase = 10%  (£2.2m)

Target = 250 additional sales

250 sales / 5% conversion rate = 5,000 required clicks

If your CPC is £6.00, media spend should be £30,000

WE ARE NOT FINISHED YET!

How much are you willing to pay per lead based on your profit margin?

Calculate your Cost Per Acquisition (CPA) from the model above:

Total media spend £30k / Total sales 250 = £120 CPA

Now work out how much you’re willing to pay per sale.

For example:

AOV = £800

Your profit margin 50% = £400

Therefore, you may be willing to invest 20% of profit per sale = £80 target CPA

Therefore the original model gives a CPA which is too high to be profitable. Now the tricky part, to adjust your CPC’s and increase your conversion rate, to meet the desired CPA.

NOTE: If you reduce your CPC’s too low you may reduce your average position too much and although your CPA could reduce, clicks and conversions may also drop off.

£80 target CPA x 250 sales = total spend £20,000

£20,000 media spend  / 5,000 clicks = £4 average CPC

From this calculation we can afford to spend on average £4 per click as long as we convert at 5% in order to come in at 20% of overall sales profit.

This model should help give a really strong direction on budget.

Beware of the pitfalls

If your industry CPC’s are £20 then don’t kid yourself about getting a £0.50 CPC or even £10. It’s going to be tough in these competitive spaces.

The next question to follow how much, is normally:

When should I see results from pay per click?

PPC is a fairly instant channel but from “launch” to ”well oiled” takes time.

Month one, if you are new to PPC, can see instant results but you are going from nothing to something! If the account has been running and an audit needs to take place then there can be fluctuation in the first few months whilst changes are being made, structures are updated and keywords are optimised.

We work on a progress basis over the first 3 months, you should see improvement each month on the previous, however this might not yet meet the overall targets.

By month 4 there should be some good improvements on either your previous account or compared month on month as you go. Every client’s goal is different but if by month 4 things are still down or going the wrong way..something is possibly wrong.

Pro Tips:

If you are comparing year on year data, know what was different last year. All too often data is compared year on year when the market, website, brand, messaging, budget, or business in general was different. Think about the weather. March 2018 saw abnormal snow storms which may have affected the business compared to the previous year.

Always look back at trends and use analytics across all online marketing channels to compare monthly and annual trends.

Finally, make sure you are benchmarking all results, not just your PPC. If PPC is flat but all other channels are down, that paints a different story.

For more help on analysing and reporting take a look at 10 tips to making your reporting days easier.

In summary;

How much should I be investing in pay per click?

Calculate how much can you afford to spend per sale, and calculate the recommended costs based on market CPC’s and volume of searches.

When should you see PPC results?

Some immediate, but on track with goals and targets a good rule of thumb is 3 to 4 months.

If you need help or advice on any of the above, contact our PPC management team.

Rachel Mepham
With over 15 years’ experience in Digital Marketing, Rachel heads up the team at Digital Clarity. With a deep skill set in the Paid Search, Social Media and Analytics, Rachel is regarded by both clients and peers as one of the most experienced and prolific women in the UK digital space. Her approach and application to digital strategy planning has been used by some of the biggest brands as well as leading advertising and marketing agencies.
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Britain will once again unite to clap the NHS workers on the frontline of the battle against coronavirus - same time, same place 8pm. Be there. Makes some noise
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Britain will once again unite to clap the NHS workers on the frontline of the battle against coronavirus - same time, same place 8pm. Be there. Makes some noise . . #nhs #clapfornhs #clapforourcarers #keyworkers #saythankyou #grattitude #coronavirus #covid19 #gratitude #royalsurreyhospital

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When we feel that we are helpless our situation can go one of two ways - either
When we feel that we are helpless our situation can go one of two ways - either hide and run or we try and make the most our situation and thrive - the latter is what Helen Keller did
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A prolific author, Helen Keller was well-travelled and outspoken with courage in her convictions
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At 19 months old, Keller contracted an unknown illness described by doctors as an acute congestion of the stomach and the brain. The illness left her both deaf and blind
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She was the first deaf-blind person to earn a Batchelor of Arts degree and earned a proclamation by US President Jimmy Carter .
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Posted 3 days ago.

When we feel that we are helpless our situation can go one of two ways - either hide and run or we try and make the most our situation and thrive - the latter is what Helen Keller did . A prolific author, Helen Keller was well-travelled and outspoken with courage in her convictions . At 19 months old, Keller contracted an unknown illness described by doctors as an acute congestion of the stomach and the brain. The illness left her both deaf and blind . She was the first deaf-blind person to earn a Batchelor of Arts degree and earned a proclamation by US President Jimmy Carter . When things test us, by collaborating and helping each other we can make make amazing things happen - the choice is ours . . . . . #helenkeller #helenkellerquotes #motivation #motivationalquotes #coronavirus #covid_19 #covid19 #collaboration #digitalagency #determinition #digitalclarity #content

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All of us @digitalclarity, like most of the nation that can, have been working from home .
Through this challenging time, we are all adjusting to a new way or communicating. Those video conferencing with colleagues will sympathise with this excellent post on @ladbible via @kaekurd that nails those early days .
The world still turns, business still flows, keep safe
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All of us @digitalclarity, like most of the nation that can, have been working from home . Through this challenging time, we are all adjusting to a new way or communicating. Those video conferencing with colleagues will sympathise with this excellent post on @ladbible via @kaekurd that nails those early days . The world still turns, business still flows, keep safe . . . . #wfh #workingfromhome #video #videoconference #confcall #conferencecall #conferencecalls #videoconferencing #digitalclarity

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COVID-19 may have one of the biggest impacts on businesses and individuals in ou
COVID-19 may have one of the biggest impacts on businesses and individuals in our lifetime - even among the negativity and misinformation, the business world still turns
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At Digital Clarity, we care about you, our employees, friends, peers and clients - we want to make sure that in these uncertain times, there are some positives and ways to help your business in this extremely difficult situation. See the link in our bio
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COVID-19 may have one of the biggest impacts on businesses and individuals in our lifetime - even among the negativity and misinformation, the business world still turns . At Digital Clarity, we care about you, our employees, friends, peers and clients - we want to make sure that in these uncertain times, there are some positives and ways to help your business in this extremely difficult situation. See the link in our bio . It's going to be a rollercoaster ride, there will be ups and downs and plenty of new challenges which you may not have come up against before . Keep safe, keep proactive and keep adapting . Good luck and remember, we will get through this . . . . . #digitalclarity #dontpanic #keepgoing #digitalmarketing #digitalconsultant #digitalmarketingagency #ppc #seo #digitalagency #digitalconsulting #b2b #b2bmarketing #b2bsales #winwin #ai #fintech #luxury #content #contentmarketing #keepgoing #keepcalmandcarryon

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In these uncertain times, it is hard when so much is out of our control
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The qu
In these uncertain times, it is hard when so much is out of our control
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The quote from Mandy Hale reminds us that sometimes rather than trying to find answers, we must live in the question
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In these uncertain times, it is hard when so much is out of our control . The quote from Mandy Hale reminds us that sometimes rather than trying to find answers, we must live in the question . . . . #uncertainty #uncertaintimes #stoicism #strength #livelife #keepgoing #nevergiveup #focus #wordsofwisdom #wordsofencouragement #covid #coronavirus #selfisolation

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We have recently helped s
We met some great people at Cloud Expo Europe today
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We have recently helped some wonderful Tech and Software companies - become great. In many cases, increasing enterprise and b2b sales by over 42%
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Learn how we can be your competitive advantage .
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We met some great people at Cloud Expo Europe today . We have recently helped some wonderful Tech and Software companies - become great. In many cases, increasing enterprise and b2b sales by over 42% . Learn how we can be your competitive advantage . Contact us now +441483 338 270 / link in bio . . . . #b2bmarketing #digitalmarketing #digitalmarketingagency #socialmedia #ppc #seo #analytics #unifiedcommunications #uc #ai #b2bsales #securitysoftware #cloudexpoeurope #googleads #fbads #instamarketing

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This International Womens Day, let's challenge stereotypes, fight bias, broaden perceptions and strive for a gender equal world.
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