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 10 years’ experience in Digital Marketing, Rachel heads up the team at Digital Clarity. With a history in Paid Search (PPC) since before Google AdWords existed, Rachel is regarded by both clients and peers as one of the most experienced and prolific women in the digital space in the UK. Her approach and application to digital strategy planning has been used by some of the biggest brands as well the leading advertising and marketing agencies.
There are two types of people who will tell you that you cannot make a differenc
There are two types of people who will tell you that you cannot make a difference in this world: those who are afraid to try and those who are afraid you will succeed. .
.
.
#successquotes #successfulwomen #success #successprinciples #successmentor #digitalclarity #ppc #seo #analytics #socialmediamarketing #digitalagency #digitalmarketing #motivation #motivationalquotes #mondayquotes #mondaymotivation

Posted 1 day ago.

There are two types of people who will tell you that you cannot make a difference in this world: those who are afraid to try and those who are afraid you will succeed. . . . #successquotes #successfulwomen #success #successprinciples #successmentor #digitalclarity #ppc #seo #analytics #socialmediamarketing #digitalagency #digitalmarketing #motivation #motivationalquotes #mondayquotes #mondaymotivation

×
Your ad can appear on Google at the very moment someone is looking for products
Your ad can appear on Google at the very moment someone is looking for products or services like yours.
Whether they’re on desktop or mobile, a well-timed ad can turn people into valuable customers. Learn more. .
.
.
#ppc #seo #google #googleads #marketingstrategy #digitalmarketing #digitalagency #digitalmarketingagency #ppcagency #seoagency #guildford #surrey #london #marketing #digitalclarity

Posted 2 weeks ago.

Your ad can appear on Google at the very moment someone is looking for products or services like yours. Whether they’re on desktop or mobile, a well-timed ad can turn people into valuable customers. Learn more. . . . #ppc #seo #google #googleads #marketingstrategy #digitalmarketing #digitalagency #digitalmarketingagency #ppcagency #seoagency #guildford #surrey #london #marketing #digitalclarity

×
“Big ideas come from the unconscious. This is true in art, in science and in a
“Big ideas come from the unconscious. This is true in art, in science and in advertising. But your unconscious has to be well informed, or your idea will be irrelevant. Stuff your conscious mind with information, then unhook your rational thought process.” ― David Ogilvy, Ogilvy on Advertising .
.
.
#madmen #admen #marketing #marketingdigital #digitalagency #digitalclarity #davidogilvy #davidogilvyquotes

Posted 4 weeks ago.

“Big ideas come from the unconscious. This is true in art, in science and in advertising. But your unconscious has to be well informed, or your idea will be irrelevant. Stuff your conscious mind with information, then unhook your rational thought process.” ― David Ogilvy, Ogilvy on Advertising . . . #madmen #admen #marketing #marketingdigital #digitalagency #digitalclarity #davidogilvy #davidogilvyquotes

×
Intuition is always right in at least two important ways;
- It is always in resp
Intuition is always right in at least two important ways;
- It is always in response to something.
- it always has your best interest at heart. #motivation #wordsofwisdom #thursdayquotes #mindfulness #instaquotes

Posted 1 month ago.

Intuition is always right in at least two important ways; - It is always in response to something. - it always has your best interest at heart. #motivation #wordsofwisdom #thursdayquotes #mindfulness #instaquotes

×
Another wonderful event hosted by @thesupperclubuk #entrepreneur #growthmindset
Another wonderful event hosted by @thesupperclubuk #entrepreneur #growthmindset #business #growth #thesupperclub

Posted 1 month ago.

Another wonderful event hosted by @thesupperclubuk #entrepreneur #growthmindset #business #growth #thesupperclub

×
This is not the end. This is the beginning. Well done lionesses #proud #england
This is not the end. This is the beginning. Well done lionesses #proud #england #lionesses #worldcup #football #soccer #girlpower #👏 #🏴󠁧󠁢󠁥󠁮󠁧󠁿

Posted 1 month ago.

This is not the end. This is the beginning. Well done lionesses #proud #england #lionesses #worldcup #football #soccer #girlpower #👏 #🏴󠁧󠁢󠁥󠁮󠁧󠁿

×
If you are not willing to risk the usual, you will have to settle for the ordina
If you are not willing to risk the usual, you will have to settle for the ordinary #motivation #wordsofwisdom #successquotes #wednesdaywisdom #wednesday #success #digitalclarity

Posted 1 month ago.

If you are not willing to risk the usual, you will have to settle for the ordinary #motivation #wordsofwisdom #successquotes #wednesdaywisdom #wednesday #success #digitalclarity

×
An excellent afternoon of information and insight on global prime markets #prime
An excellent afternoon of information and insight on global prime markets #primeproperty #superprimeproperty #superprime #savills #realestate

Posted 1 month ago.

An excellent afternoon of information and insight on global prime markets #primeproperty #superprimeproperty #superprime #savills #realestate

×