A PPC budget is how much money is committed to online traffic acquisition efforts since advertising charges only accrue after a prospect clicks on your ad.
What should the monthly amount be?
Here are three ways to estimate this.
How to Determine a PPC Budget
1. Establish a Profitability Goal
If there is a measurable outcome for your campaign, then back into your ideal budget by first knowing the answers to these critical business questions:
- Average Order Value (AOV)
- Gross Margin Percentage ((Revenue – Cost of Goods Sold)/Revenue = Gross Margin)
- Cost per Acquisition (if unknown, set a goal to remain profitable)
Say your company would like to see the Google Ads program drive $5,000 in profits in month one.
You know the average order value of your product is $450 per sale, and the gross margin is 55 percent.
You would want to budget $7,375 per month for click fees, and never exceed a $147.50 cost per acquisition while running the ad campaign.
Number of Sales * AOV * Margin – Budget = Profit
50 sales * $450 of revenue per sale * 55% Profit Margin – monthly Google Ads budget = $5,000 in profit in the first month.
Use this equation to determine your ideal budget. – Read more