How Much Should You Advertise Online? A PPC Budget Exercise

Posted on January 27, 2021 | Cheat Sheet Digital Marketing Drive Google Adwords
Eric Bronson

There is no doubt that digital paid ad campaigns can be helpful when launching a new product, generate a nice boost of income, and assist in brand exposure. But where and how much should you be spending each month?

 

Choosing the Right Advertising Channel

When building a paid ad campaign, it is essential to consider your target audience. Depending on your product and service, the mix for ad campaigns will vary drastically. This will include the primary places like social channels and Google, but also the more advanced techniques such as programmatic geofencing, device ID, and streaming ad placements.  

 

  • Are you selling primarily to millennials? 

There is a good chance that social channels (Facebook, Instagram, and YouTube) should be dominating the budget. And don’t skip out! Invest in high-quality video ads that capture customer’s attention in the first three seconds, this might be all the time you have before they keep scrolling.

 

  • Are you selling B2B professional services? 

LinkedIn Sales Navigator and LinkedIn ads can be a valuable tool to reach high-level decision-makers with your solutions. LinkedIn provides a variety of unique segmentation and targeting tools for B2B business such as job title, company size, and company revenue.

 

  • Launching a new local small business? 

Look beyond just Google search ads. Display ads and social ads can be 80% cheaper than search ads, providing you drastically more impressions and views; however, their direct conversion rates can be dismal. Use these types of ads for building awareness and retarget them with lower-funnel strategies.

Chart showing Google Adword Average CPC by industry - BUHV Designs
Chart showing Google Adword Average Conversion Rate by industry - BUHV Designs

Interest vs. Intention

Another way to look at this is how you want to be able to target your audience. With most paid ad platforms, we are able to target audiences based on their interests. With Facebook, targeting can be anything from demographic information, search history, likes/dislikes, and behaviors. However, users are not directly searching for these services on Facebook, so we are building a target persona and using lookalike audiences to introduce your ads. This can be great for building awareness and interest in your service.

With Google search ads (and other search engines like Bing), the targeting is built around the intention. Users are directly requesting service using short and long-form keywords. 

So if customers are actively searching for your product/service, then you will want to use search ads to display at the top of search results. If people are not actively searching for your service/product or the market is extremely overly-saturated, display ads and social ads can be a more affordable option to start the sales journey.

Still not sure which will be best for your business? Check out Why Advertising on Facebook is Valuable for your Business.

Calculating Your Ad Budget

Now you have the platform selected, how much should you spend?

Leading up to any paid ad campaign, it is important to have set clear and defined goals. Doing some research on industry standards ROI and ROAS can be valuable to provide yourself a benchmark. 

While there are just too many scenarios to layout an all-encompassing budget guide for every industry and business type, we are going to run a simplified exercise using just Google Search Ads to calculate ROI. To see the scoping process in action, let’s walk through a hypothetical scenario that can define a benchmark for comparison:

 

The Budgeting Scenario

Let’s say you own a residential interior design company for high-net-worth clients and you are looking to expand from your current market to another city. 

 

Step 1: Define SMART Goals

Book $300k in high-net-worth residential interior design contracts in the new market in the next 12 months.

 

Step 2: The Challenge

You are looking to expand to a new market, and while you are established in your network, moving outside of that is new territory, and your reputation is unknown. 

Taking a blended campaign-style campaign, you decide that your email list, while extensive, is not in the market you need, and SEO won’t get you the more immediate results you are looking for. You decide that a paid Google ads will be the best strategy to build your campaign around.

 

Step 3: Analyze Average Customer Value

Look back through your trailing 12-months of new projects similar to this area; your average project is $8k.  

 

Step 4: Analyze Close Rate

Look through the sales and proposal process and calculate your qualified lead to close rate. You find that since you work in a pretty boutique industry and your work speaks for yourself; your close rate is 28%! Great work!

Step 5: Analyze Sales Cycle

How long does it typically take to close a deal? With the personal touch you provide each client, doing home consultations (potentially multiple meetings), and the proposal process – nearly two months.

Step 6: Calculate Industry Paid Ad Averages

There is a variety of different software that can provide an estimated CPC (cost per click) rate. Through your research, you learn this is a pretty competitive neighborhood. The average CPC is $3.40. 

Because this is a very competitive industry, building a specific page on your website to talk to these clients and work best with them will be necessary. Landing pages will require design and development but typically convert higher than standard generic pages. The new landing page performs at the industry average = 2.35%. 

 

Step 7: Supporting Materials

You have mostly relied on word-of-mouth to bring in new clients, but these are new clients. To differentiate your style and what is important to what you do, it will be helpful to have a portfolio deck you can send over to the clients, catered just for them. 

 

Step 8: Determine Ad Budget

We are looking for $300k in new business in the next 12 months. The average close rate is two months, so we need all leads within ten months. 

  • $300,000 in new business / 10 months = $30,000 in new business/month

 

The average project that you close is $8,000 in this industry.

  • $30,000 / $8,000 average deal = 3.75 new deals/month

 

Your average close rate for new leads coming in is 28%.

  • 3.75 deal / 28% close rate = 13.4 new leads/month

 

You have set up landing pages cause they convert higher, but the close rate is still 2.35%.

  • 13.4 leads/month @ 2.35% conversion rate = 570 users

 

The average CPC for each of those people to your landing page is $3.40.

  • 570 clicks X $3.40 = $1,938/month budget

 

Additional items that you will need to maximize your campaign work:

  • Dynamic paid ad campaign setup = $1500
  • Agency-level ad management and optimization = $400/mo
  • Landing Page design and development with conversation & call tracking = $2000
  • Redesigned branded large portfolio deck = $2500

(for this campaign, you can forego any automated email qualifying marketing sequence since you will be able to handle the additional 13.4 increase in new leads each month) 

 

Total Ad Spend = $23,256

Additional Cost = $10,800

Total Costs = $34,056

 

Total New Deals = 37

CPA = $920

 

Step 9: Projections

Based on your net project profits, is the $920 cost per acquisition sustainable and scalable for your business? With an $8000 average project value, this is 11.5% marketing cost, which is right in line with industry standards.

 

Once you establish in this new market, you should be able to leverage your referral network to not rely as heavily on paid ads to support this further market expansion. However, it will be essential to track metrics from Day 1. Using a CRM or other analytical software can be invaluable to see where you are falling off the mark. Continuing to work through Step 3 – Step 7 will optimize this campaign and provide you the greatest ROI.

 

The Results

While each digital marketing campaign will be different, it is important not to be too linear in your approach. Fortunately, for this example, analytics are pretty concrete. When it comes to more long-term organic result work such as Technical SEO and on-going content strategy, deducting what drives those traffic increases typically requires a more technical and analytical mindset. Most senior-level agencies, like BUHV, will be able to correlate content-keyword ranking-traffic generation.

Need help calculating any of the above for your business? Set up a complimentary budget consultation with our team. 

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