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How to calculate your PPC budget and success

Authors: Jay Baer Jay Baer
Posted Under: Digital Marketing
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I’m interested in pay per click search engine advertising, but I don’t know how much it will cost. Help!


Projecting costs for pay per click can be as mysterious as Britney Spears’ career plan.

Like success in Iraq, multiple factors determine your PPC budget and success level, and they are inter-related.

The single most critical decision in a PPC program is term selection. Only bid on terms that are extremely relevant to your business. This is not a time to be optimistic along the lines of “Well we only provide service in Phoenix, but we’d like to provide service in Indiana someday, so let’s just bid on all the Indiana search terms.” That will blow through your budget faster than Kobayashi eating hot dogs.

Use a program like Word Tracker or Google’s term selection tool to find search terms that are right for you. By way of example, let’s assume you want to focus on 100 search terms, with combined daily search volume of 400 per day. That works out to approximately 12,000 potential searches per month.

Multiple studies – including our own research – have shown that on average one-third of searchers will click on paid ads, with the balance clicking on natural search results. Remember that the paid ads are typically at the top of the page and in the right hand column, often with some sort of blue or gray background color behind them.

Using this data point, we can assume that the universe of potential PPC clicks for your search term is 3,960 per month (12,000 x 33%). Assuming you are going to launch your campaign on Google and Yahoo (with possible expansion later), you will reach 80% of all searchers, so your official click universe is 3168 per month (3960 x 80%).

But what percentage of those 3168 searchers will click on your ad? Your click rate will depend on how aggressive you bid and how well-written your ads are. It’s not easy to craft a great ad in 80 characters, and very small changes can have big impacts on your results. Use Google and Yahoo’s tools to test many versions of your ad.

Recognize that your results are intrinsically linked, to some degree, to the behavior of your competition. You’ll often find competitors “bidding blind” in search engine advertising, paying whatever it takes to stay number one in the results. This is like getting pulled over because the guy next to you is speeding, and it can be extremely frustrating to watch them spiral up the per click prices for all bidders.

In general, we use a rate of 9% to project the percentage of paid clicks a solid ad will attract if it typically falls in the top 3 bid positions. This then gives you approximately 285 clicks per month on your ad (3168 x 9%). Remember, this is 9% of the people that click on paid listings.

Yahoo! provides a seemingly accurate bid price range tool. Use this tool to determine average top bid prices for your search terms. Add 15% to account for Google’s higher average click fees. If the average price for top 3 bid positions for your search terms is $2, use $2.30 as your average. Multiply that by your estimated clicks (285) and Shazam! you have your estimated monthly expenditure for PPC: $655 (285 x $2.30).

If you poured yourself a scotch three paragraphs ago, and if in your opinion, this formula is far too similar to watching sausage being made, I’ve found an easy resource for you to determine your estimated budget. Just use this Mighty Interactive PPC Calculator. Plug in some numbers, and it will do the numerical heavy lifting for you automatically.

For you cynics, I’m frequently asked about competitors nefariously clicking on ads late into the evening, costing you thousands in fake clicks. While “click fraud” does occur online, the search engines log every click by time and computer (IP) address, and have sophisticated algorithms that diagnose rampant abuse. Can you cost your hated rival a few dollars here and there by clicking on their ad? Yes, and they can do the same to you. Unfortunately, that’s part of the search engine game, but the chances any serious budgetary damage can be inflicted is pretty slim.

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