How to Calculate the Right PPC Advertising Budget

Pay-per-click (PPC) advertising is a type of Internet marketing in which advertisers place their ads on a site, but only pay each time their ads are clicked. This should be a part of your marketing strategy if you are serious about growing your business. In today’s modern world, a successful business should have a powerful and efficient promotion tool.

Some benefits of Pay-per-click Advertising are:

1. Brand awareness and recognition
2. Instant responses
3. Easily track your success

The most essential part of starting your PPC advertising is determining your budget. You need to calculate how much money you will need to spend to pull off a successful marketing strategy. And, the best way to start is by doing the following:

1. Calculate the number of customers you will need
2. Calculate the PPC Budget

The formula to calculate your PPC Budget
The following are the two simple formulas you should use for further calculations:

Number of customers = (Revenue/Sales Period) / Average Sale Amount
PPC Budget = (Number of customers/CVR Lead-to-Sale) / CVR x CPC

First, let us define the indicators.

Number of customers
A business needs customers to achieve their business goals. You need to determine how many customers you will need to sell your product to achieve your business objectives and goals.

Conversion Rate Lead-to-Sale (%)
Basically, this is how many of the qualified leads your sales team is likely to turn into customers. Through this, you can measure how effective and efficient your sales team is. If your sales team closes 2 out of 4 leads, then the conversion rate will be 50%.

Conversion Rate (%)
This is defined as the conversion rate of your website’s visitors. How many of your website visitors turn into leads and then eventually, turn into customers.

Cost per Click  (CPC)
This is the amount in which the advertiser pays the system for every click in their ads. Once a visitor clicks on ad placed on your website, the advertiser pays the website owner a certain amount of money.

Calculations
Now, let us do some math. Let us fill the equations with some real numbers. We can assume your target revenue is $1 million within the year. That is 12 sales periods per year and the average sale per customer is $1,000.

Your sales team converts lead at 20% and your website converts visitors into leads at a 2% rate. Your keywords search or CPC are averaging $2 per click costs.

($1,000,000 / 12) / $1,000 = 83.33 customers
(84 customers / 20%) / 2% x $2 = $42,000

To hit your target revenue of $1 million within a year, you will need to get 84 customers and will require you an estimated investment of $42,000 per month on PPC advertising.

This is the quickest way to determine the right budget for your PPC advertising, but you also need to consider many variables along the way. Your budget will also depend on the advertising tool you will use.

The above calculations are very easy to do and do not need advanced mathematical skills to execute. This is a good start in calculating how much money you will need to spend on Pay-per-click advertising. The next thing you need to determine is who will execute this strategy. You can decide whether to hire a marketing expert internally, or look for a marketing agency, or just do it yourself.

Regardless of which strategy will work for you, make sure to update your math so you can be sure you are on the right track to achieving your business goals.