How Much Should You Spend On Pay-Per-Click Advertising?

When planning a pay-per-click campaign, the question of cost will inevitably arise. How much should you spend on pay-per-click advertising? Is there a point where your spending outweighs the return on investment? As with a lot of questions about pay-per-click advertising, the answer is, “it depends on your campaign.” In order to understand why, you need to understand two figures of your pay-per-click campaign—cost per click and earnings per click.

Estimate

A pay-per-click campaign gets its name because you pay each time someone clicks on your link. How much you pay is determined by the popularity of the keyword. For instance, “french fries” might cost you $4.16 each time someone clicks on your link, while “real estate” might cost $16.29. In order to get an estimate of the cost per click (CPC), visit the Google Keyword Planner Tool and enter your keywords.

Define Test Budget

Once you have an estimate of what each click will cost, you’ll need to know your initial budget. Figuring this out is harder. It will require spending money in a testing phase to collect data on how many people click on the link, how many people complete the conversion process and how much each conversion is worth. Please keep in mind you’ll have to know how long you can test before you need to see results. Also note that some keywords are searched more often than others, so you might need to have a longer testing phase if you want your data to be accurate.

Run Test Campaign

During the testing phase, you’ll want to figure out the estimated cost per sale (ECS). You can get this by dividing the cost per click by your sales conversion rate, which is the percentage of prospects who click on your link that complete the goal. If you don’t have enough data to estimate this, a good rule of thumb is that one percent of the people who click on your link will become a paying customer. As an example, if you’re paying seven dollars per click on one keyword, dividing seven by one percent will show you that one sale costs $700. Once you’ve repeated this for each keyword, add up all the numbers. The result will be your initial budget.

Analyse

Once you’ve taken your pay-per-click campaign out of the testing phase and moved it to the Internet, you can start to figure out your earnings per click (EPC). To get your EPC, all you have to do is multiply your conversion rate by the customer value, which is the average amount a prospect spends once they have converted to a sale. In order to find out if your pay-per-click campaign is profitable, just compare your EPC to your CPC. If your EPC is higher, you’re making a profit. If the CPC is higher, you’re losing money.

If your EPC is higher than your CPC, then you’re good. If your CPC is higher than your EPC, then you’ll need to invest time and money into improving your conversion rates until the EPC is larger than the CPC. That’s how much you need to spend on pay-per-click advertising, and it will vary from business to business.

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