Budgeting is one of the most important components of pay-per-click (PPC) account management.
They are a direct reflection of a campaign’s priorities and are the bridge that ties strategy and tactical execution together. Without well-thought-out budgets, a PPC program can never reach its full potential.
This article discusses how to think through the budgeting process to ensure priorities are met and goals are reached.
Budgeting: The fuel that makes strategy go
One of the best analogies between budgeting and strategy is an automobile.
Think of strategy as the vehicle and budgeting as the fuel that runs the automobile.
Without a vehicle in place, there’s nowhere to insert the gasoline. This is the way that I think about the relationship between strategy and budgeting: Without a proper strategy in place, there is no mechanism for determining where to invest money allocated to PPC
So, how do we create an effective PPC strategy?
- Establish goals. Establish PPC goals aimed at improving overall business metrics to ensure alignment. Review PPC goals at least bi-annually to ensure they’re still relevant and in alignment with the current overall business situation.
- Set priorities. Once goals are established, it’s important to determine key priorities. For instance, if the primary goal is revenue growth, the priority should be executing initiatives that drive conversions, such as keyword or audience expansion. On the other hand, if the primary goal is driving profit, then the priority should be focused on initiatives such as search query report (SQR) mining for negative keywords and other forms of optimization.
Once goals and priorities are set, then it’s time to create the PPC strategy. Use these four steps to build your strategic plan:
- Assess situations. Assess the overall situation by analyzing factors such as performance, the impact of competition, overall market conditions and true needs of the business. Developing an overall view of the situation leads to the next step, which is creating a point of view regarding how to manage your PPC program.
- Create a point of view. Your point of view is ultimately the governing philosophy for how the PPC account will be managed and should be tied directly to goals and priorities. Align your point of view with the goals and priorities of the accounts to ensure you’re working on the right initiatives.
- Create a tactical plan. The next step after creating a point of view is to create the tactical plan. Tactics are the actual tasks performed in the account. For instance, remarketing, bidding and writing ad copy are all examples of tactics that can be taken to execute the overall strategy.
- Focus on funding. Once the plan is built, budgeting comes into play. Creating a focused strategy based on priorities and a strong tactical plan directs where and how budgets are allocated.
Building budgets: What to consider
So, how do we get started building budgets? Here are some factors to consider when creating budgets and deciding how to invest in them.
- Performance. For an existing PPC program, tying budget to performance is a key component of budget allocation. While most of your budget will ultimately be allocated to profitable campaigns and channels, strategic decisions should be made on whether to invest in “loss leaders” that can help reach goals.
- Seasonality. Invest in resources when the business is at its busiest. In the slower seasons, use your PPC budget to not only drive conversions but also to build brand awareness.
- Attribution. Use attribution data to prove the influence of PPC on conversions either cross-channel or within the channel. For instance, you might learn that certain campaigns don’t convert well, and the instinct is to turn them off. However, if they lead to conversions in other campaigns, you’ll want to allocate budget to keep the conversion path open.
When building budgets, you’ll want to invest in “tried and true” channels like AdWords and Bing. I typically invest 70 percent of a PPC budget in those channels that have proven to contribute significantly to one of my goals.
I then invest 20 percent of the budget in what I call “safe bets.” These are channels I have not invested in before, but, based on overall advertiser feedback, are considered reliable sources.
Finally, I keep about 10 percent of the budget available for experimenting and testing. It’s important to push the envelope a bit and find new sources of traffic. However, until these sources prove themselves to be reliable contributors, I minimize risk by limiting the amount of budget I invest into less proven campaigns.
Building budgets: An example
There are numerous PPC budget creation methods. For instance, an account I manage requires quarterly budgets vs. budgets for the entire year. Here is an example of one:
To create this budget, we analyzed the percentage spend increase month over month (MoM) from the prior year. For instance, we learned there was a 20 percent increase in spending from December 2016 to January 2017. As a result, we took December 2017’s spends and applied the previous year’s percentage increase to set the budget.
The assumption was made that if growth was 20 percent the previous year, the budget could then grow another 20 percent. This method of budget creation has been successful in setting budgets that drive consistent year-over-year (YoY) growth.
Final thoughts
Budgets reflect your PPC program’s goals, vision and strategy. The instinct as a PPC professional is to jump right into an account and start building and optimizing campaigns. However, focusing on budgets first ensures you have the proper amount of funding required to reach goals and fulfill priorities.
Focusing on where to allocate budgets, whether in existing or new campaigns, is important in helping to focus efforts. Going through the budgeting process will help focus all your efforts and bring clarity to your program.
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