Pay-per-click (PPC) advertising can be a game-changer for businesses looking to attract leads and boost sales. However, one of the biggest challenges is figuring out how much to spend. Spend too little, and your ads might not gain traction.
Spend too much, and you could end up wasting money without seeing the returns you expect. So, how to determine the PPC budget in a way that balances cost and results? Let’s break it down in a practical, human-friendly way.
1. Define Your Goals Clearly
Your PPC budget should align with your marketing objectives. If your goal is brand awareness, you should focus on getting as many impressions as possible, allocating more budget to display or video ads.
On the other hand, if you’re looking for lead generation, your budget should be geared toward targeting high-intent users, likely through search ads or remarketing campaigns.
One way to define your goals is to break them down into measurable results, such as:
- Traffic Goals – How many website visitors do you need per month?
- Lead Goals – How many form submissions or phone calls do you expect?
- Sales Goals – How many conversions do you need to justify your ad spend?
By setting clear, trackable goals, you can adjust your PPC budget accordingly to ensure your investment leads to meaningful returns.
2. Understand Your Industry’s PPC Costs
PPC advertising costs vary depending on the industry. Due to intense bidding wars for top ad placements, businesses in highly competitive sectors like law, insurance, and finance tend to have high cost-per-click (CPC) rates. Meanwhile, industries with lower competition, such as local services or niche eCommerce, may experience lower CPC rates.
To get a realistic estimate, research industry benchmarks using tools like Google Ads Keyword Planner or platforms that offer industry-specific insights.
For example, the average CPC for legal services in Singapore can be upwards of $8–$12 per click, while retail businesses might see CPCs in the range of $0.50–$2.00.
If you’re unsure how much you should allocate, using a PPC ROI Calculator can help predict potential returns based on your industry’s average costs.
3. Know Your Customer Lifetime Value (CLV)
Understanding customer lifetime value (CLV) is key to ensuring your PPC campaigns remain profitable. CLV represents the total revenue a customer generates for your business over their lifetime.
To calculate CLV, use this formula:
CLV = (Average Purchase Value) × (Average Purchase Frequency) × (Customer Lifespan)
For example, let’s say you run an online fitness subscription service:
- Average monthly subscription fee: $30
- Average customer retention: 12 months
- CLV = $30 × 12 = $360 per customer
If your PPC cost per acquisition (CPA) is £50 per customer, and each customer is worth £360 over their lifetime, your PPC budget is well justified. However, if your CPA is close to or exceeds your CLV, you may need to optimise your ads or adjust your budget.
Your cost per acquisition (CPA) is the amount you’re willing to pay to acquire a new customer. It is one of the most important numbers when determining your PPC budget.
4. Calculate Your Target Cost Per Acquisition (CPA)
To estimate your CPA:
- Take your total PPC budget and divide it by the number of conversions you expect to achieve.
- If your estimated CPA is too high compared to your CLV, consider adjusting bids, improving ad targeting, or optimising landing pages to increase conversions.
For example, if you allocate $2,000 per month to PPC and expect to convert 50 customers, your CPA would be:
$2,000 ÷ 50 = $40 per conversion
The lower your CPA, the more effective your PPC campaign will generate profitable returns.
5. Consider Your Click-Through Rate (CTR)
Your click-through rate (CTR) is an essential factor in determining your PPC budget. A high CTR means your ads are relevant and engaging, leading to better ad performance and lower costs. Google Ads rewards high-quality ads by reducing CPC, meaning your budget stretches further.
To improve your CTR:
- Write compelling ad copy that resonates with your audience.
- Use ad extensions (e.g., callouts, site links) to make your ad more engaging.
- Target the right keywords—avoid generic terms that may attract unqualified clicks.
If your CTR is low (below 2%), you may need to rethink your ad strategy. A better CTR means you get more clicks for your budget, ultimately improving your PPC return on investment.
6. Set a Monthly And Daily Budget
Once you have an estimated budget, it’s essential to break it down into manageable daily and monthly limits. This prevents overspending and ensures that your ads run consistently throughout the month.
For instance, if you decide on a $1,500 monthly budget, your daily budget would be:
$1,500 ÷ 30 = $50 per day
This helps control spending and ensures you don’t run out of budget too quickly. If you notice your ads performing well, you can always increase your daily cap or allocate more funds to high-performing campaigns.
7. Test And Adjust Regularly
PPC is not a set-it-and-forget-it strategy. Regular monitoring and adjustments are necessary to optimise performance. Even if you start with a well-calculated budget, market trends, competition, and consumer behaviour can change, impacting results.
To keep your PPC campaigns on track:
- Review campaign performance weekly to spot trends and adjust bids.
- Identify underperforming keywords and replace them with more effective ones.
- A/B test ad creatives to see which version delivers better results.
- Optimise landing pages to ensure users convert after clicking your ads.
Conclusion About Determining The PPC Budget
Determining the right PPC budget isn’t about guessing—it’s about using real numbers to make informed decisions. By understanding your goals, industry costs, and customer value, you can set a budget that makes sense for your business.
If you want expert guidance, Best Marketing Agency is offering a free 30-minute strategy session to help you refine your PPC campaigns for maximum results. Don’t miss out—book your session today!
Frequently Asked Questions About Determining The PPC Budget
Is PPC Worth It For A Small Business?
Yes, when done right. PPC allows businesses to attract targeted traffic and generate leads quickly, making it a great option for those looking to grow their online presence.
What Factors Affect The PPC Budget?
Industry competition, cost per click, customer lifetime value, advertising goals, and ad performance all influence how much you should spend.
Can I Change My PPC Budget After Starting?
Yes, PPC budgets are flexible. You can increase or decrease spending based on campaign performance and business needs.
How Do I Lower My PPC Costs?
To reduce PPC costs, focus on improving ad quality, using negative keywords to filter unwanted clicks, and refining targeting to reach the right audience.
What Is A Good Conversion Rate For PPC?
A good conversion rate varies by industry, but generally, a rate of 2–5% is considered strong. Some industries may see higher or lower averages.
