Advanced PPC #5: How to justify the budget you need for new campaigns
- What Factors Determine PPC Campaign Budgets?
- Simple Formula for Starting Budget
- The Stages of a PPC Campaign
- Managing Multiple Campaigns with a Single Budget
- Justifying PPC Budgets: Summary
- Annual Budgets versus Monthly Budgets
Joe Martinez: Hello everyone. We are live. Welcome to the SEMrush webinar on how to justify the budget you need for your new PPC campaigns. My name is Joe Martinez, I will be your host.
We have a wonderful panel of three guests who are going to join in and give us their opinions and a slight presentation on how we can utilize our PPC budgets, get the information we need to justify the budgets either on our current campaigns, or going on breaking out into new campaigns.
First, we have Joel Bondorowsky. He's going to be our main presenter today. Joel, welcome.
Next, we have Aaron Levy. Aaron has been in the digital space for over a decade, and he's been running PPC for campaigns at Dupont as a college junior, so he's been doing this for a while, he's definitely a vet in the industry. Now he's the Director of SEM at Elite SEM, oversees a team of 25 plus enterprise PPC marketers in the mid-Atlantic and in the Midwest.
And last but not least, of course, is Ginny Marvin. She's the Editor-in-Chief of Search Engine Land, Marketing Land and MarTech Today. She has more than 15 years of marketing experience in agency and in-house management roles, so another industry veteran in the mix, Ginny, glad to have you on this webinar too.
Well, this is our panel and we have a lot of people chatting, introducing themselves, so everyone who's joining the webinar, welcome. We are about to get started. The format's gonna go, Joel's gonna kick things off with about a 15-20 minute presentation. Joel, I'm gonna pass things to you, and let's kick things off.
Joel B.: As you know, the topic here is how to justify the budget you need for campaigns, and I think that this is based on a big problem that a lot of us have. Whether we are running campaigns for clients or we're working for a boss, the problem is that making campaigns profitable costs time and money.
Also, the person who you have to ask the money from, whether it's a client, whether it's a CEO or CFO, they're nervous about giving it, and sometimes it's difficult in order to explain what it is, because they're not really PPC people. They don't understand that amount you need to define.
It's a feel of, "Okay. I need X amount of dollars." "Why?" "I do to become profitable." "Well, what's that mean?" "I need to do that to optimize."And it's a very difficult situation, and I think one thing that really good campaign optimizers often miss out on is the ability to get the budgets they need to succeed, because you do need that money in order to optimize campaigns, so that you can get to the point where you can consistently return on them than you spend.
What Factors Determine PPC Campaign Budgets?
What are the factors in determining a budget? First of all, there are three main factors that I want to speak about. The first one is the data load you need in order to optimize your campaign. The second is the cost of the data, and the third is how quickly you want to grow versus how much you want to risk. Those are really the three factors that determine how much budget you need in order to launch a campaign.
Now, let me with start with data load. What I mean by data load is how heavy your targeting is. When I say heavy, it's more like how much your targeting is.
Let's say you're trying to optimize a certain amount of budget on a very light data load. That might be, let's say, a certain of a budget on two keywords in one ad group in search. It doesn't take long before you have enough traffic to understand how those keywords perform.
But let's say you have a very heavy data load. That traffic gets divided across many keywords. Let's not forget that traffic is bringing statistics that you need in order to optimize effectively.
If your data load is heavier because you're running very large search campaigns, then you're going to have fewer stats per keyword, so it will become more expensive and time-consuming to optimize to become profitable. That's search, and I keep saying keywords 'cause I'm thinking of search.
Now, if you're talking about, let's say display advertising. It is way, way, way larger. The requirements of how much data you need in order to optimize a display campaign goes up so many more times.
You're not just bidding on a keyword within search terms, you're bidding on audiences crossed by topics, which could be divided by demographics and all these other ways that become way more complex and data-heavy than search. So if you're running display campaigns it is much heavier, you need more budget.
Next, it is the cost of the data. The cost of the data is determined by two things primarily, the cost of the traffic versus the sales value.
Finally, it is the risk factor. You see, the thing is that if you start off with a larger budget you're able to target more and be more aggressive, so you get more statistics which yields faster growth. But you are risking more in order to learn them, as opposed to starting with a smaller budget.
If you start with a smaller budget, you start off with less statistics, slower growth, but you also are risking less money upfront. Really, what you have to do when you have the conversation with your boss about how much money you need, is to start off with coming to them with the data cost factor, how much does it cost to get the statistics you need in order to optimize the campaigns.
Simple Formula for Starting Budget
You put them all together and you get your starting budget, and I put together a very simple formula, it's a heuristic, it's something to guide you on the dynamics of the three factors.
In this example, your budget would be equal to one-quarter of your risk factor multiplied by how heavy the data is plus the cost. It's as simple as that.
And by the way, I'm working on formulas for the previous two, for the data costs as well as the data load to help you... it's to help actually quantify this directly.
It's something that I do myself internally when I take on new clients, and it's something I want to share with everyone else out there 'cause I think it's very, very important that people could understand this in order to get the budgets they need to be successful.
Before I continue, I would like to stop and see if there's any questions out there.
Joe Martinez: Yeah, we had one question just due to looking at the size of the accounts.. We see that there are marketers in here who deal with very, very small clients in terms of just account size and the radius that they're targeting, and then we also have up to enterprise level clients.
The formulas that you have, Joel, do you adjust those in any way just due to those client sizes, or are you using them as an overall generic formula to use and predict that budget?
Joel B.: a very simplified generic formula that I'm giving now in order to explain it to you. I also use a simplified generic formula when I'm trying to explain it to a new client to get them to understand what it takes in order to be successful with the activity that they're doing.
Joe Martinez: Okay. Aaron, we know you work with a lot of enterprise clients, so when you're dealing with massive clients that size who have a big budget, maybe the risk factor isn't that much of a big deal to them, or is it? If it's someone in that situation how do you typically approach that?
Aaron Levy: It's different and it's more political. There's two absolute horror stories that you can have in working with enterprise.
Number one, you don't ask for enough money and you have to try and go get more and you leave money on the table. It's really bad when there's good inventory left that we just aren't spending money on.
When you're thinking about budgeting for enterprise, and using Joel's formulas as well, two things to think about, A, what inventory is out there that you can actually spend money on? And how does the quality of that inventory diminish?
One real negative that I see in budget planning for a lot of people is you'll look at PPC or digital as one giant channel, and you have one blanket metric, and that's extremely dangerous because the next dollar spent is never as profitable as the first one that you spend.
There's only so much low hanging fruit before you have to climb up the tree, so when you're budgeting, when you're forecasting, you have to think of how does your best stuff perform.
Joe Martinez: Ginny, what typical client size do you deal with and how do you usually use budget planning in planning out the risk versus the reward? And explaining that to your clients.
Ginny Marvin: The worst way, I think though, to start off a budget discussion is to respond to your client who says, "So what's the CPC gonna be?" When the conversation starts off like that, you're already totally off-track of what is the goal, and so I mean, with budgets and anything it always goes back to what is the goal of this effort?
And constantly leading back to the function of this is to sell things, to get great leads, to X, Y and Z, and a return that's going to make sense for our business. That's the big picture that I always just caution to keep in mind, 'cause you can really get off on tangents of, "Well, I don't know," and you're trying to predict and budget for a brand new campaign, and getting hung up on what your CPC is gonna be can derail the whole big picture.
The Stages of a PPC Campaign
Joel B.: The stages of a PPC campaign. We start with a benchmarking period. That benchmarking period takes a percentage of your budget. It could be, let's say 10% or 20%, depending on what's going on, to help us understand how far they are from the goal of breaking even.
The idea with the campaigns that I typically run is that once we break even, once you go past breaking even and we're profitable, the campaigns are no longer an expense. What you're paying Google or Facebook or whoever the platform, it is in order to earn more back.
The budget is no longer limited. The effort becomes a resource just to drive more sales and business. So the first goal is actually to go from having this PPC bill being something that has to be justified to your investors, or whoever's financing it, to becoming an asset for the company.
After that, we grow campaigns. You try to see how much we can scale and grow them to reach their maximum potential. What happens in this phase oftentimes, is that once we start getting bigger and bigger, the costs for those new sales do get more expensive.
But it is something we have to do in order to understand what we can do with what we have in order to conquer the market as far as the channel advertising. And then after that, we optimize for profit.
With the benchmarking period what we typically do is we'll take 10% of the budget that we determined from the previous slides, and we want to understand what our benchmark CPCs are.
You see, a very big factor in breaking even is the amount and the cost you're paying for traffic. Also, our benchmark conversion rates. What percentage of these clicks are becoming sales, okay?
And then we understand our ROI, which is a very simple formula. Your sales value and, let's say for the example that I'm gonna give soon, the sales value is $100. You take the $100, multiply it by the conversion rate, divide by the amount you're paying per click, and that is your ROI. That is your return in investment.
By the way, does anyone have any questions about this phase, formulas I gave?
Joe Martinez: Yeah, well one question to you, and Joel...how often are you going back and reviewing what that actual sales value is to you, to make sure that the amount that you're budgeting stays in line with the business and campaign goals?
Joel B.: Okay, well the example that I gave is one where you have a fixed sales value. If the sales value changes then basically what I'm looking at is ROI. I'm looking at, I start off how does my ROI fall? Where do I fall as far as my ROI goes?
In the example, if gave where the sales value was fixed, it is primarily determined by how much you're paying for the traffic and your conversation rate. If it's a more sophisticated sales funnel or sales value is variable, then there are other factors there.
But at the end of the day what we're looking at is how ROI falls for the benchmarking period, and then you understand how far away you are from reaching the point where your Google bill is no longer an expense and starts becoming an asset.
And that's something you could understand through the optimization period. The optimization period, which comes up next, is where we understand how quickly you can close the gaps.
In the optimization period, our goal is to close the gap, and the way we do that is optimize conversion rates and also your cost per clicks.
You improve conversation rates two ways, by improving your campaign targeting. Let's say we launch these campaigns and right away we're looking at our targeting and we see there's some keywords that just don't work.
There's some geos that just show zero interest in purchasing, and let's say there's some times of the days when people are just never gonna buy this. Just like cutting these keywords out to improve your conversion rate, that's helping to close that gap.
Also, funnel optimization, conversion optimization also helps. If you are able to, let's say, double the conversation rate off of a landing page by improving a few things here there, which is easier to do when you're first starting something out.
When you have a new campaign or a new effort, there are more low hanging fruit to optimize from your sales funnel, so you want to be testing right away because any incremental conversion rate that you increase in your sales funnel does help close the gap.
Those two areas right there will help increase the value for every visitor that you get, and also you want to lower your cost per clicks. Because with PPC advertising the PPC platform gets paid every time you get a click, yet they're selling you impressions, they reward you greatly if your ads get more clicks.
If you A/B test your ads thoroughly and are able to improve how relevant they are for the people that are looking for them, you will pay less per click.
And also, by the way, it comes with better campaign targeting. If, let's say, you're targeting keywords that are completely irrelevant to your ads, that will hurt you and you'll pay more per click because of that, so improving that will help close the gaps.
Because these campaigns are coming with a lot of data, a good campaign optimizer know how to make the most of it.
Next comes the growth period. Once we get to the point where the campaigns pay for themselves, we can then open up budgets and grow.
Building of the growth period is to grow campaigns to reach their natural maximum potential, with a neutral or a 100% ROI. I mean, it depends on the goal of the company itself, but the recommended practice is not to be focused on making your money back yet, but instead try to find every place you can covert, as long as you're not losing.
Take any money you receive it and put it into growing campaigns, or even invest a bit more into growing campaigns, growing other campaigns and also other channels.
The idea there is to just maximize your reach, also while optimizing your sales funnels, your ads, your targeting and so on.
Before, our optimization was lowering the cost of traffic, while in the growth period what often happens is that you find that more expensive traffic actually works better. More expensive traffic when campaigns are targeted well, means that it's actually a good thing.
In one sense if your campaigns are reaching the right people and they cost more, it's for a reason. It's because those are the people at the times from the locations that are more actionable and more likely to convert.
Oftentimes when I'm growing campaigns and I'm optimizing it, I'm actually finding that my cost per clicks are going up because I'm excluding the worthless traffic and I'm targeting harder on the better traffic.
What happens eventually is making those extra sales starts costing a lot more per sale. We're reaching the point where getting those extra conversions at the price we want is becoming too expensive, so at that point let's slow down on growing and start focusing on making money.
The goal of the profit period is to find your optimal ROI. What does that mean? Well, a lot of times people will come and say, "You know what? I want to have a 200% return on an investment. If I break even selling this at $100, I want to sell it at $50."
But they don't understand the problem is, is that sometimes if you shoot for too high of an ROI, you're gonna lose so much sales volume that you're not going to make enough, so really the goal is to find that sweet spot.
The way you do it is that once you reach your market potential, you start lowering your bids. By lowering your bids you are lowing those cost per clicks. You are then lowering your cost per acquisition and increasing your ROI, so profits start to go up. Your profits increase.
Let's continue. Let's continue to lower those bids. Let's continue to lower that CPA, let's continue to raise that ROI. In the meantime, sales volume is dropping. What will eventually happen is that profits drop. When you are there, you have found your optimal ROI.
Managing Multiple Campaigns with a Single Budget
I'm ready for questions. I think that was a lot for a period, and let's see what you guys have to say.
Joe Martinez: Thank you very much. The biggest question that we've got all across the board... is a lot of people are asking about shared budgets. Do you share campaigns for your campaign management, and does it affect anything typically with your optimization and ongoing improvement?
Joel B.: When you say shared budget you're talking about multiple channels and we have to divide budget across them?
Joe Martinez: I think, for the most part, what I'm getting at is there's the shared budget option with Google and Bing where you can have one budget for a select amount of campaigns, so instead of having a daily budget for each, you're using one budget to manage multiple campaigns.
Joel B.: Okay, I understand. Okay. You're saying a budget for an account. Okay, well basically I look inside of the campaigns and I try to understand what's profitable or not, and then divide them in two boats.
If they are keywords or they're ad groups or they're campaigns, or even if we're talking about different PPC channels and some are profitable, the profitable ones are offsetting the ones that are unprofitable.
The purpose of the unprofitable ones it optimizes and make them profitable so that we end up having a bigger boat of profitable elements in our PPC arsenal, whether it be keywords or campaigns or ad groups or channels or whatever. I hope I'm addressing your question appropriately, but I think I am.
You have to optimize things in stages, and the more you have that's profitable, the more you can afford to lose on what's not. The reason that you're losing is to eventually learn enough to make it strong and profitable to then feed the rest of the machine. Did that answer the question or not?
Joe Martinez: In some way. That's definitely gonna be for the multi-channel one. I want to know specifically from a shared budget feature. I know for sure Google and Bing has it, and I think that's what a few of the people are talking about.
Aaron or Ginny, have you guys ever used the shared budget feature?
Ginny Marvin: Okay. To be honest, not much in techs campaigns, in shopping campaigns is more where I've used that where you've got campaigns segmented less from a budget perspective and more for how you're trying to funnel traffic quality.
Where you don't really care how the budget gets allocated, you really care more about how you're funneling traffic, whether it's brand traffic or generic traffic, or however you're segmenting those campaigns. That's typically how I've approached the shared budget.
Joe Martinez: Okay, okay. Good. Aaron?
Aaron Levy: Well look, all of us in this webinar that are hosting it, and I'm gonna make an assumption, and most people watching it are dramatic over-segmenters. Since we all have been doing this for a while, we know that the original and still the often taught the best way to structure campaigns is you segment campaigns based on site hierarchy.
So you have a campaign for shoes, a campaign for socks, a campaign for pants, all that sort of stuff, but when you're talking about using shared budgets, shared budgets are okay to me when performance is similar, but if performance is similar then why are you segmenting to new campaigns?
I think a lot of marketers think about campaigns in a little bit of a dated way, that it's more of a segmentation tool, but we're starting to look at it more from a performance or targeting tool.
Basically, if targeting needs to be different or budgets need to be different for any way, then split out the campaigns. But if they don't, keep them together and keep the data big.
Joe Martinez: Okay. And how does it affect, typically, your optimization tactics compared to what you said over-segmenters might be doing?
Aaron Levy: Honestly, it doesn't. It just means they're in different buckets. Having things in a separate campaign bucket, I mean, we have a number of clients that have multiple accounts, 'cause Google has limits, but they all operate the same way. It just depends on where the buckets are.
Justifying PPC Budgets: Summary
Joel B.: Okay. To conclude, in order to get the budgets you need in order to optimize effective profitable campaigns, you should approach with the three factors, data load, data cost and how much you're willing to risk.
When you're asking for PPC budget, at least with the type of advertising efforts I work with, it is simply to get to the point where we have campaigns that are not an expense but an asset. You're not paying for advertising, advertising is paying you.
The amount of money you invest to start comes in order to buy statistics that you need in order to reach that state. In order to get it, you can reduce anxiety by setting expectations by using the campaign life cycle that I laid out.
From the benchmark period to we start off saying, "Listen, we're gonna take a small percentage of what you're willing to invest into building this money machine for your business, and understand how far you are from the goal." And this reduces anxiety because let's say it doesn't work, it doesn't fly, then you might stop and think.
You're gonna test the waters first before you move forward. And if you test the waters and you find that you're far away, you can then try it a little bit and go through a tiny part of the growth period in order to see what you could do to close the gaps. L
Let's say after the benchmark period you realize that there's a sweet spot, there's some targeting that's working great, but there was a lot of junk in your campaign that just wasn't working, keywords that were spending and not converting. You can fix that through the growth period.
With the growth period, if you're able to close the gap between cost and revenue, you're able to relax whoever's funding you to let you continue until you're able to reach the profit period where you're able to not only worry about growing, you're able to worry and kind of jump from benchmark period to growth period.
Once you close the gaps in the benchmark period, you're able to then optimize to where you're able to spread your campaigns out as far as they can go. Every possible keyword that you can get, you're bidding on, you have a bid set so that you're able to get exactly as much back as you're spending on it, and then you start cutting bids in order to start increasing your profits.
We have 20 minutes left. Joe, let's hit it.
Annual Budgets versus Monthly Budgets
Joe Martinez: Someone who has a yearly budget versus someone who just has a fixed monthly budget, how do you work on planning optimization in between those two, and Ginny, I'll start off with you some time. How have you dealt with that in the past?
Ginny Marvin: I guess I would say it goes back to setting expectations, what Joel was saying. Basically, even if there's an annual budget, having expectations broken down by whether it's seasonality that's going to dictate happenings.
Basically, break it down in manageable pieces and have everybody be on the page, whether it's quarter by quarter, month by month, whatever it is and it's gonna depend on the nature of the business and what their seasonality looks like and what promotion changes are gonna happen. That's, I guess, typically how I would approach that.
Joe Martinez: Sure. Aaron, we'll kick of with you, dealing with either fixed yearly or set monthly budgets.
Aaron Levy: Exactly like Ginny said, it's a lot about expectation setting, it's a lot around planning for seasonality.
What we have gotten in the habit of doing, even for e-commerce retailers who fully expect to make all of their money in the fourth quarter around holidays, we do our best to capture everything that's available in the beginning of the year, so we don't have to play catch up.
Joe Martinez: I want to get to one more question, so we've got about five minutes left. We talked a lot about growing, it's been mentioned with other channels a few times, and I think that's extremely important especially when budgets are involved, whether you have limited or unlimited budgets. We have many more options to use now in PPC besides just Google and Bing. Facebook, LinkedIn, Quora, Twitter, Reddit, Apple, Waves and other ones I'm not even mentioning.
If you are really focused on growing and you have the budget to spend, or even if you don't, how much are you educating your clients or potential clients on these additional channels, and how are you introducing these potential new channels to your clients? If they are interested or if you're trying to convince them, are you more focused on taking a budget that's not working in other channels or campaigns and shifting it over? Or, for the most part, if you have a good idea and max it out you still want to test, are you new asking for new budgets?
Joel B.: Okay. The last thing the answer would be it depends on how aggressive you want to be. In other words, if you want to grow and conquer faster, then you'll take more money even though it costs you more as opposed to taking the money you've already earned.
Joe Martinez: Ginny, what's your take on multi-channels and shifting budgets around between them?
Ginny Marvin: Sometimes there are gonna be companies where it does make sense to siphon some budget off of search that is not performing as well as you would hope, and try it out in another channel.
Typically though, I mean, if search is working and you're getting as much as you can out of it, oftentimes it's then, "And then what else? And what else can we do?" Right? It's like we want to just keep growing, we want to keep getting more and more things, how many channels can we start testing?
Joe Martinez: We're out of time. Ginny, Aaron, Joel, thank you so much. We had a ton of great information. I told you guys we're not gonna be able to get to all the questions.
Thank you for joining us, we hope you learned a lot about how to use your PPC budgets, and hopefully, we'll see you at the next PPC SEMrush webinar. Have a good one everyone.