Marketers’ SEM Guide Part 4: PPC Budgeting & ROI

This is part four of a series of posts on Search Engine Marketing for marketers. This part explains how to do budgeting in SEM campaigns.

Part 1, Part 2, Part 3

If you do SEM campaign in house, your budget just needs to include search engine cost. If you outsource to an agency, you probably need to include 10% to 20% account management fee on top of your search engine spend. How much should you spend on search engines? You should do the estimation for each search engine and sum up the total. Request for a proposal from search engines directly (which usually requires your monthly budget is between two to five thousand dollars depending on which search engine you use) or your agency to get the proposed total budget with projected number of clicks (which roughly equals the number of visits).

In case you can only start with a small budget and will do it in-house, this is a simple way to work out the estimated spend and total clicks yourself:

1. Generate a list of keywords with search engine keywords tools like this, this, and this.
2. Use Google traffic estimator to estimate the cost and clicks.
3. Referring to search engine market share in different market, relatively estimate the spend and clicks on other search engines. A better way is to refer to user demographic data in each search engine as well; but this sometimes requires experience.

The senior management is more interested in proposed budget and projected results. Now you’ve got the budget which is probably the maximum you can spend with search engines. You need to adjust it according to the current economy, industry, and company situations.

How to Estimate the Results

Let’s take the number of clicks on your PPC ads roughly as the number of visits to the site. Ask your web analytics guy to get an estimation of the site conversion rate (CR = number of leads divided by the number of visits).

1. Conversions (Leads, Registration, Sales…) = Clicks * CR
2. If you have online sales, get an average sales value; otherwise, assign a dollar value to a conversion
3. Return = Conversion * Average Worth (dollars) – Cost (Proposed Budget)
4. ROI = Return / Cost

Then, you can tell your management investing X amount of dollars in SEM will bring Y sales / leads, and the estimated ROI is Z. Of course, you need to show how exactly you get your projections.

The actual budgeting is more complicated; depending on which industry you are in, it could take days to finalize the proposal. Your job is to make sure you have specific goal in mind to deliver via SEM, track your SEM campaign performance, and keep improving it. The next chapter discusses branding in SEM and brand keywords.

Related Digital Marketing Posts Other Readers Enjoyed:

1. In-House SEM/PPC Management (Marketers’ SEM Guide Part 6)
2. Marketers SEM Guide 2: Goals, KPIs, and Targeting
3. Marketers’ SEM Guide 3: Measurement with Web Analytics
4. Marketers’ SEM Guide Part 1: Introduction
5. Benefits of Content Network (Marketers’ SEM Guide Part 8)

Tagged as: AdWords, agency, budgeting, google, in house, PPC