This is one of the most common questions we hear when we talk to prospective clients. In fact, business owners and marketers struggle so much with this question that it can stall their marketing efforts before they’ve even launched their campaigns.
Advertisers wrestle with the question of cost from a variety of different angles:
- How much does an individual click cost?
- Can I afford my clicks if I’m in a competitive industry?
- How much do I need to spend to be competitive?
- How will incremental budget changes affect performance?
The first thing you need to understand is how pricing is structured within your PPC account. When you set up campaigns, you have the following options:
- Cost-Per-Click (CPC)
Paid on a per click basis, this pricing model allows you to designate a maximum price that you’re willing to pay for each click. This pricing model is best suited for campaigns where the goal is to increase traffic to your website.
- Impression-based pricing (CPM)
Paid per thousand impressions, this display network pricing model charges for views of an ad regardless of whether an action (a click, sign-up, etc.) was taken. This pricing model is best suited for branding campaigns, where awareness is the main goal.
- Cost-per-acquisition (CPA)
Paid per conversion, this pricing model allows you to set an ideal acquisition cost for conversions like sales, signups, and quote requests based on how much those conversions are worth to your business. The search engine then uses historical account conversion data to determine when to show your ads at which price to maximize conversions. This pricing model is best suited for campaigns where sales are the end goal. For new advertisers or lower-volume businesses, CPA isn’t available as a bidding option because there isn’t enough historical data for the search engine to utilize.
Industry and product competitiveness will influence CPC and CPM pricing, whereas business-specific numbers like cost and margin determine CPA pricing.
The Cost of Clicks
It’s no secret that click costs can vary widely across keyword phrases. But did you know that the price of a click can also vary substantially at different times of the day and in different regions as well?
Competitiveness determines costs, which means that more competitive industries and common keywords within those industries will be pricier than their less competitive and more unique counterparts.
But regardless of the overall competitiveness of your industry, every industry has busier times of the day for searches, which means that competition can fluctuate throughout the day based your audience’s online behaviors. The specific service area for a local business will affect the competition they encounter when advertising online as well.
Keep in mind that some industries have higher click costs because a conversion (a lead or a sale) is worth more to them. The most expensive industries are health products and services, legal, medical, financial services, employment services, insurance, loan services, and business software. Higher ticket items and higher customer lifetime values mean that companies within these industries can afford to spend more to market their offerings. For example, a cost-per-click (CPC) will typically be much higher for a car or an engagement ring than it will for a toaster oven or a pair of sneakers. Similarly, a CPC for a dentist will be higher than a CPC for a residential painter because the lifetime value of a customer is much higher for the dentist.
Can You Afford Your Clicks?
Understanding how competitiveness affects click costs begs the question, “Can I afford my clicks?” The answer is simple – yes. The answer is always a resounding yes because there are plenty of ways to find more affordable keywords to use. Some budget-saving strategies include:
- Using long-tail keyword phrases
- Mining search queries for unique keyword variations
- Utilizing varied match-types
- Bidding on less competitive product/service offerings
- Setting bids at the keyword-level
- Using bid modifiers to raise or lower bids based on time of the day, region, and types of web-connected devices
Setting an Overall Budget
Google has some great tools to help you estimate where you should set your initial budget. This can provide a baseline recommendation for where to start and then you can adjust your budget as you see fit based on performance.
One great way to determine whether there’s room to expand your PPC efforts is to track Impression Share (IS) data. This percentage metric shows how often your ads are being shown relative to how often they could be shown for your existing keywords. For example, a search IS of 40% indicates that your ads are only entering the ad auction for 40% of the searches that they are eligible to be shown in. That means that your ads are missing 60% of possible impressions. This is problem because missed impressions lead to missed clicks and missed conversions.
You can look at IS data all the way down to the keyword-level for a more granular approach and make budget decisions based on that data. In areas where your IS number is relatively low (less than 50%), you should consider increasing your budget.
Many advertisers find scaling up their PPC efforts as difficult (if not more difficult) than the initial launch. They wonder what kind of an effect simply raising their budget will have, and whether that alone is enough to increase their PPC efforts effectively. Google has a budget estimator tool that projects the incremental effects of budget changes. (To access it, go to the campaign-level view and then click on the small graph icon next to the status “Limited by Budget.”)
A budget increase will provide a base for increasing your PPC efforts, but scaling up requires more than just pumping more money into an account. True account scaling requires setting up additional targeted ad groups, further refining keywords, testing new ads, and much more!
If return on ad spend (ROAS) is positive and business goals are being met, you should continue to invest more into PPC to sustain growth. Utilizing a digital marketing agency is a great way to plan and execute strategic growth within your account at this crucial stage. Bringing in a third-party PPC expert to assume the management of your account is a healthy way to discover new ideas to test in your account. Additionally, delegating responsibility frees up time for you to focus on growth elsewhere in your business.
Whether you’re new to PPC or have a profitable thriving account, it never hurts to get some input! We’ll look at your account for free to provide you with actionable recommendations to improve your existing efforts. Contact us today for your free, no-obligation AdWords audit!
Thanks for following our “PPC for Beginners” blog series! If you missed the previous article, you can find ithere:
Kate Pierce is the owner of LionShark Digital Marketing LLC, a West Michigan internet marketing company. Her areas of expertise include Paid Search, Search Engine Optimization, Business Blogging and Web Copywriting. She lives in the Grand Rapids area with her husband and son and enjoys cooking, watching sports, and spending time together as a family. Like a true digital marketing expert (i.e. geek), she loves talking about current marketing trends… so don’t say you weren’t warned!