How to Calculate PPC Budget: Easy Formulas to Follow + Expert Tips

To calculate your PPC budget, you need to identify the cost to bid on your target keywords along with your desired revenue goals. Read this guide to learn the formulas we use every day to help our clients hit their goals while avoiding overspending.

Here, you’ll find:

1. PPC budget formulas
2. How to set up your PPC goals
3. How to calculate PPC budget: Step-by-step guide
4. Budgeting methods for PPC campaigns
5. Common PPC budgeting mistakes (+ how to avoid them)
6. Expert tips to improve PPC campaign budgeting

PPC budgets can be tricky. Factors such as your industry, marketing objectives, and competition all play a role in that final number. We created this guide to help you determine a PPC budget that backs right into your desired goals.

PPC budget formulas

There are two main formulas for calculating your PPC budget, 1) revenue goal-based and 2) conversion volume goal-based.

Here’s how to use them:

1) Revenue goal-based: To determine the total budget needed to reach your revenue goal, take your average CPC, then multiply it by the number of visits needed.

Avg. CPC x (Revenue goal / average order value) / conversion rate) = Total budget needed

For example, if your revenue goal is $10,000, your average order value is $100, your conversion rate is 2%, and your average CPC is $1, then your total budget needed would be:

$1 x (10,000 / 100) / 0.02 = $5,000

2) Conversion goal-based: To determine the total budget needed to reach a conversion volume goal, you’ll use the following formula:

(Number of conversions needed / Website conversion rate) x Average cost per click = Total budget needed

For example, if your conversion volume goal is 100 leads, your website conversion rate is 5%, and your average cost per click is $2, then your total budget needed would be:

(100 / 0.05) x $2 = $4,000

How to set up your PPC goals

Spending money without a strategy is one of the fastest ways to waste your budget.

So how do you land on the choice for your business? Your campaign goals and how much you invest should align with your brand’s objectives.

Here’s a look at the most common PPC goals:

• Brand awareness: To boost brand visibility, focus on metrics like impressions, reach, and traffic. Keywords may be broader to reach a wider target audience.
• Lead generation: To drive leads using forms, prioritize metrics like click-through rates (CTR), conversion rates, and cost per lead (CPL).
• Sales: To increase sales, monitor the number of purchases and your cost per customer acquisition (CPA). For this goal, target keywords with purchase intent and use compelling ad creatives and strong CTAs.

To ensure your campaigns are effective, use tools like Google Analytics to track metrics.

“Tracking is an essential part of any PPC campaign, especially for budgeting purposes. It’s crucial to set an optimal budget where return on ad spend (ROAS) is growing year over year,” says Rambod Yadegar, President of HawkSEM.

How to calculate PPC budget: Step-by-step guide

Once you pick an objective, follow these steps to determine your PPC ad spend.

Step 1: Identify target keywords

Choosing the right keywords is an essential step in your PPC campaign. Use terms that users are searching for, so you can show up at the top of results. If you’re in a competitive industry, common keywords may have a big price tag. Lower-volume and long-tail keywords may give you better PPC ROI.

Use keyword research tools like Google’s Keyword Planner to get into search volume, competition, and average CPC (cost per click) for your keywords. Then, choose keywords that align with what you offer and get a better understanding of what your campaign will cost.

Step 2: Estimate performance

Conversion rates show how effective ads are. It’s the percentage of people who click your ad and take the action you want. For example, if 100 people click your ad, and 5 make a purchase, you have a 5% conversion rate. So if you see growing conversion rates, then your campaigns are doing something right.

Your conversion rate estimation can calculate how many people your ads must reach to meet your goal.
If revenue is the goal for your PPC campaign, here’s what that formula looks like:

Number of visits needed = (Revenue goal / average order value) / conversion rate)

In this scenario, if your revenue goal is $10,000 per month, your average order value is $50, and your conversion rate is 5%, your ad must reach 4,000 potential customers (i.e. visitors). That would allow you to get 200 customers and hit your revenue goal.

Step 3: Do the math

Once you complete the first two steps, you can develop a realistic budget for your ad spend.

Here’s a basic PPC budget formula:

(Number of customers or leads needed / Website conversion rate) x Average cost per click.

This will give you a monthly budget and help you understand what resources you’ll need to launch your PPC campaign. Keep in mind that this is a starting point.

Other factors may influence your marketing budget, such as:

• Search trends: Certain times of year may impact search volume and conversions in your space. For example, if there’s a big industry event coming, related keywords will become more expensive.
• Competitors: Are you up against big brands? You may need more budget to bid competitively for clicks and traffic. Go back to your keyword research to find opportunities and make the most of your budget.
• Optimization: Plan to review your historical data and dial in your budget when you find what’s working. For example, if you’re A/B testing landing pages and one has a much higher conversion rate, drop the less effective page to get better ROI.

Budgeting methods for PPC campaigns

You may need a more advanced budgeting strategy to meet your specific goals as you continue working with PPC campaigns for your business. Here’s a closer look at common methods advertisers use.

Prior-year budgeting

This method takes last year’s PPC spend and performance into account. You use those numbers as a starting point for the new budget. This works best when you have several existing campaigns. That way, you can factor in growth and strategy shifts when comparing previous years.

Percentage-of-sales budgeting

Another option is to tie your PPC budget to a percentage of total company revenue. Tying spend to revenue makes your budget flexible, so it scales along with your business growth. As sales increase, so does your advertising budget.

Objective-based budgeting

Campaigns connect to other parts of your digital marketing strategy. Events happening in your business may influence your decision-making process for ad spend.

For example, you may be:

• Introducing a new product
• Entering a fresh market
• Hitting industry benchmarks

Using an objective-based approach considers the whole picture, and you may boost your budget to get an edge over competitors.

Bottom line: Select a budgeting method that makes the most sense to you, but know this can change over time. The goal is to find the right strategy to drive campaign success for your marketing needs.

Common PPC budgeting mistakes (+ how to avoid them)

Want to jump into PPC ads and get better results immediately? Avoid these pitfalls to maximize the value of your campaigns.

Not understanding your platform

Every PPC platform is different. There are variables for each that may influence budget requirements. You can prepare for this by knowing what to expect with popular PPC platforms.

• Google Ads: Grants access to a massive audience. Google’s display network sites reach over 90% of internet users worldwide. But this is also the most competitive option in the search arena, which leads to higher click costs. Google Ads are a go-to for many brands, but they may cost more than other options.
• Bing Ads: Doesn’t have the same volume of searchers as Google, but that’s not necessarily a bad thing. Lower competition on Bing may mean you won’t have to spend as much per click. Going with this platform may help you get more out of your budget.
• Meta ads: Ideal for businesses that want to reach users on social media sites like Facebook and Instagram. Costs range widely, but the targeting options based on behavior and interests may help you reach more of the right people.

Lacking research

Some brands skip the research step of the PPC process, and this can be an expensive mistake. They toss money at keywords without understanding whether they’ll attract the right clicks. Keywords and ads must match the interests and behaviors of the target audience.

For example, a company that sells organic skin care products runs a PPC campaign and skips the research phase. It bids on general and competitive keywords like “skin care” and “beauty products.”

This may get it to some customers, but it’s too broad. As a result, it misses out on conversions because its ads appear when people search for conventional or affordable products.

Prioritizing ad position

Obsessing over ad position may waste your ad budget. Visibility is important, but not as important as your overall return on investment. So strike a balance between the two.

If you’re trying to secure the top spot on a search results page for a competitive keyword, you’ll likely have to increase your bids, which raises your cost-per-click. That will get you high visibility, but you’ll have little to show for it if other aspects of your campaign, like ad copy and design, aren’t in check.

Not adapting

To optimize your PPC campaign, it’s crucial to regularly review key metrics like click-through and conversion rates. These metrics provide valuable insights into how well your ads perform and how they resonate with your target audience. For instance, a low CTR may mean your ad campaign copy or visuals aren’t compelling enough to attract clicks.

Be proactive with your budget management in PPC campaigns. When you notice that certain ads or keywords hit the mark, shift more of your budget their way. On the flip side, if some parts of your campaign aren’t delivering as expected, it’s wise to scale back your spending in those areas.

Overlooking A/B testing

Building testing into your strategy for PPC campaigns can make all the difference. This gives you data to refine aspects of your ads and landing pages so they perform better. For example, you may find that a CTA that references a special offer performs better than a more general CTA like “buy now.”

ConversionIQ, HawkSEM’s own proprietary software, reveals who’s clicking your ads (and converting), so you can personalize your marketing campaign and messaging for better results.

HawkSEM helped HomElectrical nearly double its revenue in just 10 months by using our PPC strategies, which include PPC budgeting and optimization.

Missing seasonality and trends

Ignoring seasonal elements can lead to your ad budget getting by unexpected costs. This is why it’s so important to think through your campaigns and align them with what people are searching for.

For example, imagine a retailer specializing in lounge and activewear may set up a campaign that performs well for a few months. But when the new year comes, they don’t pay attention to specific search trends around health and fitness trends. They could miss out on keywords that show purchase intent for their products.

A mismatch doesn’t only impact conversions. It can ramp up costs as well. This puts your business in a position where there’s not as much value in your PPC ads. It can end up being a waste of your marketing budget.

Ignoring mobile

Mobile accounts for a large amount of web traffic worldwide. In the first quarter of 2023, mobile devices generated 58% of global website traffic. If you aren’t catering to those users, you’re missing out on a number of clicks and conversions.

To get the best results, optimize your campaigns for users by making sure your PPC ad is mobile-friendly and that it appears the way you want it to across devices. Plus, ensure your landing pages are optimized for mobile users.

Expert tips to improve PPC campaign budgeting

No experience putting together a PPC campaign budget? No problem. Consider this advice to help you make the most of your money.

1. Automate

Using automation capabilities on platforms like Google Ads can help you achieve better results in less time. Smart bidding options are a good example of this. This feature considers algorithms and real-time data to cut guesswork from the optimization process.

Other examples of automation for PPC include:

• Keyword optimization: Analyze search trends and performance data to see new keywords or keywords you should remove.
• Automated ad rotation: Changes ad variations to show the ones performing best.
• Dynamic search ads: These ads use a website’s content to automatically generate ad headlines and landing pages.

2. Updating your keywords

Your keyword list should be a living document that evolves with what you learn from your campaign. Search trends that impact your click-through rate (CTR) change. The keywords that work now may not be the best options for you in six months.

Closely analyze search terms to identify new relevant keywords with conversion potential to add to your lists and negative filters. Cut ones that aren’t generating clicks or conversions. Then, organize keywords for better management as the list grows.

3. Increase your quality scores

Improving your Google Ads Quality Score should be top of mind. Higher scores lead to better ad placement at lower costs per click, which is a big budget win.

Here are several factors that make up your score:

• Ad relevance
• Landing page experience
• Load speed
• Mobile optimization

4. Strategic targeting

Getting hyper-targeted with your advertising allows you to tailor messaging to specific segments. Goal-focused segments, past site visitors, lookalike audiences, and more can all be targeted based on interests and behaviors.

Retargeting is another tactic to re-engage site visitors who previously showed interest but didn’t convert. Remarketing with customized ads brings them back by reminding them what caught their eye on a previous visit.

Not sure where to start with this method? You can gather information about existing and potential audiences that platforms make available when you open an account. Use it to get granular with who sees what ads to maximize relevance and conversions.

5. Use your data

Having a strategy is a great start, but be ready to adjust as you gain more information. If your click-through rates are low on certain ads, it’s time for a refresh. Not getting conversions from a product-focused campaign? Consider that you may need to focus on awareness first.

Then, once customers start rolling in from your campaigns, look at your customer lifetime value (CLV). “Calculating CLV helps determine the long-term effect and profitability of PPC advertising and client acquisition. You may decide how much to spend on PPC to acquire new clients by knowing their lifetime income,” says Mains.

The key is optimizing based on real insights versus assumptions. Keep testing new messaging, bids, and targeting methods. With regular analysis, you’ll be able to improve your campaigns and see a better ROI.

The takeaway

Running a PPC program requires adjustments as your business evolves, and your PPC management price may vary. As you learn, you can dial in the budget and figure out what works best for your brand.

Use this guide on strategic budgeting best practices as a blueprint. This will save time and money by building campaigns that align with your goals.

Want to put together a PPC advertising campaign that converts? We’d love to help — get in touch with our experts today.