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So, How Much Should I Budget For This?

Posted by Steve Cameron
Steve Cameron
Steve Cameron is the Director Owner of Advent Communication. With more than 25 years experience he has a deep...
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on Thursday, 11 December 2014 in Google

If there is one question that is always asked when speaking to a potential AdWords advertiser - it is this : How Much Should I Budget for This?

With traditional advertising things are clearer. Radio spots, and 20 seconds of TV space have a price. So do newspaper and magazine ads. They have a price and you know what you're buying... at least you think you do. You're buying a space in which to run your ad.

What you're not buying is any result. You hope to get a result. You expect to get a result. Experience tells you that you should get a result. But all you are actually buying is the space.

If the phone doesn't ring, that's a different problem - perhaps there was something wrong with the ad.

But with online advertising, and Google AdWords in particular, you are not paying for the space (in most cases - this actually isn't true of CPM bidding). Instead you are paying for the result - in this case a click through to your web page.

As a result there is no "price" to pay. For most business people the advertising buying process comes down to an ad sales rep asking for $1,000 and then a few minutes of haggling before agreeing to run an ad for $850. Having a number to play with seems to make things easier.

This is turned around with online advertising. Here, rather than having an amount to pay for the ad, we are told - "This is what a click is going to cost... how many do you want to buy?"

That's a harder decision to make since there is no opening gambit.

A number of people have tried to develop strategies for determining what an online advertising budget should be. Take Google's estimate of top of page CPC, multiply it by 10 and then by 30 - this will give you 10 quality visits a day... Or, use a tool such as SEM Rush to discover what competitors are spending and match them.

But, in my opinion, the most sensible approach is to ask a client how much they are prepared to spend to find out if AdWords can work for their business. Better still, like the traditional salesman, give them a number... "I recommend spending $2,000 a month for the next three months." Six thousand dollars is something a business owner understands. Six thousand dollars is a lot, or a little in their mental scheme of things.

More importantly, six thousand dollars is more or less than they thought you were going to ask for... and therein lies the key. They might not understand exactly how online advertising works, but they generally do have a number in their head.

The next step is to explain that this is an investment in "Market Research"... so this needs to be money on which we should expect no return. "WHAAAAAT?" - I hear you shout. If we are doing our job well then there will be a return. And, of course, if we are spending money on Pay Per Click then we will get however many clicks this investment gives us. But we must understand that it is only once we start to get real data that we will be able to move towards optimising the campaigns. This is not to say that the spend will have been wasted - or to say that there will have been no return at all. But we need to set the correct and professional expectations.

Once the campaigns are running effectively the question becomes akin to "I can sell you $50 bills for $40 - how many do you want?" and at that point the question of how much to spend is almost moot. We have recently increased the daily budgets for one of our clients to allow for as much traffic as their niche market can send our way. In this particular case, we simply cannot spend enough.

How do you determine budgets? Do you have a secret formula you can share?

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Robert Brady Thursday, 11 December 2014

If possible I try to get the current conversion rate of the site. Then you can work backwards into how many clicks you'll need to sent to get 1 conversion. You can then look at CPC estimates to determine what the projected cost/conversion will be. Then ask if that's acceptable.

If yes, then you can look at search volume estimates to determine how many clicks you can get, and therefore how many conversions at the aforementioned cost/conversion. That is a simple way to get to a number, but your point about spending, measuring, optimizing, repeat is important. There are a lot of estimates and assumptions in even a simple model so you have to see if those hold up or not.

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Steve Cameron Friday, 12 December 2014

Reverse engineering from the cost per conversion is a clever approach... I my experience there is a strange illusion surrounding AdWords that suggests that traffic should be practically free :p
The days of clicks for pennies are definitely long gone and this creates a need for the budget to be more than justified in terms of revenues.

Marcos Monday, 15 December 2014

At the end, the most "precise" option, is how much is the customer willing to waste.
Which is no wasting, as you say is market research. At the worst he will get knowledge, but you have to put it that way, to set expectations right. Nice post

Steve Cameron Monday, 15 December 2014

It's always difficult to present an advertising option to a client and have to tell them that this may generate no measurable response. However, realistic expectations are important - and AdWords is an advertising medium, no more, no less. One thing we can be sure of, is sending "qualified" traffic to their website. In the sense that we do know that the visitor was searching for the keywords we targeted, and clicked on the ad which presented our product or service. If the client then didn't convert, the responsibility shifts to the website itself.

If, for example, you place an ad in a specialist magazine to sell your widgets, and 100 customers telephone for information, and are passed to a sales rep... when no sales are generated who do you look at first? The ad, or the rep. In this "real world" example the answer seems fairly obvious. Why should we expect the online world to be any different?

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