You should set your PPC budgets based on real data, if you already have eCommerce sales you can work this out. If however you are just starting out, you may need to guess some of these figures. It’s important that you keep an eye on your campaigns and make sure that your PPC campaigns remain profitable.
The great thing about eCommerce PPC is that there is a measurable outcome for your campaign and we can easily track the amount of money a sale brings in.
To work out your eCommerce PPC budget you should know the answers to the following questions.
- What is your Average Order Value (AOV)?
- What is your Gross Margin Percentage ((Revenue – Cost of Goods Sold)/Revenue = Gross Margin)
- What is your maximum Cost per Acquisition(CPA) (if unknown, pick a goal to remain profitable)
For Example
Lets say you would like to see an additional £10,000 of additional profit a month.
You have looked at your accounts and know that your average order value is £225 and your Gross Margin is 55% at £123.75
You have decided that you would be happy with a Cost per Acquisition of £41.25. (£123.75/3) – in this example we have used a ratio of 3:1.
This leaves us with £82.50 profit per average order after taking away our CPA
So we need 122 additional sales (£10,000 / £82.50)
So you would want to budget £5032.50 per month for click fees, and never exceed a £41.25 cost per acquisition while running the ad campaign.
The job of your PPC consultant is to now find keywords that will generate orders with a CPA of £41.25.
A good conversion rate for eCommerce is considered between 1% and 4% at the lower end of the scale you would want to be paying no more that 41 pence per click based on a 1% conversion rate. If you have a better conversion rate your CPC will be higher allowing you to bid more competitively.
If you need help working out how much you should spend on your PPC campaign and how much it will cost, please sign up for our FREE strategy call. We will help you work on your budgets and tell you how we can increase your conversions rates.
