Ads are bigger and they appear in more places now, with Shopping ads in image results on mobile devices. Meanwhile, paid ads’ clickthrough rate has been gradually rising on both desktop and mobile devices.
The question of paid search budgeting strategy is more important than ever, perhaps especially when many advertisers are reducing budgets during the coronavirus pandemic.
So, what is the right overall level of investment in paid search and how do you set the right bidding or price levels for when ads are clicked?
This briefing is taken from Econsultancy’s Planning and Strategy for Paid Search Best Practice Guide from a larger section on budgeting for paid search, which also tackles positioning strategy, bidding strategy, and bid adjustments.
Budgeting strategy overview
What is it?
Setting the right level of budget for paid search and the optimal split for different products and services within the company’s account. Ultimately, this is the amount to be spent on PPC campaigns in relation to other marketing efforts and the marketing budget as a whole.
The ability to budget appropriately requires that goals and KPIs are set appropriately and that a reliable tracking system is set up to accurately monitor campaign performance. If a financial value cannot be placed on the clicks generated from paid search then any budgeting will only be based on gut feeling, which is never a solid starting point. Again, see Econsultancy’s Planning and Strategy for Paid Search Best Practice Guide for more on setting KPIs.
Use return on investment models and profitability to determine budget, rather than basing investment on paid search as a fixed percentage.
Compare spend and performance to results for other marketing channels.
Use paid search as a contingency to make up shortfalls against targets.
Within Google Ads, ensure the right daily budget is set to maximise returns.
What to watch for
Educate campaign managers on how to allocate budget to PPC as part of an overall media budget.
Do not base the budget on the existing market – identify opportunities to target new audiences, new geographies or niche products, which are more difficult to sell through existing distribution channels.
Assuming good visibility into performance and KPIs, taking a bottom-up approach to budget building, rather than sticking steadfastly to a fixed budget, is strongly advocated. This allows results to drive further investment in paid search.
Regardless of how performance is being measured – ROI for ecommerce sites for example, or cost per acquisition (CPA) where the goal is lead generation – it is always best practice to reallocate budget to the areas of paid search that are delivering the best results, which may mean diverting funds to particular keywords, ad groups or campaigns. It also may lead to turning off an unproductive ad network or activity relating to certain products.
Before making a final decision on the pausing or deletion of a campaign element entirely, consider whether there may be any indirect contribution to conversions, for example through offline sales, or perhaps a generic keyword that appears not to be working.
It is best to check first and see whether a campaign has a significant number of assisted conversions, but, owing to the last-click attribution model in Google Ads and Google Analytics, the contribution is not immediately clear when reviewing performance reports.
Analyse data via the Multi-Channel Funnel section in Google Analytics. The Assisted Conversion and Top Conversion Path views are excellent starting points. Use the Model Comparison view to compare the various attribution models that are there by default.
It is sensible to consider assigning a specific test budget for the trialling of new and untested areas of paid search, such as trialling video/display advertising, other search marketing platforms such as Microsoft Ads or international expansion onto Baidu or Yandex.
Once an initial testing period is over, the data should be analysed to determine whether such activities should remain within the testing pot, or if it is clear whether it is a success. If it is determined a failure, pause and evaluate on why that was perhaps the case.
It is also important to maintain a degree of flexibility with regards to budgeting. Allowance must be made for variation in search volume due to seasonality. Seasonal effects will vary massively between industries, though there is usually some element of seasonality for all advertisers. Keyword Planner within Google Ads lets users look back at the previous 12 months of keyword trends, but if more top-level keyword data is needed, it is also worthwhile exploring Google Trends (Figure 1). This tool has search trends going back to 2004.
The tool can also be used to drill down on search trends based on geographic regions and specify the timeframes.
Figure 1: Google Trends data for ‘patio furniture’ in the UK over the last five years
Google and the Google logo are registered trademarks of Google LLC, used with permission
Do not forget to allocate budget for seasonal peaks. For example, if selling fancy dress costumes in a number of different countries, research the annual events other than Halloween that may also cause surges in search activity and subsequently sales on-site.
Below are the most common approaches to budget setting, with the approach used often varying within a company throughout a year according to business and market priorities.
1. Fixed budget
For companies relatively new to paid search marketing, a small fixed test budget is often available for trying to generate results from paid search. A fixed budget is also common where paid search is relatively unimportant to sales.
When a fixed budget is available, all of the options covered below are still possible. It is common to base new PPC activity on existing targets, but paid search has more impact if it is used to target new opportunities to drive incremental sales or to target areas with high ROI to focus on efficiency.
Within certain companies or industries, the fixed budget approach is a necessary first step, but moving onto a more sophisticated budget approach as soon as possible is advised.
2. Category targets
Many businesses will allocate budget according to their monthly or weekly targets for different product categories. The investment in search can reflect these priorities. Of course, paid search is one of the most flexible and responsive marketing techniques, so it can be used as a contingency approach to meet shortfalls provided the company has a good idea of the level of leads or sales that will be generated for a given investment.
If the campaign structure is sound, it should be relatively straightforward to reallocate budget to some products by increasing the company’s daily budget or alternatively increasing its maximum cost per click (CPC) bids, both of which can drive more visits with more investment. Note that this assumes the business does not already have 100% impression share. If daily budget caps are not being reached, increasing them may have no effect. Similarly, if the company’s Average Position is already number 1, then there is nowhere else to go with the existing keyword set.
Consider the overall strategy
Use paid search as a contingency to make up shortfalls against targets.
Use Advanced Bid Changes
Within Google Ads it is easy to apply changes to Max CPCs across ad groups and keywords (or product targets in the case of Shopping Campaigns) by using the ‘Advanced Bid Changes’ option within Ads Editor.
3. Offline campaigns
Volumes of sales or leads for different product categories will naturally vary according to short-term campaigns that are planned for different times of the year. For example, retailers are heavily reliant on television advertising for driving web traffic. Their paid search budget is driven by this offline activity ensuring campaigns are created, scheduled and uplifted as necessary, to support the products promoted offline (where relevant to online shopping).
4. Chasing new opportunities
In this case, paid search is used to target new areas to achieve incremental revenue by targeting audiences that are not easily reached through existing sales channels. Paid search can be used to target:
New geographies (assuming any necessary translation and on-site UX has been seen to first)
Sales of niche products that are not currently promoted actively.
5. Optimising paid search budgets according to results
With this key approach, budget allocation is optimised according to different objectives. Paid search provides great potential to optimise performance through analysis of such metrics as:
Return on investment
Average order value
Website and landing page conversion rates
Wherever possible for a private sector, commercially focused business, budgets are assigned with profit in mind (including media/agency fees, margin costs, other external overheads etc.) to get the most realistic indication of the profitability of paid search as a standalone channel.
This will require the input and data collection from several different stakeholders but is a worthwhile endeavour in the long run.
Bid management tools
Budget re-allocation can be performed manually, but it can be time consuming. This is where bid management tools can add value, since they were built to help with this task. With some bid management tools, it is possible to treat the campaign as a portfolio and the tool will re-allocate budget across the different ad groups.
See Econsultancy’s Paid Search Optimisation report for more information.
Setting the right daily budget in Google Ads
Setting the appropriate daily budget in Google Ads is performed at the campaign level, although individual campaign budgets can also be replaced with larger shared budgets instead.
This can be especially useful if the company has a large number of campaigns and can provide more flexibility in the case of one campaign spending more than expected.
Dynamic allocation of funds
If overall daily budget allowance is insufficient to allow all campaigns to last until the end of each day, use Google Ads’ shared budgets to allow for dynamic allocation of funds across multiple campaigns where there is similarity between the performance and the objectives of each campaign.
While it is easy to set up a daily budget, the problem lies in knowing what the right level is. Too low and ads will not be displayed consistently throughout the day. Too high and the company may end up burning through its allocated monthly or annual budget faster than expected.
The most basic approach, assuming that an approximate monthly budget has already been determined, is to take that amount and divide it by the number of days in the month that the campaigns need to be live.
Google’s Keyword Planner tool can give an indication of the traffic volume and expected CPCs for a given set of keywords, which can be useful when working out budgets and bids, but they should be viewed with a large degree of caution, as the actual CPCs paid for will depend on current advertiser competition and the company’s own Quality Scores, and will naturally fluctuate over time.
The metric ‘lost impression share due to budget’ provides an easy way to tell if the daily budget is set too low, as it represents the percentage of daily searches for which the company’s ads were not shown due to insufficient budget. In other words, either the ads must have stopped showing before the end of the day, or they will have been showing only intermittently through the day.
In either case, any degree of impression share lost due to budgetary constraints must be dealt with, either by lowering keyword bids to squeeze more clicks (and ultimately conversions) out of the existing budget, or by raising the budget. Note that lowering keyword bids may affect how often ads are shown at the top of the page.
The appropriate strategy depends on the performance of the campaign: if KPIs are being hit, then raise the budget to increase conversion volumes; if not, and impression share is reasonable, then reduce bids to cut conversion costs.
Keep a close eye on the proportion of lost impression share due to budget and rectify any issues as soon as possible, as any impression lost for this reason simply represents a wasted opportunity.
There is inevitably a degree of trial and error with any new paid search campaign, in terms of both the daily budgets and the individual keyword or ad group level bids.
It is best to use an iterative process to set these amounts – do not make changes and then, thinking the job is done, leave it for weeks or even months. Put a regular review process into place for monitoring budgets and fine-tune it continuously.
Conversely, it is important to leave sufficient time for changes to have an impact. If multiple changes to bids and budgets are being made by the company every day then it may struggle to see which actions led to results.
Review budget and ad spend
Marketers will need to experiment with and review the daily budget and spend in Google Ads in order to maximise the exposure of the company’s ads and traffic received.
Note that actual daily cost could occasionally be up to 100% more than the company’s daily budget, although the daily ups and downs should average out over the course of the month. Note that changing the daily budgets frequently may render Google unable to perform the adjustments needed in order to balance out the under/overs.
Over-budgeting can also occur. Marketers could be over-budgeting if they do not have the right tracking system in place to analyse ROI to a sufficiently granular level and are not ruthlessly weeding out elements of campaigns that are underperforming. They could easily end up wasting money by operating above the company’s target cost per acquisition.
Targeting the right position in the SERP
A closely related issue to consider with budgeting is deciding upon the optimal position in the sponsored listings. This is separately covered in Section 2.2.3 of Econsultancy’s Planning and Strategy for Paid Search guide. This is particularly relevant as now there is no Average Position metric, but instead ‘Top’ and ‘Absolute Top’ metrics.
To best allocate budget between different products, rather than using data on leads and sales from other channels, it is sensible to use a budget approach based on profit, and failing that, return on investment (ROI).
For enterprise or more complex accounts, consider managing budget optimisation through a bid management tool. See Econsultancy’s report on Paid Search Optimisation for more information.
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