[Formula] How to Calculate PPC Budget

Conversion Metrics Depending on the Business Type

Different business models have different key conversion metrics that you should focus on when planning your PPC budget:

B2B businesses: The main conversion to optimize for will be a lead, book a demo, or signup if it's a web or mobile app.
Ecommerce businesses: Purchase is the key conversion.
B2C businesses: It's usually a lead or signup.

Formula for PPC Budget for B2B Business

For B2B companies, use this formula to calculate your PPC budget:

Budget = (Number of target customers ÷ (Website Conversion Rate × Win Rate)) × CPC

Let me break this down:

Start with your desired Number of target customers (how many customers you want to acquire)
Divide by your Website Conversion Rate (the percentage of visitors who convert to leads)
Divide by your Win Rate (the percentage of leads that become customers)
Multiply by your CPC (Cost-Per-Click)

Example with a benchmark:

CPC: $3
Website Conversion Rate: 8%
Win Rate: 30%

If you want to acquire 10 new customers: Budget = (10 ÷ (0.08 × 0.30)) × $3 Budget = (10 ÷ 0.024) × $3 Budget = 416.67 × $3 Budget = $1,250

Formula for PPC Budget in B2C Business

For B2C companies, use this formula to calculate your PPC budget:

Budget = (Target Number of Customers ÷ (Landing Page Conversion Rate)) × CPC

Let me break this down:

Start with your Target Number of Customers (how many customers you want to acquire)
Divide by your Landing Page Conversion Rate (the percentage of visitors who convert to customers directly)
Multiply by your CPC (Cost-Per-Click)

Example with a benchmark:

CPC: $2.50
Landing Page Conversion Rate: 4%

If you want to acquire 50 new customers: Budget = (50 ÷ 0.04) × $2.50 Budget = 1,250 × $2.50 Budget = $3,125

Formula for PPC Budget in Ecommerce

For ecommerce businesses, use this formula to optimize your PPC advertising campaign:

Budget = (Revenue Target ÷ ROAS) × (1 ÷ (CTR × Conversion Rate × AOV))

Let me break down each component:

Revenue Target: The total revenue you want to generate from your PPC campaigns
ROAS (Return on Ad Spend): Your target return on ad spend (e.g., 4 means $4 revenue for every $1 spent)
CTR (Click-Through Rate): The percentage of impressions that result in clicks
Conversion Rate: The percentage of visitors who complete a purchase
AOV (Average Order Value): The average amount spent per order

Example calculation:

Revenue Target: $100,000
Target ROAS: 4
CTR: 2% (0.02)
Conversion Rate: 3% (0.03)
AOV: $75

Budget = ($100,000 ÷ 4) × (1 ÷ (0.02 × 0.03 × $75)) Budget = $25,000 × (1 ÷ 0.045) Budget = $25,000 × 22.22 Budget = $555,500

Formula for PPC Daily Budget

To convert your monthly PPC ads budget to a daily budget:

Daily budget = Monthly PPC budget / 30.4

For example, if your monthly budget is $5,000: Daily budget = $5,000 / 30.4 = $164.47

Formula for Revenue-Based PPC Budget Calculation

It's advised to optimize towards quantity of conversions, but if you have specific revenue targets and metrics from previous campaigns, you can use revenue-based calculation.

The formula for revenue goal-based PPC budget calculation is:

(Revenue goal / Average order value) / Conversion rate x Average CPC

For example, if your revenue goal is $100,000, your average order value is $200, your conversion rate is 2%, and your average CPC is $1.50, your PPC budget would be: ($100,000 / $200) / 0.02 x $1.50 = $37,500.

This approach is particularly useful for businesses with specific revenue targets and established metrics from previous campaigns.

[CALCULATOR] Use a Marketing Budget Calculator

One of the most efficient ways to determine your PPC budget is by using a marketing budget calculator that will tell you how much advertising budget you need and what will be the ROAS (ROI) depending on your conversions in the funnel.

The Marketing Budget Calculator can help you estimate your budget needs based on your specific business metrics and objectives.

How ROAS Differs from ROI? ROAS Benchmarks

ROAS (Return on Ad Spend) and ROI (Return on Investment) are similar metrics, but they have different applications. ROAS is essentially ROI specifically for ad spend (PPC ad).

ROAS focuses solely on the revenue generated directly from advertising spend, while ROI takes into account all costs associated with a campaign, including operational expenses, production costs, etc.

When it comes to benchmarks:

ROAS should be at least 3 in ecommerce businesses
ROAS should be at least 4 in B2B businesses minimum

A ROAS below these thresholds may indicate that your campaigns need optimization or your budget allocation needs adjustment.

Glossary - PPC Budget

What is PPC (Pay-Per-Click): An online advertising model where advertisers pay a fee each time their ad is clicked. It’s a way of buying visits to your site rather than earning them organically.
What is ROAS (Return on Ad Spend): A marketing metric that measures the revenue generated for every dollar spent on advertising. It’s calculated by dividing revenue by ad spend.
What is CPC (Cost-Per-Click): The actual price you pay for each click in your PPC marketing campaigns. It’s calculated by dividing the total cost of clicks by the total number of clicks.
What is CPL (Cost-Per-Lead): The amount you pay for each lead generated from your advertising campaign. It’s calculated by dividing the total campaign cost by the number of leads.
What is CPA (Cost-Per-Acquisition): The cost associated with acquiring a customer. It includes the cost of marketing and sales efforts needed to convert a prospect into a customer.
What is CTR (Click-Through Rate): The percentage of people who click on your ad after seeing it. It’s calculated by dividing the number of clicks by the number of impressions.
What is Quality Score: A Google Ads metric that measures how relevant your ads, keywords, and landing pages are to what you’re promoting. Google checks if your ads match the products or services on your website, ensuring users find what they expect after clicking. Higher scores can lead to better ad positions and lower costs.
What is AOV (Average Order Value), ASP (Average Selling Price), ARPA (Average Revenue Per Account): These metrics represent the average amount spent by customers when placing an order, the average price at which products or services are sold, and the average revenue generated per account, respectively.
What is Smart Bidding: An automated bid strategy in Google Ads that uses machine learning to optimize bids for conversions or conversion value in each auction.
What is Offline Conversions in Google Ads: A feature that allows to import conversions that started with an ad click but were completed “offline”. In B2C this can be in store purchase. In B2B, this typically means tracking CRM events when the sales team advances leads through stages like SAL, SQL or closed won deal. You can import them using e.g. Segment and sending CRM events to Google Ads.
What is Impression Share: The percentage of impressions your ads receive compared to the total number of impressions they could get.
What is Bid Adjustments: Percentage changes to your bids that allow you to show your ads more or less frequently based on where, when, and how people search.
What is Audience Targeting: The process of showing ads to specific groups of people based on their interests, demographics, or behaviors.
What is Ad Extensions: Additional information that can be added to your ads, such as location information, links to specific parts of your website, or your phone number.
What is Ad Platform: A system that allows advertisers to manage and optimize their PPC campaigns. Different ad platforms can influence keyword recommendations, spending strategies, and budget allocation, making it essential to analyze performance across multiple platforms for better investment returns.

By understanding these key metrics and formulas, you can develop a more strategic approach to your PPC budget planning, ensuring that your digital marketing efforts drive meaningful results for your business.

Understanding PPC Budget Basics

Factors that influence PPC budget setting

Several factors influence PPC budget setting, including:

Marketing objectives: Your marketing objectives, such as increasing website traffic or generating leads, play a crucial role in determining your PPC budget.
Industry and competition: The level of competition in your industry and the cost of keywords can impact your PPC budget.
Ad platforms: The ad platforms you use, such as Google Ads, LinkedIn or Facebook Ads, can affect your PPC budget.
Keyword optimization: The keywords you target and their cost-per-click (CPC) can influence your PPC budget.
Website conversion rate: Your website’s conversion rate can impact your PPC budget, as a higher conversion rate can lead to more conversions and a higher ROI.

Common mistakes to avoid in PPC budgeting

Common mistakes to avoid in PPC budgeting include:

Not setting clear marketing objectives: Without clear marketing objectives, it’s challenging to determine a realistic PPC budget.
Not researching keywords: Not researching keywords can lead to overspending on irrelevant keywords.
Not monitoring ad performance: Not monitoring ad performance can lead to wasted ad spend and a lower ROI.
Not optimizing ad campaigns: Not optimizing ad campaigns can lead to a lower conversion rate and a lower ROI.

Tips for Effective PPC Budget Management

Track offline conversions: Import CRM data to see the full customer journey beyond the click. This reveals which campaigns truly drive revenue.

Implement A/B testing: Test different ad elements to identify what works best for your audience. Small improvements in clickthrough rates can significantly reduce costs.

Leverage automation: Use Google’s automated bidding strategies to optimize for your specific goals. This saves time while improving performance through machine learning.

Maintain high Quality Score: Aim for a Quality Score of 7 or higher to reduce CPC and improve ad position. Every 1-point increase can lower your CPC by up to 16%.

Update creatives and copy quarterly: Refresh your ad creative and messaging every three months to prevent ad fatigue. This maintains engagement and clickthrough rates.

Set aside testing budget: Allocate 10-20% of your PPC budgets for testing new keywords, audiences, and platforms. Innovation prevents stagnation and discovers new opportunities.

Monitor mobile performance separately: Mobile and desktop users behave differently and should be analyzed independently. Adjust bids accordingly based on device-specific conversion patterns.