Paid search advertising campaigns can generate an average conversion rate of up to 13%, depending on the industry. E-commerce businesses that use PPC marketing (pay-per-click) position themselves to convert potential customers who need a quick shopping experience. However, determining enough ad revenue to be profitable takes more than creating PPC accounts and launching advertising campaigns.
Click-through rates, site analytics (easily done with Google Analytics), conversion rates, and order sizes are essential to determine ad spend. They determine the amount needed for your eCommerce PPC ads to increase sales and get a profitable PPC ROI. Besides these, you must also consider comparing competitor budgets and establishing a PPC campaign hierarchy.
Google might be the largest search engine, but you can still run Microsoft advertising or even Amazon PPC ads for increased visibility and targeted marketing. The key to a successful PPC campaign is optimizing your budget, regardless of which eCommerce platform or search engine you use. We’ve identified a few tips for budgeting and overall PPC optimization.
Tips to Get the Best Out of Your PPC Ad Campaign Budget
The two most prominent approaches for eCommerce ad campaigns are:
- Search ads
- Sponsored display ads
Search ads are more prominent on the search engine results pages. On the other hand, sponsored display ads could be on your eCommerce platform or third-party websites.
An eCommerce PPC campaign means you pay when a buyer clicks the links to your preset landing pages. Your eCommerce website design and development play a crucial role in the conversion rate, which affects your ad budget. Nonetheless, let’s focus on the key metrics to consider first.
Whether you want to run Google search ads or eCommerce PPC campaigns on other platforms, here are some tips you must consider:
Do the Math
Any PPC advertising platform you pick will have a cost for each ad a user clicks. For example, Google Ads have an average cost-per-click rate of $2.69. The cost varies for picture and video ads.
Knowing this rate is the first step to determining your ad spend. Also, we’ll do simple math to prove this point and boost your chances for successful eCommerce PPC management.
The Return on Ad Spend
The return on investment might be hard to calculate because it goes beyond the PPC marketing campaign. You’ll consider the eCommerce sales, the cost of getting and shipping the products, and other financial metrics. Hence, we will go with return on ad spend (ROAS).
Here’s how to calculate ROAS:
ROAS = total value of conversions / total PPC ad campaign budget.
Let’s assume Company A spent $18,000 on its PPC advertising campaigns. They converted 275 leads to purchase a $100 product.
Total value of conversions = $100 * 275
ROAS = $27500 / 18000
That means the company made $1.52 for every dollar spent on the PPC advertising platform. The company has profited, albeit slightly, from its PPC advertising efforts.
Like most PPC platforms, Google Ads has a column for this calculation. You can run the results with Google Analytics to get a holistic view. Then, you can change your advertising strategy if need be.
You can estimate a budget based on your expected sales and ROAS, shaping your PPC campaign strategy. However, you must differentiate conversion from PPC traffic. Only some people who click the links are expected to purchase from your eCommerce business.
Some eCommerce businesses will have ad groups for PPC optimization. That changes the campaign structure from single to multiple.
Outlining the Budget
The ROAS is an essential metric for an effective PPC campaign. But how do you know the ideal PPC budget?
Your eCommerce PPC strategy should be more than the goal of directing customers to your landing pages. It should also consider the budget required to achieve those goals and maximize ROAS.
Potential customers can come in with just a few clicks, but you won’t profit if they buy low-cost items. So, the cost of advertising on your preferred PPC platform and the average purchase in your eCommerce business must be considered.
Estimating a budget may be challenging if you are just starting your eCommerce business with few sales. That is because you’ll need information on the average order size. Established eCommerce businesses can quickly achieve this metric.
That said, here’s how to estimate a PPC budget:
Let’s assume the following metrics for Company A:
Average order size = $80
Conversion rate = 4%
Average CPC = $2
The eCommerce marketing effort, whether Google Ads or Amazon PPC campaigns, brought in 1,000 people. We can assume that 40 made purchases worth $80.
Revenue = 40 * $80
Again, let’s assume you spent $1,500 on the pay-per-click PPC campaign. That means your profit will be as follows:
Profit = Revenu - PPC campaign budget
= $3,200 - $1,500
Now, you know how much the budget brought in. You can combine this approach with the ROAS to estimate a better budget.
Answer the following questions:
- Will adding more money get me more clicks?
- Should I optimize for a larger order size?
The Break-even ROAS
Estimating ROAS is one-half of the equation. It does not tell you if your PPC campaign is profitable for your eCommerce business. For example, you can get a 400% ROAS on your Amazon-sponsored product ads and still lose money once expenses are subtracted.
E-commerce companies calculate their profit margins differently. Hence, you must get yours off the table before calculating the break-even ROAS. This step is essential to managing PPC campaigns effectively.
The formula for break-even ROAS is as follows:
Break-even ROAS = 1 / profit margin
Let’s pick a product sold for $100 as an example. The product costs $80, and you pay $5 for shipping. That leaves you with a profit of $15.
Profit margin = ($15/$100) * 100%
= 15% or 0.15
This may not be the entire picture for all eCommerce businesses. There may be other expenses.
The break-even ROAS = 1 / 0.15
= 6.67 or 667%.
You can now walk back from this value to estimate your PPC ad budget. Your advertising strategy will also change because of the target audience you need to reach these sales values.
We’ve done the math, but that is not enough to get on a PPC platform and launch a new campaign. You must analyze competitors on the same eCommerce platforms you use or proprietary websites.
Competitor analysis will help you recognize best practices, calculate your PPC ad expenses, and determine the current market conditions. You’ll know what’s best to reach your target audience by studying other success stories.
Another benefit of competitor analysis is knowing how to structure your PPC eCommerce campaign. That said, here are things to consider during this study:
- How much are other eCommerce businesses spending on PPC ads
- Specific keywords used for the PPC ads
- What products appear on the landing pages
There are tools to retrieve this information. However, don’t expect a perfect analysis. The results should put you on the right track to reaching your target audience and making sales.
Split the Budget into Ad Groups
Competitor analysis will reveal relevant keywords to run a pay-per-click PPC campaign. You can do keyword research to expand your list and reach more potential customers.
Splitting a PPC campaign budget is similar to the A/B testing you would do in email or marketplace marketing. For example, you can run two Amazon PPC campaigns with one budget split into two.
Establish an ad group for the following:
- Different products
- Different platforms, including search advertising and display
You can also include broad keywords to cover more search terms. Long-tail keywords are the best, as they cover several words.
Run break-even ROAS on these ad groups. The ones likely to deliver higher returns should get a chunk of the budget.
Include as many broad keywords as possible. However, high-volume keywords should be at the top of your priority list.
Split Between Test and Ongoing Budget
Running PPC campaigns with the right keywords is essential to reaching customers and boosting sales. Even something as little as a phrase match could add to the traffic. However, having a test PPC campaign can help you discover new markets.
A test PPC campaign can involve trying different:
- Words from keyword research
- PPC strategies
- Dynamic ads
Create room for these tests in your budget. As a general rule, 15% to 20% of your overall budget is optimal for test PPC campaigns.
It is a risky move that can pay off if the new ad copies sell. Nonetheless, you should calculate your profit margin and other expenses before deciding how much to spend.
Budget for Mobile - Final Thoughts on Optimizing Your Budget
Mobile devices generated over 60% of web traffic in 2022, receiving more page views than desktops. So, don’t forget to optimize your PPC strategy and budget accordingly.
Your PPC campaigns may not yield results quickly. You should prepare for the long term instead of running Google Ads for a few days.
Competitive markets, relevance, landing page design, and other factors influence returns. Spread your budget to cover a long-term campaign instead of having a big budget for a few days or weeks. Size matters, but how you use it matters even more.