Budgeting for paid search is not as cut-and-dry as buying a billboard since the PPC cost varies. Budget-conscious executives and accountants who want to be able to anticipate costs have a hard time coming to terms with the range in prices. After all, some months you spend $100,000 on PPC, and others – a fraction of that sum.

According to Search Marketing Benchmark Guide 2009, here is how some professionals feel regarding the issue:

o 49% of paid search agencies say their clients have too-small fixed search budgets that shut off campaigns too quickly
o 29% say clients have elastic budgets that increase up to a set level of efficiency
o 19% budget exactly the right amount to maintain an efficient search presence
o 3% have too-large fixed budgets that are impossible to spend because of limited keyword inventory

Of course, it’s possible to cap a budget and spend a fixed amount each month, regardless of traffic patterns and ROI. But this is not the most effective method. There must be an allowance for variability to maximize efficiency. Read on to find out why that is so and how to go about achieving it.

Step #1: Find the words

You need to know which keywords you’re targeting before you can estimate a budget. If you have run PPC campaigns previously, then you’ll have a good idea. Otherwise, start with keyword research. You can use tools, such as Google AdWords Keyword Tool (free for Google account holders) to get a list of keywords.

Make sure that the words you select are relevant to your business. Be sure you are covering the keywords that are likely to have the highest click volume and CPC. They will likely be your biggest budget-eaters. Also, remember to check your branded keywords in case they are particularly traffic-heavy or expensive.

Step #2: Estimate the traffic and cost

Take the list of keywords and load them into the Google AdWords Traffic Estimator (also free) to get an estimated cost per click, ad position, clicks per day, and cost per day. The tool will also give you a projected daily budget. If you’ve been running PPC previously, you can use your historic data to adjust the tool’s approximations if they seem off.

o Warning: Every marketer we spoke with for this article noted that this tool’s traffic estimates are not perfect. Brian Carter, Director of PPC, SEO and Social Media, Fuel Interactive, has seen the tool estimate keyword traffic at 50% its actual level, and at 20-times its actual level. The tool’s CPC estimates are usually much closer to being accurate, he says. “You’ve got to start your pay-per-click to know what you’re going to spend.”

Be sure to include a disclaimer when pitching a budget estimate that it’s based on Google’s Traffic Estimator.

Step #3: Check out the competition

There are several free, paid and proprietary tools that will report some of the keywords your competitors bid on and their budgets. Again, these tools are not 100% accurate. “None of these things are in and of themselves sufficient to estimate a budget. But putting a finger on each one will give you a better picture of the whole,” says Brian Basch, Founder, ProPayPerClickManagement.com.

If a tool reports that your competitor is spending more than or less than your estimates, then you might want to investigate why and adjust.

Step #4: Add a testing cushion

Testing is vital to effective PPC management. Most of the marketers we spoke with suggested adding about 10% to 15% to a budget for testing.

Step #5: Monitor and adjust

Be sure to communicate that your budget is an estimate, and you’ll have a more accurate picture of how much to spend after running PPC for a month or two. After that time, go back and revise your estimates to give the executives a better idea of the business’ core keywords and their costs.

Estimating Seasonal Changes

One of the biggest benefits to having a flexible PPC budget is the ability to capture seasonal growth. Ecommerce sites can expect trends to shift when the holiday season kicks off with Black Friday. Matt Klugman, Director of Marketing, Endless Fun Resorts, an accommodations provider in the Myrtle Beach area says, “We’ll have different keywords that are very successful in the spring that don’t work as well in the summer, fall or winter.”

Having the same amount of money budgeted for PPC during high-volume and low-volume months can hold you back. Rather than setting a fixed budget, you can set a level of ROI and allow your budget to expand to capture as much high-value traffic as possible. Once the season ends and the high-value traffic declines, you can adjust your budget, eliminate low-performing keyword traffic and maintain that ROI on a smaller scale with a smaller investment.

“Is sticking to your budget more important than your profitability? I don’t think so,” Carter says.

o How to use historical data to determine budget

If you have a cache of historical data, it will be easier to anticipate how seasonal trends will affect your performance. For example, if you were on a fixed budget during your last big month, you can go back to that data to see how volume increased and for which keywords. That data can help you estimate how much to budget to capture more growth in the next big season.

o How to manage without historical data

Not everyone has data from a few years’ worth of PPC campaigns. If you’re in this boat, there are tools, such as Google Insights (free), which provides historic search data for any keyword back to 2004. The tool will give a number that you can use as a data point for a keyword’s search volume. We refer to this number below as the “volume number” (it is not an exact number of clicks or impressions).

o How to Estimate Impressions

Note: This method will work best if you have at least a few months of PPC data. You can also use Google’s traffic estimator for volume data, but it will not be as accurate.

Enter a keyword into Insights. Look at the volume number for your big month and for last month. Find the percentage difference between those numbers. Then multiply the number of impressions you had for that keyword last month by 1 + the percentage. That can give you an estimate for that keyword’s volume during the big month.

For example: If Insights is gives you 27 for a keyword’s traffic number last month, and 72 for its traffic number during a peak month, that is a 167% difference between the two. If you see that last month you received 2,000 impressions for that keyword, you can estimate that you’ll receive 5,340 impressions (or 167% more) during next year’s peak month.

o How to Estimate Season Length

You will likely know how long your biggest season lasts, but you can also get historical graphs from Insights to see each keyword’s search traffic on a month-to-month basis.

Budgeting Between Campaigns

Every marketer we spoke with said it is wisest to separate your campaigns by their performance level and to give your highest-performing campaigns as much funding as possible until there is no more traffic left to capture. This is also true if you’re running PPC on several search engines. You want to make sure that the network delivering the most value is receiving the largest share of your PPC investment.

This pulls the most value from your highest-performing campaigns, and keeps your bottom line solid while running tests. This is important to maintaining your performance.

Convincing the Higher-Ups: 4 Tips

Budgets are typically set months in advance, which can be tricky for paid search. You do not want to budget too little and leave high-performing traffic on the table. And you do not want to budget too much and spend too much money on low-performing traffic. The object of a fluid budget is to spend just enough to maintain a high level of performance.

“It comes down to the data -- you have to provide them proof of your decision. That’s what it really comes down to,” says John Lee, Senior Search Marketing Consultant, Hanapin Marketing. Here are 4 tips for convincing the budgeters:

Tip #1: Education may be necessary

Make sure that whoever controls your budget understands how PPC marketing works. Explain the volatility:
- Seasonal changes can affect search volume
- Media coverage can temporarily surge traffic
- Actions by competitors can affect bid prices
- The network’s rules change from time to time
- Optimizing an account requires testing and varied expenditure

Do not forget to mention that PPC can have great ROI and that it allows you to control how much you spend based on performance. Otherwise, the investment may seem too risky.

Over 50% of 1,247 marketers reported paid search as having a “great” ROI -- more than any other category, according to a MarketingSherpa and ad:tech 2008 year-end survey.

Tip #2: Build a two-way street

A fluid budget should go up and down -- not up and up. Agree on a set level of performance, such as an overall ROI or a cost-per-lead threshold. If the account falls below that threshold, shut off the traffic that is dragging down performance, and start testing to bring it back up. You can save the money to invest in better-performing traffic in the weeks ahead. “The results end up really calling the shots,” Klugman says.

Tip #3: Provide ample reporting

If your budget is limiting performance, communicate that to your superiors. Arrive with data that explicitly shows traffic you’re not capturing. For example, if your ads shut off mid-day because of a limited budget, report when they shut off and their cost, average conversion rate, and ROI.

Once you have the desired flexibility, regularly provide reports to the higher-ups to show them the value that your PPC efforts are capturing. “I’ve never met a person yet who, if you can prove and show them that they can make more money, and it’s a tangible way that they can do that, has said ‘no, don’t make me money. Please, don’t improve my bottom line,’” Basch says.

Tip #4: Spend the money

Departments need every dollar they can get in this economy. If you’re been given a flexible budget and are regularly shutting off certain keywords because they’re not performing well, and are building a large pool of “leftover” PPC money, consider two options:

o Renegotiate the overall performance threshold

Perhaps your PPC expectations are set too high and should come down. This will open up some lower-performing keyword traffic for your campaigns. This can be a slippery slope, so be careful. Be sure that you’re still seeing strong conversion rates and ROI -- just not as outstanding as before.

o Invest in other channels

Don’t forget that your marketing budget needs to prove its worth overall. If you feel that some of the PPC money could be better invested elsewhere -- do it; if you can’t find a use for the money, another department surely will.

Useful links related to this article:

Chart: Search Budgeting for Efficiency
http://www.marketingsherpa.com/article.php?ident=31058&
op=no

Chart: Top B2C Tactics in ‘09
https://www.marketingsherpa.com/barrier.html?ident=3102


Google Tools:
- Keyword tool: https://adwords.google.com/select/KeywordToolExternal
- Traffic estimator: https://adwords.google.com/select/TrafficEstimatorSandbox
- Insights: http://www.google.com/insights/search/#

SpyFu: Check competitors keywords and
http://spyfu.com/

Search Engine Land: Beat the Competition by Anticipating Traffic Changes
http://searchengineland.com/beat-the-competition-by-ant
cipating-traffic-changes-15980

Hanapin Marketing
http://www.hanapinmarketing.com/default.aspx

Fuel Interactive
http://www.fuelinteractive.com/

ProPayPerClickManagement.com
http://www.propayperclickmanagement.com/

Endless Fun Oceanfront Resorts
http://www.endlessfunresorts.com/