How_to_set_your_PPC_budget_for_the_year_crytal_ball

The ultimate juggling act: how to set your PPC budgets for the year

In winter, I plot and plan. In spring, I move” – Henry Rollins

In the world of performance advertising, spring is the right time to ‘move’ in many regards: while winter keeps us busy with peak season, spring provides the opportunity to review previous strategies, spring clean our PPC campaigns and align on new priorities for the upcoming year.

One major key to success is properly setting your annual PPC budgets and bringing them in line with your performance targets. At first glance, this might seem like a very complex task – especially if you need to crunch these numbers for various devices and paid search segments. But it’s not rocket science, and you don’t need a crystal ball to predict the months ahead.

Here are 5 steps you should follow to successfully set up your PPC budgets for the year.

1. Set your target for the upcoming year

Alice: Which way should I go?
Cat: That depends on where you are going” – Lewis Carroll, Alice in Wonderland

Whatever you’re planning for, a good strategy always starts with defining the main objectives. The same applies to every PPC budgeting process.

So, ask yourself what you want to achieve with your PPC budget over the course of the upcoming year. Do you want to:

  • Hit a fixed revenue target while keeping costs at a minimum?
  • Maximize Customer Lifetime Value?
  • Get the most revenue out of a given budget?

Whichever direction you take, bear in mind that you can’t bridle a horse from both sides. Your budgeting process gets a lot more complicated if you try to factor in different – perhaps incompatible – KPIs simultaneously. You can only control one variable in your equation, so pick your poison and pick it wisely, keeping any potential trade-offs in mind.

2. Have a close look at last year’s performance

Take a look at last year’s performance. Your PPC forecast will only ever be as good as the lessons you derive from the past. To find out where the growth potential of your PPC account lies, you need to dig deep into the numbers, and get a good understanding of where you over-or-underachieved expectations.

An obvious starting point is to draw some top-line conclusions from the year-on-year development of your segments: where did you see the highest growth in conversion rates? How did your average cost-per-click behave through the course of the year?

We also recommend having a close look at your brand segment’s performance, focusing especially on how your search volume evolved over the past 12 months. This is because search queries related to your own brand represent brand awareness. Thus, an increase in branded search queries is a good indicator of the natural growth of your account. Consequently, you can expect the search volume for other segments of your account to benefit from this growth too –  that is, unless you plan to cut back on budgets and limit this growth artificially.

Impressions_per_month_year_on_year

3. Anticipate paid search trends and technology innovations

Predicting the inherent growth of your account is just one side of the coin. PPC advertising is a very dynamic industry, heavily susceptible to technological innovation, and we probably all remember cases where the latter proved its capacity to change the game completely within a short period of time. Just think of the tremendous growth of mobile share we have witnessed during recent years. Likewise, the evolution of product-based ad formats revolutionized the PPC landscape and led to Google Shopping very quickly outperforming traditional text ads.

Related: Why top retailers are investing more in Google Shopping than text ads

There are three core considerations to bear in mind when thinking about how your account may be affected by future change and innovation. Examining them will help you forecast your PPC budgets more accurately.

First, how will general ongoing tendencies in the PPC landscape influence your account’s performance? Can you assume that your mobile share will continue to grow next year, or have you already reached a plateau in growth? How does your Google Shopping segment perform in contrast to your text ads? How likely is it that you might shift budget from one segment to the other?

Growth_of_mobile_click_share_per_quarter

Second, can you think of upcoming features or technological innovations that might prompt your company to reevaluate or amend your PPC strategy? If Google Shopping becomes available in your market, you should plan to have some budget at your disposal to launch Shopping activities, or you could launch new Shopping campaigns in Bing.

Innovations can also come from your brand’s/client’s retail activity. For example, the upcoming roll out of a mobile app can generate significant mobile performance uplift. In this case, you should anticipate shifting more budget into mobile activities after launch.

Last but not least, take your own optimization efforts into account. Yes, exactly – you are also an important part of the equation! It is crucial that you reflect your day-to-day efforts in the budget forecast, and estimate how much uplift your planned optimization strategies will generate. If the implementation of a new audience strategy is a top priority for the next quarter – potentially creating a significant boost to your conversion rates – your budget numbers should reflect this.

4. Break down budgets and targets according to segment and device

Now you have a framework, it’s time to get more granular and break down budgets and targets for each segment and device. Although the necessity to use segmented and device-specific targets on a daily operational level depends heavily on the size of the account, we still recommend using this approach for your budget forecasting, because it allows you to pursue clear priorities.

To give you an example, the most efficient part of your account will always be your own unique brand segment because competition is usually at its lowest, as is the consequent cost-per-click. Also, as customers are already aware of your brand, and are more likely to click on your ads and buy at your shop, this segment will drive the largest stack of revenue, with the highest efficiency. As a consequence, it would not make sense to set rigid budget limits for your own brand segment in the same way you would for other parts of your account.

There are, however, cases where it is indeed advisable to lower your efficiency targets in order to benefit long term growth, e.g when the segment is driving New Customers. This is where you need to clearly outline how much you want to grow in each segment, and deduce how much of this growth can be attributed to organic growth of your account vs its manual optimization. The gap between the two requires additional investment, and this should be apparent in your forecast as well.

5. Keep an eye on seasonality

Have you ever wondered why you seem to splurge on online shopping hauls during some months of the year but not others? While there are a couple of explanations, such as spending less time shopping online whilst on summer vacation, it all boils down to an important phenomenon you should reflect in your budget forecast: seasonality!

By segmenting your previous performance data per-month, you will notice that conversion rates, basket values and impression levels fluctuate a lot throughout the year.

The example below is taken from a fashion retailer in Germany. It indicates that the search volume reaches its highest levels during late spring, early summer and towards the end of the year, but clearly dips during the peak summer months.

Seasonality_impressions_per_month

Similarly, average basket values are lowest during December and January when the retailer enters a period of very low conversion rates.

Annual_buy_value_and_conversion_rate_per_month

These insights into seasonal fluctuations are very valuable when it comes to fine-tuning your budgets and targets. If your data indicates that campaigns are consistently less effective during summer, pull back budget through this period until profitability picks up again.

Deferring some budget for high-traffic events like Black Friday and the Cyber Weekend, as well as the launches of sale periods, is also a good idea. This is where your market expertise comes into play as well. Say you found out that day one of the official sale period in France always causes your numbers to skyrocket – why not be bold, anticipate what the market will do, and push a bit harder during these days so that you can be ahead of the competition?

In a nutshell, setting your PPC targets for the year is mainly about finding a good balance between past performance and the targets you need to hit in the (near) future. If you then incorporate your knowledge about the market, seasonality and the PPC landscape, the next annual PPC budgeting forecast will be nothing to fear.

ABOUT THE AUTHOR


Irene Kögl

Irene is a Digital Strategy Consultant in the Business Intelligence team at crealytics. She has 3 years’ experience as a PPC manager working for our leading international e-commerce customers within the fashion retail industry.