Search Engine Guide: Budgeting for a Paid Search Campaign

As search marketing continues to grow exponentially, many companies entering the game are wondering just how many dollars they should apply toward a paid search campaign. Before jumping in feet first, it is important to define one’s goals, timeline and ROI objectives.

For example, attaining high organic (natural) search results often is a more time-intensive pursuit, whereas paid search is an effective and increasingly popular vehicle to obtain immediate results.

JupiterResearch says paid search revenue alone will jump from $2.6 billion in 2004 to $5.5 billion in 2009. Contributing factors include competitive market saturation, unsophisticated bidding strategies, rising cost-per-click rates and the proliferation of secondary and vertical search engines.

Taking the time to plan what you can realistically afford will ensure that your campaign runs smoothly and that you achieve the maximum visibility and conversion within your budget.

When planning your paid campaign, begin by assigning a dollar value to your conversions. For example, if you know that you cannot spend more than $20 to acquire a new customer, use this figure as a guide to ensure that you don’t spend more than necessary.

Next, conduct thorough keyword research. Google and Yahoo make keyword research tools available to marketers that help in the creation of targeted, well-crafted keyword lists. Prioritize any terms that you want to “own,” as well as those keywords that can be deemed a branding term versus a direct response term. This will factor in heavily when comparing cost-per-click rates for your search terms.

Also, assess current cost-per-click rates and estimated click-through to conversions. Though this is slightly easier to do in Yahoo’s action-based system, Google factors click-through rates into positioning as well. Therefore, you might start by spending more than necessary to reach the top position, but you may end up spending less if your ads receive the highest amount of clicks.

Another caveat: Don’t take these numbers as gospel. They fluctuate and are rarely on target. Patterns and spikes in searching behaviors change constantly. Leave room in your budget for fluctuations.

Let’s look at a quick example. With an estimated monthly budget of $10,000, you know up front that you need to hit at least a 4:1 sales-to-spend ratio on your campaign. Roughly, you need a minimum $40,000 return (online or offline sale, or “value” to conversion action) each month for your campaign to be profitable.

You also need to assign a dollar value to each conversion action as well. However, complexity comes into play when you factor in whether it is a new or a repeat visitor. Let’s estimate that for each new lead, a $20 value is assigned, which means that you need at least 2,000 new leads monthly to be profitable.

Using tools and resources available by Google and Yahoo, standard click-through rates are typically 5 percent. However, conversion rates will differ based on industry, Web site design, landing page, keywords and other variables.

Conservative conversion rate estimates are roughly 3 percent. The true tactic and strategy lies in selecting the most appropriate, relevant and valuable keywords that are within a reasonable cost-per-click range for the type of traffic and conversions that you look to achieve.

Also, knowing to bucket your search terms into branding and direct response categories also helps determine the value that you place on eyeballs versus direct leads or sales.

Finally, after you have developed a comprehensive keyword list and assigned projected costs, click-through rate, conversion rate and cost-per-acquisition, be sure to test, test and retest by consistently analyzing your results per keyword. Do not be surprised to discover that you need to drop 80 percent of your terms that are not converting in order to fuel the budget of those 20 percent that are exceeding their goals.

Though paid search isn’t an exact science, a little math combined with a well-defined strategy and realistic goals will bring you closer to achieving success within a workable budget.

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