The relationship between budget and conversions in PPC according to insights

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The answer to this question might seem obvious, but on reflection and with the help of recent insights and reports, it is perhaps not as clear cut as some might think. In our latest blog post, we will take a closer look at this.

Setting a budget during the initial phases of a campaign can be very difficult. Set them too low, and not enough interest or action is generated. Set them too high and this can lead to wasted costs and spend. That is not to mention the range of other problems including account performance issues that can be experienced.

Recent insights draw attention to the ideas and differences between daily, monthly and lifetime budgets for PPC campaigns. Daily budgets are generally agreed to be more restrictive while the latter two give a greater freedom for spend.

So what is the relationship?

It is thought that your budget should be able to be proportionate to your click and conversion rate. Around a 2% conversion rate is thought to be a good figure for search, and this is what people should aim for according to analysed statistics.

If your budget is too low (which would not consequently be enough to support a reasonable number of clicks, giving a positive click through rate,) the CPA (Cost per Acquisition) will rise. Many would think that a simple answer and way around this probably would then to be simply raise the budget, but analysis shows that this isn’t necessarily the best approach in this situation. If the traffic which is being received is poor, then it doesn’t matter how much the budget is, as throwing money at the issue will not have a positive effect. In this respect, the assumed relationship between budget and conversions isn’t necessarily what is automatically seen or thought.

With the above in mind, it is recommended that in the initial stages of a PPC campaign, a higher budget is selected and implemented, so the relationship to and between conversions can be learnt based on your individual campaign.

What are the signs that budget is set too low?

Accordingly to latest research, the below are some of the most common metrics to look out for when low budgets could be hampering your conversions:

1) If the average cost per click metric goes higher then 10% of the daily budget spend.

2) There is below 40% of the top page impression share consistently being shown.

3) The budget spend is not being used on a consistent basis, but instead is used up in periods of high and low activity.

Conclusion

Just because you have a high budget or increase it, don’t expect that to necessarily correlate to a higher level of conversions. The recommendation from this report is that a budget should only be changed on a PPC campaign if it does not bring the objectives which it was originally designed to demonstrate.

Looking for help setting up or managing your PPC campaign? Visit our dedicated AdWords section for further details.

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