Choosing Keywords for PPC Campaign and Setting a Budget

When choosing keywords for either an SEO Campaign or a PPC campaign, people often tend to pick keywords that are too broad and not specific enough for their products/services. This can be an expensive and ineffective approach, especially in PPC campaigns.

For example, a company that sells windshield wiper motors decides to run a PPC campaign using the following keyword:

• auto parts

While the above keyword does describe their products – it also applies to a wide range of other non-related products. A more specific and relevant keyword would be:

• windshield wiper motors

Overly general keywords tend to be more costly per click. In the above example, at the time of this article, a #1 PPC click in Yahoo! for ‘auto parts’ will cost $0.75 while a #1 PPC click for ‘windshield wiper motors’ is $0.28

With more specific keywords the cost per click tends to be lower, however the search volumes tend to be lower as well. This can be compensated for by increasing the number of specific keywords within a PPC campaign. In this way, the number of times a company’s PPC ads are displayed remains high – but the costs per click are kept lower.

How SEO and PPC Keywords Interrelate

The right keywords for an SEO (organic) campaign and a PPC campaign may be different, but they can overlap – especially at the beginning of the SEO campaign.

A new website on the internet is not going to immediately have SEO rankings for the top and most competitive keywords in its field. It will take time to achieve this, in some of the most competitive industries it can take a very long time. Once a company has earned good ranking for their more focused keywords, they will be able to target broader, more competitive SEO keywords. So essentially, new websites on the internet will often choose the more focused keywords that are normally found in PPC campaigns.

Determining a Maximum Cost Per Click

Setting the maximum cost per click in a PPC campaign involves working with a number of factors – as determined by the website’s performance. To illustrate how to make these calculations we are using a simplified example:

The example website has Conversion Rate of 4% from search engine referrals. That is to say – 4% of all website visitors who have come in on PPC clicks make a purchase. The average of each of these sales is $100.00, and the profit from each sale is 30%. For this exercise, we’ll say that that the website is willing to put 50% of the profit back into the cost of PPC clicks.

Conversion Rate = 4% (on average 25 PPC visitors result in one sale)

Average Gross Sale = $100

Profit per Sale = $30 ($100 x 30%)

Maximum Budget of PPC Spend per Sale = $15 ($30 x 50%)

Maximum Cost per Click = $0.60 ($15 / 25 visitors)

As you can see from the example above, this will give us a maximum recommend bid of $0.60 per click.

Every click depletes your available marketing budget – making the need to choose keywords wisely essential. Choosing the top and most competitive keywords can very quickly run down a PPC budget – while choosing more relevant, better priced keywords can lead to getting the most out of a marketing budget and increase sales. However, there is another factor to consider – the profitability of individual keywords.

Keyword Profitability

To take it a step further in making the most out of the PPC budget, we need to evaluate the effectiveness of individual keywords from a profit perspective.

In our following example, the website is in the gift basket industry and has a monthly PPC budget of $500. To get as much profit as possible out of the budget, we will review the keyword performances. There are many ways to track PPC related activity on a website – one of the most effective (and free) ways is to use Google Analytics.

Note the following keywords and their average costs per click:

wine gift basket – Average cost per click $2.50

gift basket – Average cost per click $2.00

If both of these keywords have the same Conversion Rate to sales then the selection is clear – if possible spend the entire $500 budget on ‘gift basket’ as you will get the most number of clicks. However, if the Conversion Rates are not the same – then each keyword will need to be evaluated separately. In our case ‘wine gift basket’ has a Conversion Rate of 4% and ‘gift basket’ has a Conversion Rate of 3%.

In our example we will keep it simple by saying that every sale on this website generates $200 in gross profit. If a review of website analytics shows the following:

If the entire $500/month PPC budget were spent on ‘wine gift basket’:

• wine gift basket 200 clicks x 4% Conversion Rate = 8 sales with $1600 gross profit

If the entire $500/month PPC budget were spent on ‘gift basket’:

• gift basket 250 clicks x 3% Conversion Rate = 7.5 sales with $1500 gross profit

In this case, we would tend to recommend ‘wine gift basket’ as it will generate more profit for the website.

Setting PPC Budgets

There are no simple answers on to how to set an initial PPC budget. In general, it should be part of the overall marketing budget – and it should be measured and evaluated on an ongoing basis. It may be possible to set up an initial PPC budget using information based on an industry’s overall PPC performance – if it is available from industry organizations.

Fortunately, with performance measurement tools such as Google Analytics, it is possible to get a good understanding of how effective PPC spending is for a website’s direct sales – and to base future PPC budgets on on-going review and analysis.

So, is this it? Nope, sorry to say it doesn’t end here. The next thing is writing effective ads, we need to make sure that the ads will draw people in and want to find out about your products and services. Getting the rankings is just part of the step, we need to make sure the site/page is working to its best and properly getting people to take the next step on your website.