One of the most common questions in PPC management is how to determine the “right” budget and investment for campaigns.
As a business leader investing in paid media, your PPC budget isn’t just about how much you spend. It’s about how strategically you use those resources to grow your business.
For small to medium-sized businesses (SMBs) investing between $2,000 and $50,000 monthly, every dollar has to count.
In this guide, we’ll explore how to allocate your budget effectively across platforms, invest in paid media wisely, and adjust based on performance to achieve your marketing goals.
Determine The “Right” Budget
Each PPC advertising platform has its own sweet spot.
Google Ads can reach the widest audience, while LinkedIn works best for B2B companies, and Microsoft Ads can be more cost-effective for certain industries.
Knowing which platform works best for your business type helps you make smarter budget decisions.
Start small and grow smart by beginning with a lower budget to test what works, then increase spending on the platforms that bring you the best results.
As your business grows, you can invest more in the campaigns that are proven to work for you.
What Affects Your PPC Budget?
Industry Competition
Some industries naturally need bigger budgets.
For example, if you’re in legal, insurance, or real estate, you’ll typically need to spend more because the cost for each click (CPC) is higher due to strong competition.
Location And Reach
Are you targeting local customers or reaching across the country? Local businesses often can work with smaller budgets than those trying to reach national or international audiences.
Business Goals
What are you trying to achieve? If you’re generating leads or running an online store, you might need to spend more to test different platforms and drive sales. This is different from businesses just looking to build awareness.
Performance Goals Considerations
Before diving into specific budget allocations, it’s important to understand how we’ll measure success.
Two key metrics that can help us determine if our PPC spend is effective: return on ad spend (ROAS) and cost per acquisition (CPA). Both are a straightforward way to connect your ad budget with your profits.
ROAS is the ratio of the revenue generated by your ads to the amount you spent on those ads. It tells you how much revenue you’re generating for each dollar spent.
To ensure profitability, calculate your break-even ROAS and set a higher target ROAS to reach your profit goals.
CPA is the amount spent on ads to acquire a customer or lead. It helps you understand how much it costs to acquire each customer.
To ensure profitability, make sure your CPA stays below the revenue you generate from each sale.
How To Use ROAS To Set Your Budget
Using ROAS can help optimize your campaign budget to drive higher revenue, not just lower acquisition costs.
For example, if you spend $1,000 on ads and generate $5,000 in revenue, your ROAS is 5 (or 500%), meaning you’re making $5 for every $1 spent, indicating a highly effective campaign.
As a starting point, many businesses aim for an ROAS of 2 (or 200%), which means generating $2 in revenue for every $1 spent.
This typically covers both the Cost of Goods Sold (COGS) and the ad spend, allowing you to break even. Starting at ROAS of 2 gives you room to test, gather data, and optimize.
Once you’ve gathered enough data, you can raise your ROAS target to 3 (or 300%), meaning you’re generating $3 in revenue for every $1 spent. At this point, your campaign should be profitable.
Most of the ad platforms allow you to set ROAS goals to help optimize your campaign. Choose the “Target ROAS” bidding strategy, which automatically adjusts bids to reach your goal ROAS.
Screenshot by author, October 2024
Avoid this mistake: Many advertisers rush to set aggressive profitability goals without enough data. The ad platforms will need time to optimize effectively.
For example, Google Ads recommends having at least 15 conversions within 30 days before setting a specific ROAS target.
How To Use CPA To Set Your Budget
Setting your budget based on your target CPA allows you to focus on controlling acquisition costs while still driving growth.
To calculate your budget using CPA, start by determining your target CPA and how many sales or leads you want to generate.
For example, if your CPA goal is $50 and you want 100 sales, you simply multiply the two to arrive at $5,000.
This means, you’ll need to spend $5,000 to acquire 100 customers at your target CPA of $50.
Starting with a reasonable CPA goal helps you control costs while gathering data. As you run your campaigns, you can refine your target CPA based on actual performance and adjust your budget accordingly.
Lowering your CPA slowly over time will allow you to generate more sales with the same budget.
Avoid this mistake: Don’t set a CPA that’s too low right out of the gate. Platforms need time to optimize, and starting with an aggressive CPA goal may limit the reach and data they need to make adjustments.
A good starting point is to align your CPA with your break-even point, then work toward lowering it as you optimize your campaign.
Budget Allocation And Reallocation
Allocate Budget To Best-Performers
For budget allocation, prioritize the best-performing campaigns across platforms.
This means, more budget for campaigns that are driving the highest return, whether they focus on branding, product promotion, or competitive positioning.
Regularly analyze performance and optimize spend based on which campaign type or platform is delivering the best results.
For example, you might allocate more budget to product-focused campaigns if they’re driving conversions, while reducing spend on branding campaigns if you have high brand recognition.
Competitive campaigns may get additional budget during critical sales periods to stay ahead of rivals. The key is flexibility to move your budget to where it will have the most impact.
Tracking And Adjusting Your Spend
When managing your budget across multiple months, it’s important to track what was actually spent versus what was planned. This ensures you can adjust and optimize future spend.
An effective way to do this is by maintaining a monthly spreadsheet or account report in the ads platforms. This will help you reconcile your planned budget with your actual spend.
If you underspend in one month (which can happen due to platform fluctuations or pauses in campaigns), you can reallocate that unspent budget to the next month.
Even small monthly shortages can add up over time. For example, if you budget $10,000 for a month but only spend $9,800, that extra $200 can be added to the next month’s or next quarter’s budget.
Reallocate any unused budget to future months, focusing on high-performing campaigns, channels, or key sales periods. This ensures every dollar is used effectively.
This table provides a simple example of how you can track and adjust your PPC budget vs. actual spend on a monthly basis.
Use this as a starting point to inspire creativity in developing your own system for monitoring and optimizing budget allocation.
Table created by author, October 2024
Daily Budget Setting
In most platforms, budgets are set at the campaign level, meaning each campaign will only spend up to its designated cap per day. The total across all campaigns should align with your overall account budget.