The main headache when defining a company’s marketing budget is precisely the budget for advertising guidelines, mainly Google Ads.
How do you define it? What parameters should you base it on? Who is right? Who knows how to calculate it? In this article, we are going to teach you one of the many methodologies that exist, consisting of six very simple steps.
In order to calculate the Google Ads advertising budget, the first thing we need to know is how many customers we want through the channel, in this case the Google channel. This figure or value should come from the sales department or, if you are the company manager, you should set it yourself. Why do I need it? Based on the number of customers, we can find the number of prospects we need, taking into account a very important indicator, which is sales conversion.
If your business is not new and you have been in the market for several years, you should be able to compare the number of prospects or potential customers interested in your products and services with the number of customers who have actually purchased your products or services. If you divide the customers you have acquired by the prospects you have generated through any channel, you will be able to determine your true sales conversion rate or your sales expectation, which is a percentage value:
%Sales Expectation = CUSTOMERS (Historical) / LEADS (Historical)
If we know the number of customers we need the campaign to bring us and we know the sales conversion or expected sales each time we receive a lead, we would only have to divide the expected number of customers by the sales conversion or expected sales, and that will give me the number of leads I need to bring in:
LEADS = Customers / %Expected Sales
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Yes, I already know the leads I need and understand the optimal operating range for my landing page or website, recognizing that if I am in the B2B sector, my page conversion should be between 5 and 10% of visits, and if my page conversion corresponds to the B2C sector, it should be between 10 and 20%. So, either by choosing a theoretical value within these ranges or capturing the actual value, I will be able to calculate the traffic I need to bring from Google Ads to my website. I would simply have to divide the number of leads I need by the conversion rate of my page or landing page:
TRAFFIC (Clicks) = LEADS / Conversion Rate
We have already discussed in other articles that Google’s keyword planner is an essential tool for measuring market demand. This means that we will be able to use the search terms that my prospects or people looking for my services usually type in to see what results I could get in a Google Ads campaign. The keyword manager will not only give me the number of searches, but also the number of clicks, the CTR, and the CPC, which is the cost per click.
CPC = Cost per click
We now have both figures: the required traffic, which is the result of our calculations, and the cost per click, which we obtained using the keyword planner. All we need to do now is multiply them to obtain the total value of the investment to be made.
Advertising investment = Clicks * CPC
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