The majority of our clients are service-type businesses that use some type of Pay Per Click (PPC) ads to generate new customer leads. Helping them find a sweet spot for their PPC ad spending is something we specialize in.
I’m often asked, “How much should I be spending on my PPC advertising?”
I answer that question with two questions:
How many new customers do you want each month?
What percentage of new customer leads do you typically close?
New Customer Leads (Leads)
Leads are the life-blood for many service-type businesses. Leads come in the form of new inbound phone calls, contact forms, appointment requests, and SMS text messages. We use “call tracking phone numbers” and other analytics to make sure all leads are attributed to the right source. For example, if a potential customer clicks on a PPC ad, then visits the business website, we make sure the PPC ad gets credit if and when that person contacts the business.
Going back to my two questions, I use the answers to calculate the number of leads the business will need to reach their goals.
For example, If a business wants 25 new customers a month and closes 50 percent of new customer leads, then they’ll need 50 leads a month.
Here’s the math:
25 new customers a month divided by 50% (close rate) = 50 new customer leads
Cost Per Lead (CPL)
For most service-type businesses Cost Per Lead (CPL) is the one metric that can make or break a PPC ad campaign.
CPL is calculated by dividing the total amount spent on a PPC campaign by the total number of leads generated for a period. For example, if a PPC ad campaign cost $2,500 and generated 25 leads, then the CPL is $100 each.
More math:
$2,500 PPC ad spend divided by 25 leads = $100 CPL
Determining a baseline Cost Per Lead is probably one of the most difficult tasks of digital marketing. It usually takes 90 days of running a PPC ad campaign to figure out a baseline CPL. During that time the campaigns are optimized for creative, bidding, and other factors. Some of the optimization is built into the ad platform such as Google’s “Maximize Conversions” bid strategy which uses machine learning to optimize bidding on keywords.
The baseline CPL for a PPC ad campaign is impacted by several factors including:
- Competition – Are there many or few competitors bidding on same keywords?
- Seasonality – Is this season a time when potential customers will be looking for these services?
- Geography – How broad of an area is the PPC ad campaign targeting.
The final step in determining a sweet spot for a PPC ad campaign is multiplying the number of new leads required by the baseline CPL.
For example, if the business needs 50 leads per month and the cost per lead is $100, then the business should expect to spend $5,000 per month to meet their new customer goals.
50 leads per month times $100 CPL = $5,000.
Finding the sweet spot doesn’t end there. Sometimes a business will ask us to increase or decrease their PPC ad spend due to factors in the business, for example, they may have lost a key employee and need to hire and train a new employee before they can handle the volume of work.
Increasing and decreasing PPC ad budgets to find the sweet spot can require some experimentation. If a business wants to increase their leads by increasing their monthly budget, the CPL may increase as well.
Finding the sweet spot for PPC ad campaigns requires ongoing work. We work with our clients to make sure their business goals are being met over time.
If your business needs help finding a sweet spot for it’s PPC advertising campaigns, schedule a free consultation with us. We will audit your current PPC campaigns and recommend how your business can find the sweet spot.
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