From the course: Marketing Tips
How to calculate what to bid and spend on ads
From the course: Marketing Tips
How to calculate what to bid and spend on ads
- Hey! And welcome to another episode of marketing tips. I'm Brad Batesole and today we're talking about how to set your bid when buying paid ads. Now I get asked this question almost everyday. What should I set as my max cost per click when I'm running ads? Honestly, it's a tough one to answer. There are a series of calculations that you need to make in order to arrive at a rough number, or at least a healthy starting place. Now, I talk about all of these calculations if you'd like to go even more in depth in my Online Marketing Foundations Course. But, if you're looking for a quick way to do the math, I've built a simple calculator in Excel. You can grab this out of the exercise files, or follow along and I will share with you the calculations that I am using at each step. So, the first thing we need to do is understand the lifetime value of our customer. This is essentially how much a customer is going to be worth for the duration of their relationship. So, let's assume that we are a hotel, and the average night will profit us $100. And a customer will on average buy three nights, whether it's three nights in a row, or three nights over a few years, this is the average number of repeat purchases from this customer. Now, the net sale is the profit, so, not the amount we are collecting but how much is left over after all the costs are removed. So, I'll take the net sale and multiply it by the number of repeat purchases and I'll arrive at our lifetime value. Now this is an incredibly simplistic way to calculate LTV. I highly recommend that you dig deeper into how to really arrive at this number. But, if you're trying to just get some basic math going to understand where you're going to be at, this should be sufficient. From here, we need to figure out our cost per acquisition that we are willing to pay. For starters, the average CPA target is about 1/3 of LTV. In this case, I set it to 33%, which arrives at a max of cost acquisition of $100. You will see that this is simply our LTV multiplied by our 1/3 metric. Now, you can adjust this target if you're willing to spend more for a customer. This may be true, if you have a very high Life Time Value. From here, we need to identify our Break Even Cost per Click, or our Maximum Average Cost per Click. I say average, because within the Google Ads platform they have a variation where they can spend more than your maximum cost per click. So, we set it as the average. You'll need to identify your conversion rate for this. You can either enter in the conversion rate as it pertains to your current sales, or you can use the calculator to solve it for you by entering in your total visitors for a period of time and the total sales for that same period of time that were attributed for those visitors. In this case, let's assume that our conversion rate is 8%. What this does is it identifies our break even cost per click value, or our maximum cost per click as $8. This is essentially our conversion rate times the cost acquisition rate. Now, $8 amount is our break even, meaning we should arrive at exactly the $100 target if everything goes well. But, with all advertising there are some variances. So, I like to have a Peak Adjustment. In this case, I discount the average CPC to arrive at our ideal Maximum CPC. This is a place to start. For me, this is the maximum average cost per click times our peak adjustment value, which I set to 70%, you can play with this metric, and this gives us a starting maximum CPC. This is just some math to get you started. Start running ads on this, and then you can adopt this as you see what works in the real world. So, don't be afraid to bump up your CPC as you test your campaign, but this math and methodology is a great place to start. Thanks for checking in this week! As always, I'd love to hear from you. Connect with me on LinkedIn, or reach out to me on Twitter via @bradbatesole. Let me know what you think about this week's episode. I'll see you next week.
Contents
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Best practices for organizing UTM tags for campaigns5m 26s
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How to conduct A/B testing with Google Optimize4m 47s
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Calculate and forecast growth rate using Excel4m 6s
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Project management tips for agile marketing using Trello3m 42s
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Data analysis with Google Data Studio3m 52s
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SQL for marketers3m 6s
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Why you need to bid on your brand keywords with Google Ads3m 1s
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How to work with a new sales team3m 5s
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How to calculate what to bid and spend on ads4m 24s
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Build a lean canvas with RealtimeBoard5m 1s
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How to increase email open rates by improving timing4m 14s
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Searching competitor sites for hidden gems and content2m 51s
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Use SEO research to generate ideas for your blog content2m 15s
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Shortcut to quickly generate new Google Docs, Sheets, and Slides1m 17s
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Advertise in Gmail with Google Ads4m 18s
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Launch a legally compliant sweepstakes6m 17s
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Check URL redirects after a site relaunch3m 14s
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Landing page inspiration with Land-book1m 37s
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Use Hunter.io to find email addresses2m 14s
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How to set up Google Alerts2m 53s
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Growth hacking content using Twitter custom Audiences3m 28s
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Use Google Shopping Insights for market research3m 47s
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What is creativity and how do you come up with new ideas?4m 49s
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Source testimonials from your customers4m 30s
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Prioritze objectives with the ICE model5m 8s
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Introduce high-tempo testing in your workflow3m 10s
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Evaluate your Net Promoter Score (NPS)4m 2s
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Building better landing pages1m 46s
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How to improve your local SEO2m 33s
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Quicky add subtitles to any video with Kapwing3m 20s
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How to prequalify traffic when running PPC ads2m 56s
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Identify conversion problems with Google Analytics4m 41s
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Use HARO to make connections with journalists2m 18s
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Conduct SEO research by running PPC ads3m 8s
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Monitor your competitors' websites for changes1m 50s
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Matchbooks are good marketing3m 43s
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What is your unfair advantage?3m 56s
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Sensory marketing: Mental stimulation in display ads3m 26s
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Geotarget single buildings in Facebook ads2m 53s
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Automate your LinkedIn networking3m 52s
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Google image search tips for market research2m 56s
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Creating animated images with Crello1m 46s
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Optimizing your LinkedIn profile3m 22s
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Listing your service or delivery business on Google1m 32s
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Using Google Trends for market research3m 39s
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