Introduction

If you’re new to the world of search engine marketing, first of all: welcome! One of the critical factors that can make or break the success of your SEM efforts is finding the right budget to achieve your goals. Let’s explore some of the most accurate ways of not only calculating the ideal budget but of calculating potential results and ROAS before your first ad is even live!

Table of Contents

1. Introduction

2. Table of Contents

3. The First Step: Calculating Demand

4. How to Forecast Your Results Based On Your Budget

5. Which Search Engine Should I Use For My Marketing?

6. Final Thoughts on Calculating Ideal Budget for Your Google and Microsoft Ads

How To Calculate The Ideal Budget For Your Google Ads & Microsoft Ads

Whether your approach to setting the right budget for your search engine marketing campaigns is fixed or flexible, it’s important to start with the same first step: understanding your goal. Are you trying to generate website traffic, conversions, or something else? And, how many of these desired actions are you aiming to achieve each month?

Try and use SMART goals here: this goal should be Specific, Measurable, Achievable, Relevant, and Time-Bound to ensure that it’s realistic. Once you’ve set your goal,  you can create a focused plan and budget to help you achieve your goals.

There are two routes to go down to calculate the ideal budget for your campaign. You may already have a fixed monthly budget to stick to, (perhaps $500, $1,000, or even $10,000 a month), or you’ll be starting from scratch to understand how much you’ll need each month to achieve your goals. Throughout this article, we’ll refer to these as the ‘fixed budget method’ and the ‘flexible budget method’.

The First Step: Calculating Demand

It’s important to begin by calculating demand. Whether your goal is to achieve national brand awareness, push purchasing consideration for your product or service, or to drive action from local audiences, there will be a volume of demand.

One of the best possible methods of understanding demand is to use search volume data as a proxy for demand. For example, if you sell dog treats at a local brick-and-mortar store, you may want to understand how many searches there are for ‘dog treats’ and related terms from people in a 10-mile radius of your local city or store.

You can start by using obvious keywords based on what your product/service is/does. Then, consider using Google’s free Keyword Planner tool (Microsoft also has a free keyword planning tool) to give you additional keyword ideas, average CPC (cost-per-click) data, and average monthly search volume for your target location on the relevant search engine. 

As well as keyword planning tools, you can also utilize free tools such as Google Trends to understand how demand grows and shrinks with the seasons, and how demand for your product or service has increased or decreased over time.

Whether you have a fixed budget or a flexible budget, the next step is the same: calculating what you’ll achieve with your budget…

How To Forecast Your Results Based On Your Budget

The way we like to do it at Two Trees is via a spreadsheet (because averages and auto-calculations can come in handy!). We’ll create columns for keywords, keyword themes (which can help you create the right ad groups), data for the low page bid, high page bid, and average monthly search volume for each keyword: this information is all available via either Google’s or Microsoft’s keyword planning tools.

Next, use this data to calculate your average cost-per-click overall and rough monthly traffic estimates. 

To find the average low-range and high-range bid among all of your keywords or by an ad group, find the average (not the sum!) of both bid columns and then find the median of these two figures. Use the following formulas to do so:

=AVERAGE(range:range)
For example: =AVERAGE(B2:B50).

If there are any keywords with no data or 0 as an input, these will skew the averages. If you’d prefer, you can calculate the medians in the same way:

=MEDIAN(range:range)
For example: =MEDIAN(B2:B50)

To find the median of the two totals, use the same formula but apply the range to cells with your two averages in. Now you have your ‘average CPC’ across your ad group or entire dataset.

Now, allocate a value to each of the conversions or actions that you want to track. You can use your historical eCommerce data to find your average order value, or allocate a general figure such as $10 for each phone call or newsletter subscription gained.

To calculate your ROAS, you’ll need:

• Your estimated monthly traffic volume
• Your average CPC
• Your average conversion rate (you can use a figure between  1% or 2% as a baseline if you’re unsure or don’t have historical data to refer to)
• Your average order value (or assigned conversion value)

For this example, let’s use the following numbers:

• 10,000 monthly clicks to your website
• An average CPC of $1
• A 2% conversion rate
• An average order value (or lead value) of $100

Now, calculate your revenue by calculating the conversion rate multiplied by your average monthly clicks: (10,000 * 0.02), giving us a result of 200 conversions monthly.

Next, multiply the conversion volume (200) by your average order or lead value. Using the example above, this gives us $20,000 earned in revenue per month.

Then, calculate your advertising costs by multiplying your anticipated monthly clicks by your average CPC. In this case, it’s $10,000.

With this data, use the below formula to count your Return On Ad Spend:

Revenue ÷ Advertising Costs

The results, in this case, are a 200% (or 2X) ROAS: for every $1 spent, there is a return of $2.

You now have a good framework to calculate the ideal budget — based on a combination of forecasts, results, and what you’re willing to spend. Of course, these calculations can also be used to demonstrate to stakeholders the ideal budget for your campaigns if your fixed budget falls short of the anticipated results.

Which Search Engine Should I Use For My Marketing?

One of the biggest pieces of advice that we often give to our clients is not to make assumptions. Instead, we encourage them to use data to make data-driven decisions. And, the choice of switch search engine (or combination of search engines) to use for your search engine marketing efforts is no different.

While it’s universally accepted that Google is the market leader, it’s important not to overlook Microsoft ads or any other search engine: particularly when marketing internationally. For example, Google is not always available or the market leader in certain markets: such as China, Russia, and North Korea. Privacy concerns are also growing among users of the key search engines, leading to a rise in the popularity of privacy-safe web browsing via DuckDuckGo, and/or the use of VPNs.

However, across the majority of the Western world, Google is the market leader, followed by Microsoft Ads. Although it may appear obvious to put 100% of your time, energy, and efforts into Google advertising - particularly if that’s your search engine go-to - Microsoft Ads has plenty of perks. Yes, the user base may be smaller, but Microsoft Ads has the benefit of:

• Enhanced social media profile (such as LinkedIn) and targeting options; making it a top pick for brands who utilize account-based marketing 
• More cost-effective advertising, due to lower levels of competition
• Increased usage among business audiences: making it a top pick for B2B brands. As so many users use the Microsoft suite during their workdays
• Increased usage among older audiences
• A wider range of Ad Extensions is available than on Google.

We would suggest, in most cases, trialing Microsoft Ads alongside your Google Ads Efforts. Microsoft has been built with integration to pull across your campaigns, ad groups, keywords, and other settings from your Google Ads campaigns, meaning there is very little additional setup required. Often, we encourage using 10-30% of total paid media monthly budgets to Microsoft and would encourage a trial of 2-3 months to fully gauge its effectiveness.

Final Thoughts on Calculating Ideal Budget for Your Google and Microsoft Ads

Ultimately, your budget and bids are one (of many!) critical success factors when delving into search engine marketing. But, by making data-driven decisions based on demand, search volumes, and historical data, you can calculate the ideal budget for your marketing efforts.