For businesses that prioritize profit margins and cash flow, the ability to manage an advertising budget is a fundamental skill. Overspending due to human error almost always means a difficult conversation with clients and stakeholders.
Allocating and managing a budget in PPC looked very different a decade ago. Today, as nearly everything gets automated, the terms of engagement are very different.
Here are the fundamentals behind a digital ad budget and how to manage your money in today’s PPC landscape.
How budgets work
The first step is to decide how much you’re comfortable spending on ads each month.
Setting a figure you’re comfortable with for at least 3–6 months is important to give your account enough time to work through the initial hiccups. This is especially important if your account is completely new.
Once you have a monthly budget defined, divide it by 30.4 to get your daily ad budget.
Note that some ad platforms like Google will spend up to double your daily budget on any given day as long as it doesn’t overspend on the month.
If you have an ad schedule in your campaign (e.g., you only run ads five days a week), you instead multiply the number of days per week your ads are active by 4.3 weeks in a month. Then, divide your monthly budget by that number to get your daily budget.
If you want to spend $100 a day, you could set that as your daily budget. You may spend up to $200 per day, but at the end of the month, you won’t spend more than $3,040.
A more advanced tactic is to set higher budgets and control the spend with aggressive bid management, such as a CPA or ROAS target.
This will allow the system to spend more if it’s hitting specific goals or sees an opportunity while still holding back based on performance.
How to allocate budget by platform
Budgets live at different levels on different platforms. Google Ads requires you to assign them to campaigns, whereas on other platforms, you can assign budgets to ad groups or ad sets.
When I take discovery calls and work with clients, I try to suggest budget allocation based on account structure and where they’re most likely to see the best return.
This is how I make recommendations about how to break down a PPC budget based on the type of advertiser.
Ecommerce
For ecommerce, there are really three different profiles of companies:
- Google-first.
- Meta-first.
- Hybrid.
If you’re a mass retailer of multiple brands and products that already have tremendous demand available to capture, you typically want to start with Google Shopping. Examples of accounts that fit this description:
- Supermarkets that sell a range of products.
- Electronics stores selling mobile phones, computers and kitchen appliances.
- Apparel resellers with hundreds or thousands of products from multiple brands.
The other category is private label, where you sell your own product.
Typically, you have fewer SKUs and your goals include generating a bit more awareness and demand. These advertisers lean a bit more on Meta for advertising:
- Direct-to-consumer (DTC).
- Consumer packaged goods (CPG).
- Branded commodities.
The main difference between these two types of retailers is that the former is really just capturing demand that’s already there (at the bottom of the funnel), while the latter is also creating demand around their particular products.
Some brands lean 90% Google, with just retargeting and the basics on Meta. Others skew 90% toward Meta and create demand while capturing brand and basic comparison shopping demand on the Google side.
I mention these platforms because a key part of budget allocation is not spreading yourself too thin across different ad channels, especially if your account is new or you haven’t validated them yet.
But many brands also do well on both. These are typically ones with a large amount of search volume around their products but also do well pushing people to purchase (e.g., impulse buys, fashion accessories or anything else highly visual).
Lead generation
When it comes to lead gen PPC, I like to consider whether there is already search demand on Google for what I’m trying to sell. If so, I start there. If not, I will start on Meta and fill out the funnel from there.
If we start with Google, where people are already searching for keywords related to the service you provide, we sometimes layer on paid social media for retargeting and some prospecting.
Other times, there’s just not a lot of search volume for what you’re trying to sell – maybe it’s a newer product or service.
In these cases, you should usually start on the paid social side, where leads are almost always cheaper and easier to get. They might not be as high-quality as leads you would get through Google, but it’s a stepping stone.
How to allocate budget by assets
Most accounts that have been running for a while know what their most profitable campaign is – an evergreen, a moneymaker or a golden goose. It could be a particular product line, a level of service, a location or any other descriptor.
This is where you want to invest the bulk of your budget, particularly when using algorithmic campaigns like Advantage+ or Performance Max.
If you get most of your revenue from this particular offer, allocate most of your budget there instead of trying to split it evenly.
What you want to test for is the point at which increasing impression share hurts the cost and quality of acquisition.
This is the sweet spot before Google starts looking for low-quality conversions to exhaust your budget.
You typically want your campaign budget to be large enough to acquire multiple conversions. Google recommends 5-15x your target CPA, which is close to what works on Meta.
This is not always possible, but a good rule of thumb is to give the system room to breathe and make a few mistakes to learn from.
Certainly break out new campaigns if there are different business objectives:
- Are there specific zip codes or counties that you can service from a single location?
- Do you sell different product lines that have differing profit margins?
- Will significantly different audiences buy different tiers of a subscription?
These are all instances where separate budgets or separate target KPIs make sense.
Budget allocation fundamentals
Just as daily spend is not always an equal portion of your monthly budget, there are other PPC budget truths that catch advertisers unaware.
What happens in accounts with bigger budgets
There is a considerable difference between accounts that spend $50,000 per year, per month and per day.
One that stands out more than most is the frequency and level of risk each of those accounts can take without negatively impacting performance.
Bigger accounts can have a broader account structure with more campaigns, run more tests and experiments, reach statistical significance on those tests faster and test and validate new channels with less delay.
Smaller accounts need to:
- Narrow their accounts and campaigns.
- Be highly selective with their tests.
- Validate and saturate a single channel before moving to the next one.
How to increase budget without impacting performance
Conventional wisdom says to increase your ad budget gradually rather than significantly, but some factors influence this.
Consider a search campaign on Google that is dialed in:
- Targets very specific locations or keywords.
- Captures a small amount of impression share.
- Missing search impression share primarily due to budget, not bids.
If this is you, you can raise your budget by larger intervals without affecting performance.
Anytime you increase the budget, you force the system to find new audiences. It can take time for the algorithm to find a new audience that'll perform well.
— Menachem Ani – Google Ads
Also, keep in mind that as you increase your budget, you'll likely see your ad costs increase as well. https://t.co/JxshdGdYDO(@MenachemAni) October 26, 2022
But when increasing bids or running a more algorithmic type of campaign like Performance Max, you typically don’t want to increase it by too much too quickly.
This can throw the system off and reset the learning period, forcing it to find a lot more new traffic.
Instead, increase your spend by a maximum of 20% at once and allow time for the new normal to settle in before making the next leap.
Respecting the testing period and algorithmic data gathering
Years ago, you could just start a new campaign knowing what traffic you would get and how it would convert.
Everything is more algorithmic these days, even conventional search campaigns. But especially when you’re using capabilities like Smart Bidding, nothing is as immediate as it used to be.
In most scenarios in Google and Meta, you need the patience and money to give new campaigns a good few weeks to ramp up the testing period – an initial data-gathering phase where the system figures out what works and what doesn’t:
- Relevant queries and search terms.
- Audience signals or targeting lists.
- Validating a CPA or ROAS target.
This should last at least two weeks. For more complex applications like Performance Max, you should probably give it four to six weeks.
Small adjustments are fine, but you should lean on the strategy you launch with instead of making wholesale changes.
This means that the first month or two of your budget allocation for the campaign needs to be treated as an investment in future performance, with expectations tailored accordingly.
Modern PPC requires strong budget management
The negative effects of poor budget management are compounding. An expensive week can lead to a shortfall for the month, which can then turn into a quarter of missed targets.
Seasonality, human error, and real-world events cause budget fluctuations. Add unpredictable changes from ad platform automation, and budget management can no longer be an afterthought.
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