“How much should I be spending?” is one of the first and most frequent questions we get from potential clients. In that question are two separate questions that the client wants to know, though they are rarely able verbalize it:
1) What should I be spending per month
2) What will my setup costs be if I don’t already have an account.
What Should I Spend Per Month?
There are several ways to answer this question. You may want to consider these answers before you hire a pay per click management team. Some popular answers to this question are “what you can afford to lose”, “it depends on the industry”, and “about whatever you think you can afford to spend”. Those are all reasonable answers for some clients.
For advanced businessmen and women I think the following answer is better: “If you could buy one dollar bills for $.99, how many would you buy?” Obviously you would want to buy as many as possible, or spend infinite amounts. Even though margins are low (in this example), the more you spend, the more you make.
Would you still be interested in this deal if you had to pay someone else to arrange this service for you? Again, the answer would be yes. While this eats into your margins (again), you are still in a position to make a ton of money if you put up the money.
Lets bring this back to pay per click. Due to advances in tracking technology, we are able to calculate the amount of money you are spending and the amount of money you are making directly from pay per click ads. If this is a positive number, it is no different than the above example, where you are buying dollar bills for $.99.
This advice has is limitations, but not in the ways you might expect. The obvious limitation is that there is not an infinite supply of customers. This manifests itself in the following way: the more you spend, the higher the cost of acquisition, which will eat into your margins. However, if you do not yet have a solid account, you probably do not need to be concerned about this.
The other limitation to this advice is that it will cost you money to get your account to a profitable state. Accounts are rarely profitable on day one. You will have to invest some money upfront in your advertising, just like all other forms of advertising. This cost varies from company to company. A pharmaceutical company that advertises to every country will pay a lot more than a mom-and-pop button-making shop that serves only San Diego.
Thus, there are two variables to keep in mind that will affect your startup costs (not to be confused with “setup costs”, which is the cost your ppc company charges you to setup the account): How competitive your industry is and how large the geographic region you want to advertise to is.