Pay-per-click and paid search advertising

When setting a budget for a pay-per-click (PPC) campaign, you're in control of the cost of your advertising. But how you set your budget will depend on the PPC provider you choose. This is because each provider offers a slightly different proposition. Yet all of them offer tools to help you calculate and set your budget.

Pay-per-click glossary

Common terms used in setting budgets include:

• Daily budget - the total amount you're willing to spend per day on a specific campaign. There's no minimum, but if you set the budget significantly below your PPC provider's recommendation, your ads will have fewer displays.
• Cost-per-click (CPC) bid - the maximum amount you're willing to pay for each click. You may pay less than your CPC bid as your ranking will determine the actual cost, but you'll never pay more than the maximum you set.
• Click-through rate (CTR) - the percentage of clicks out of the total number of times your advert is displayed, which counts towards your quality score. The more compelling your ad, the higher CTR you can expect and the lower your advertising cost will be.
• Cost-per-thousand impressions (CPM) - a pre-determined charge for every thousand times your ad is seen. This is common for display advertising where the campaign goal is awareness.
• Cost-per-action (CPA) - the charge when you only pay for clicks that lead to a user taking a specific action, such as a sale or registration.
• Conversion rate - the percentage of people who buy out of those who click your advert. The quality of your landing page and how targeted your advert is will play a role in whether you close a sale.
• Quality score - assigned by search engines according to their calculation. Typically, it will include an ad's CTR, the relevance of the keyword and landing page and the website's quality. As a high score improves your ranking, you could benefit from a CPC that is below your maximum bid and/or a better position on the search page, which may in turn increase your CTR.

Monitoring and adjusting your budget

You'll need to constantly monitor your keyword bids in light of your ad's performance. You may be able to link your online analytics tool with your PPC platform to see how many conversations (eg sales, registrations, enquires) each keyword and ad delivers. You can even assign an exact monetary value to your conversions. This is particularly effective for e-commerce campaigns.

Consider the return-on-investment you are getting from your keyword bids and adjust them regularly as part of your ongoing optimisation. See optimising PPC campaigns.

Decide if the budget you have allocated to a campaign is delivering on your marketing goals. See measuring your online marketing.

If your budget allows, you may prefer to use the services of a search marketing agency to carry out these tasks for you. Read more about choosing a search marketing agency.