We just released a new, free white paper for search engine marketers: "PPC Budgeting Best Practices: 10 Tips for Setting Your 2012 Budget ." You can read the introduction and the first tip below. Click here to download the full guide .
As the end of the year approaches, it’s time to start setting budgets for your various marketing channels in 2012. If you’re relatively new to pay-per-click (PPC) marketing, you’ll probably find that budgeting for this channel can be a challenge.
Setting budgets for your PPC campaigns is complicated, but it doesn’t have to be difficult. In this paper, we’ll walk through ten best practices to help you get the most from your PPC budgets in 2012.
1. Getting Started: How to Determine Your Initial PPC Budget
Setting your initial budget is a challenging task for new advertisers. The key thing you want to be able to do with a new PPC account is test the effectiveness of pay-per-click as a marketing channel for your business. For this reason, you want to start by getting a sense of how much you’ll be paying for each click. This will give you a sense of the total costs to drive a reasonable amount of traffic to your website through paid search. AdWords’ free traffic estimator  is a solid resource for this step. The tool is never 100% accurate, but you can get a good feel for how you might fare in terms of costs per click in different positions.
Let’s assume the tool is telling us we can sit in around position four for our target term for about $2 per click. That’s a great starting point. If that’s the case, and our site typically converts at around 5%, $2,000 would let us get to 1,000 clicks and 50 conversions with an initial test. This is a pretty decent sample size and would give us a reasonable indication of how we could expect PPC to perform as a channel. To get an idea of whether a data set will be statistically significant, try out this great pre-formatted Excel tool  to perform a statistical significance check.
Another consideration we want to think about as we evaluate budget is how our site typically converts. This will tell us if this test will make sense for us. One way to do this is to look at how unbranded organic search engine traffic to your site converts.
First you want to create a custom advanced segment that excludes any keywords containing your brand name (more information on that here ). Once you have the segment set up, you then want to navigate to the Conversions > Goals section of your analytics dashboard and apply the segment to that data:
Next, you can scroll down to see what the conversion percentage on this traffic segment is for you:
This number is particularly relevant for your pay-per-click budgeting because unbranded SEO traffic will typically be a pretty good proxy for PPC traffic you’d want to bid on. If you’re not driving very much SEO traffic, however, or your site isn’t well-optimized and is driving the wrong kind of traffic, this analysis is less useful.
In this case, we’re converting at around 12%. Given that clicks cost $2, this means that for every 100 clicks, we’ll likely pay around $200 and get around 12 conversions, which works out to about $16 per conversion.
This is important to consider – if in running this calculation we find that the CPA (cost per acquisition ) is too high to be profitable, we want to proceed with caution. You might allocate a smaller test budget to PPC and closely monitor progress, whereas if this CPA looks really promising, you should probably consider giving PPC a “longer leash” with your initial test budget. This will ensure that you don’t turn it off before you’ve optimized our way into a profitable campaign.
Click below to get the rest of this free guide!