The theory behind PPC advertising is quite simple; the more traffic you drive to your website, the more it costs. Due to this monthly budgets will usually be put in place on accounts and to ensure you have enough money to last the month and usually campaign budgets will be put in place to control spend on a daily basis; but in reality this isn’t the best solution and may be detrimental to your accounts performance.
An Example Of Why Campaign Budgets Can Be Detrimental
Below is a table which looks at three scenarios. The first shows an account that is currently limited by budget. The second shows the same account where bids have been decreased and the thrid scenario shows the same account where the keywords have been pruned so only the best keywords have been kept active.
| Scenario 1 | Scenario 2 | Scenario 3 | |
| CPC | £10 | £6.66 | £10 |
| Impressions | 1000 | 1000 | 333 |
| Av. Pos. | 1.0 | 2.0 | 1.0 |
| CTR | 10% | 7.5% | 15% |
| Conv. Rate | 20% | 20% | 30% |
| Potential Clicks | 100 | 75 | 50 |
| Potential Cost | £1000 | £500 | £500 |
| Cotential Conv. | 20 | 15 | 15 |
| Budget | £500 | £500 | £500 |
| Actual Impressions | 500 | 1000 | 333 |
| Actual Clicks | 50 | 75 | 50 |
| Actual Conv. | 10 | 15 | 15 |
Analysis
The desirable outcome in any PPC account is to match the costs as closely as possible to the budget. Why? This is because if the bids are too hgih you will be able to drive less traffic to your site and you will be missing out on clicks and the same goes for if bids are too low; the potential number of impressions and clicks will fall, driving less traffic to your website that could potentially be achieved
- Scenario 1 shows an account where the potential costs are twice the budget; resulting in only 50 of the potential 100 clicks being generated.
- Scenario 2 shows how a lower bid results in a lower average position, a lower CTR and therefore less clicks at a lower average cost. In this scenario the cost matches the budget meaning spend wouldn’t be limited and as a result an additional 5 conversions would be generated.
- Scenario 3 is an example of how if you refine your keyword list, as these keywords would be more relevant, the CTR and conversion rate for these keywords would be higher, although bids are the same, due to the increase in relevancy more conversions would be generated within the original £500 budget. The way to evaluate which keywords to remove would be to look for keywords that have not converted or that have poorer metrics such as CTR, conv rate and CPAs over the longer term. There is no magic formula for identifying these keywords but generally it should be possible to identify which the weaker keywords are in your account.
It is worth noting that we have made a few assumptions when calculating the outcomes in the above example, including;
- Average positions do not affect conversion rates
- Lower bids do not reduce potential impression share
Conclusion
Scenario 2 and 3 shows how removing bad keywords and reducing bids is a more effective way to ensure budgets aren’t exceeded in a month; campaign budgets should still be used as a precaution, but shouldn’t be used as the default way to manage bids. Generally campaign budgets will become a more effective solution towards the end of the budget cycle, especially if spend is close to the target.
In reality, a combination of reducing bids and refining keywords should be the best approach to ensuring that spend wouldn’t exceed the PPC budget.