Quick PPC Maths for Campaign/Account Managers
June 24, 2020 |
As PPC campaign/account managers, have you asked yourselves questions such as:
How cheap does my CPC need to be to be profitable?
What will happen if I increase the impression share?
What am I missing out (clicks, conversions)?
How do I project the next week’s spend and how do I make budget adjustments accordingly?
I’m sure you must have!
There is a common theme in questions like above – they are all predictive questions. And it’s critical for AMs and CMs like you to be predictive when managing your campaigns, to be prepared for what is about to come and to be more proactive in client communications.
I promise that my intention is not to scare you away by having ‘maths’ in the title (maths are just cool, no?), or by including equations and formulas in the below sections. It is really about providing you with the methodology that you can use to answer questions that not only you might be having along the way but your clients might at some point be chasing you for.
So, sit tight and take a deep dive in below campaign management scenarios!
Scenario 1: to calculate at what CPC you are profitable.
Solution process:
CPL = Cost / Conversions
CPL = (Clicks * CPC) / (Clicks * ConvR)
CPL = CPC / ConvR
Result:
CPC = CPL * ConvR
Example:
CPL Goal = $20
Historical ConvR = 3%
CPC Target = CPL * ConvR = $20 * 0.03 = $0.60
“I need to keep my avg.CPC at $0.60 to hit the $20 CPL goal, in order to be profitable.”
Scenario 2: to calculate at what CPC you are profitable on a ROAS level
Solution process:
ROAS = Revenue/Cost
ROAS = (Conversions * AOV) / (Clicks * CPC)
ROAS = (Clicks * ConvR * AOV) / (Clicks * CPC)
ROAS = (ConvR * AOV) / CPC
(AOV (Average Order Value) = total revenue/number of orders
ROAS (Return On Ad Spend) = PPC revenue – PPC cost) / PPC cost)
Result:
CPC = ConvR * AOV / ROAS
Example:
The client wants a ROAS of 200%, their average order value is $30, and the historical convR is 3%.
Target CPC = 3% * $30 / 200% = $0.45
“I need to keep my avg.CPC at $0.45 to hit their 200% ROAS goal, in order to be profitable.”
Scenario 3: to calculate what the performance would be if you increase the impression share
Solution process:
Potential Clicks = Lost Impressions * CTR
Potential Cost = Potential Clicks * CPC
Potential Conv = Potential Clicks * ConvR
Lost Impressions = Total Available Impressions – Impressions
IS = Impressions / Total Available Impressions
Total Available Impressions = Impressions / IS
Lost Impressions = Impressions / IS – Impressions
BUT, if you decrease Lost IS due to rank, your bids will need to go up (there is a concept of ‘new CPC’). So it comes to 2 scenarios:
- Lost IS Due to Budget:
Potential Clicks = Lost Impression * CTR
Potential Cost = Potential Clicks * CPC
Potential Conv = Potential Clicks * ConvR - Lost IS Due to Rank:
Potential Clicks = Lost Impression * CTR
New CPC = CPC * (1 + Lost IS (Rank))
Potential Cost = Potential Clicks * New CPC
Potential Conv = Potential Clicks * ConvR
Example:
| CTR | Impr | Avg CPC | Cost | Conv. rate | Search Impr. Share | Search lost IS(budgt) | Search lost IS(rank) |
|---|---|---|---|---|---|---|---|
| 27.41% | 18,113 | $0.66 | $3,260.27 | 3.56% | 79.02% | 0.00% | 20.98% |
Total Available Impressions = Impressions / IS = 18,113 / 79.02% = 22,922
Lost Impressions = Total Available Impressions – Impressions = 22,922.04 – 18,133 = 4,789
Potential Clicks = Lost Impression * CTR = 4,789 * 27.41% = 1,312
New CPC = CPC * (1 + Lost IS (Rank)) = $0.66 * (1 + 20.98%) = $0.79
Potential Cost = Potential Clicks * New CPC = 1,312 * $0.79 = $1,037
Potential Conv = Potential Clicks * ConvR = 1,312 * 3.56% = 46
“I can potentially get 1,312 more clicks and 46 more conversions, with an extra cost of $1,037, at an avg.CPC of $0.79, to reach 100% impression share (theoretically of course).”
Scenario 4: to project how much you are going to spend for the month, and how to adjust your daily budget to hit the goal spend
Projected Spend = MTD Spend + ( Last 7 Day Spend/7 * Days Remaining in Month)
Daily Budget Adjustment = (Projected Spend – Budget) / Days Remaining in Month)
This formula is extremely handy when deployed in spreadsheets (I’m sure you must be familiar with spreadsheets to work in digital areas).
Thank you for bearing with me and I hope you are following through the above scenarios. My final tip for you – use them and thank me later!
