• Quick PPC Maths for Campaign/Account Managers

    June 24, 2020 | Written By Chengcheng

    Quick PPC Maths for Campaign/Account Managers

    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:

    1. Lost IS Due to Budget:
      Potential Clicks = Lost Impression * CTR
      Potential Cost = Potential Clicks * CPC
      Potential Conv = Potential Clicks * ConvR
    2. 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:

    CTRImprAvg CPCCostConv. rateSearch
    Impr. Share
    Search lost
    IS(budgt)
    Search lost
    IS(rank)
    27.41%18,113$0.66$3,260.273.56%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).”

    I will not tell you that this is exactly the calculating process behind Google’s new Performance Planner 😉

    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, so no more blah blah on this).

    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!

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  • Chengcheng

    Chengcheng is our enterprise account CM/Strategist. We accept her weirdness only because she balances it out with her PPC smarts. When not PPCing, she can be found camping, snowboarding, or eating a bucket of wings at Costco.

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