Most clients are not aware of the tedious, complex planning process required for annual budgets. If your operation has predictive modeling tools for paid search to forecast budgets, then you are
all set. For those without the resources, these strategies can help you determine your investment.
Frequently I am asked "How much should I invest into paid search?" and "What kind of return can I expect for that amount?" In response, I typically smile and mumble a favorite industry phrase: "Let me go run some numbers and circle back with you." Once those words leave my mouth, it is a wind sprint back to my desk, to pour over meticulously kept pacing and data sheets of historical performance, broken down in a variety of intervals and segments.
If you don’t have reports kept that way, generate these reports as far back as you can, or at least 2-3 years -- whichever is possible.
These reports are the lifeblood of budgetary planning. I recommend the following metrics for these reports: impressions, clicks, click-through rates, cost, cost per click, impressions to dollar, conversions, conversion rates, cost per acquisition, Impression Share (excluding Exact Match), and Impression Share Lost to Budget (all broken down by the intervals and segments mentioned earlier).
On a separate tab of the report, have a graph showing levels of CPA based on investment, so you can identify the investment level of diminishing return.
Now that you have your reports, how can that data be used to plan your budget? For the sake of the example, let’s assume Account X has had great performance, and the client recognizes that they were under-funded this year. They would like to increase the budget for next year, as long as it makes fiscal sense.
1. On a new Excel sheet, populate the date, day of the week, and any other interval you want to visualize.
2. Next, determine what your current data budget would have been if you had not lost any Impression Share to lack of budget.
o If 4 Mondays in January spent $800 combined, then each Monday in January of next year will get a daily budget of $200. Be sure to exclude holidays from these numbers, as it will skew data.
o Do this for the full year that you are planning, and you now have the baseline budget for the following year.
3. Identify levels of diminishing return, which should be calculated at the campaign level. Just because a campaign can spend the budget does not necessarily mean it will produce a positive output. Confirm that no campaign budget is at a level that has consistently proven that return begins to decline at this investment level. If it is, then it must be scaled back.
4. Adjust for annual growth. Review industry tools, or your search engine reps, to determine what the anticipated annual growth is, and apply that percentage increase to your budget numbers.
5. Identify traffic dips on holidays and their surrounding days (halo effect).
I always recommend keeping your work to show your data in tiers. It gives you an idea of what your output is at current coverage levels, at maximum coverage levels, and in between. So it's important to keep each campaign’s coverage to output data around, to be able to provide multiple scenario’s.
After all this is done, you should have an benchmark of anticipated data output and budget for next year.
Remember, this method is for paid-search efforts. This has taken on the assumption that your best media output is coming from search, and therefore you want to fund that first. Then you can begin the “next dollar should go to…” to other media like display, social, and print.