The measurability of digital marketing campaigns has become a must. In this article, we will explain how to set CPC bids in PPC campaigns. In the era where accountability is measured by direct sales, we all must be knowledgable on the calculations in place.
How to calculate max CPC bid for PPC Campaigns?
Identify Sale Profit
Proft = Revenue – costs
- This is the profit you make per conversion
2. Calculate the Conversion Value
Conversion Value = Avg. Sale Value / No. Leeds needed per sale
- i.e. Sale value per item is £1000 | you get 1 sale in 200 clicks | £100 /2000 = your conversion value is £5
3. Calculate the Conversion rate
Conversion Rate = Conversions / Clicks
- i.e. You get 5 sales per 100 clicks | 5/100 = your conversion rate is 5%
4. Identify BREAK EVEN CPC
Max CPC = Conversion Rate / Profit Per Conversion
- This is the maximum bid you can afford to break even / not make a loss.
- i.e. 2% Conversion rate (0.02) | Profit per sale £40 | 0.02 x £40 = Max CPC £0.80
5. Set your MAX CPC
MAX CPC = Breakeven CPC – 30%
- The max CPC you set will define your profit margin.
- Google’s actual CPC’s tend to be 20% lower than the maximum bid amount.
- As an average, we tend to go 30% lower than the breakeven point. This is optional.
Other Budget Calculations worth Considering
- For Maximum Click CPC
MAX CPC = Conversion Rate x Proft per Conversion x 0.70
- For Maximum CPA
MAX CPA = CPA Target x Conversion Rate x 1.2
- For CalculatingROAS
ROAS= Total Revenue / Total Ad Cost
The measurability of campaigns will establish a transparent and trustworthy environment with clients. Although hassle to set up, remember that these metrics will reward your operations in the long run.
Good luck in implementation and let us know your thoughts!