How much should I budget for E-commerce PPC campaigns?

Budgeting for e-commerce PPC campaigns depends on various factors, including your business size, industry, competition, and revenue goals. Here’s a step-by-step guide to help you determine the right PPC budget for your e-commerce business:

Define Your Goals

Your PPC budget should be tied to your specific goals. Key goals may include:

Sales Volume: How much revenue or how many sales do you want to generate from your campaign?

Return on Ad Spend (ROAS): How much revenue do you expect to earn for every dollar spent on ads? A common target ROAS for e-commerce is between 3x and 5x, meaning for every $1 spent, you should earn $3-$5.

Cost Per Acquisition (CPA): This is the amount you’re willing to spend to acquire a customer. It should be less than your average profit per sale.

Calculate Average Metrics

To estimate a realistic budget, you’ll need to calculate or estimate some key performance metrics:

Average Order Value (AOV): The average amount a customer spends per order.

Conversion Rate: The percentage of clicks that convert into purchases. E-commerce conversion rates vary but typically range between 2% and 5%.

Click-Through Rate (CTR): The percentage of people who click on your ad. The industry average CTR for search ads is around 2%, while display ads might have lower CTRs.

Example:

If your AOV is $100 and your conversion rate is 3%, for every 100 visitors, you can expect 3 purchases, resulting in $300 in revenue.

Estimate Your Cost Per Click (CPC)

Cost-per-click varies by platform, industry, and keyword competitiveness. Here are typical ranges:

Google Shopping Ads: $0.70 - $1.60 per click.

Google Search Ads: $1.50 - $4.00 per click (higher in competitive industries).

Facebook Ads: $0.50 - $2.00 per click, depending on the niche and targeting options.

Pro Tip: Use tools like Google Keyword Planner or SEMRush to get estimates of keyword CPC in your industry.

Set a ROAS Target

You’ll want to ensure your PPC budget aligns with your expected Return on Ad Spend (ROAS). For example:

If your target ROAS is 4x and your product costs $100, you’ll need to generate $400 in sales for every $100 spent on ads.

Basic Formula for Budget Calculation

Here’s a basic formula you can use to estimate your budget:

$$\text{Budget}=\left(\frac{\text{Sales Goal}}{\text{AOV}}\right)\times \frac{\text{CPC}}{\text{Conversion Rate}}$$

Sales Goal: Desired revenue or number of sales.

AOV: Average Order Value.

CPC: Estimated Cost Per Click.

Conversion Rate: The rate at which visitors convert to buyers.

Example:

Sales Goal: $10,000

AOV: $100

CPC: $1.50

Conversion Rate: 3% (0.03)

First, determine how many sales you need:

$$\text{Sales Goal}\mathrm{/}\text{AOV}=10,000\mathrm{/}100=100\text{ sales}$$

Next, determine how many clicks you need to reach those sales:

$$100\mathrm{/}0.03=3,333\text{ clicks}$$

Finally, calculate the estimated budget:

$$3,333\times 1.50=\mathrm{\$}5,000$$

In this example, a budget of $5,000 is needed to achieve a sales goal of $10,000 with a 3% conversion rate and $1.50 CPC.

Account for Retargeting

Retargeting ads often have higher conversion rates but lower click-through rates. You might want to allocate 10% to 20% of your budget specifically for retargeting campaigns. These can target users who visited your site but didn’t make a purchase.

Platform-Specific Budgets

If you’re using multiple platforms, allocate your budget based on where your audience spends the most time and where your products perform best:

Google Ads (Search + Shopping): Often requires a larger budget, as CPCs can be higher but typically convert better for bottom-of-the-funnel buyers.

Facebook/Instagram Ads: Great for discovery and top-of-the-funnel awareness but may require more budget for retargeting.

Amazon Ads: If you sell on Amazon, factor in Amazon’s PPC campaigns, which are crucial for visibility on the platform.

Consider the Industry

The competitiveness of your industry also affects your PPC budget. High-ticket items or competitive industries like electronics or fashion may require higher budgets to compete, while niche or less competitive products might allow for lower CPCs and lower budgets.