Understanding PPC Cost Analysis

How Much Does Pay Per Click (PPC) Cost?

PPC is one of the easiest marketing tools available for anyone who has a website. You retain full control on your monthly budget and campaign schedule and payments are made "as you go". While it seems easy to setup and run a campaign, running an effective campaign producing significant impact on your profit and ROI(return on investment) is not an easy task. Most people tend to focus on traffic or clicks generated through PPC campaigns instead of focusing on ROI. Whether you are a small business owner or a large corporation, it is crucial to focus both on your ROI (return on investment) and on your net profit. A small scale campaign can bring home a tremendous ROI but relatively minor net profits. Conversely, a relatively moderately profitable ROI can significantly increase your cashflow if your customer margin is high. In other words, it's difficult to measure your PPC costs and benefits in the abstract. Perhaps more important is figuring out how to optimize the return you get on every dollar of advertising spent. This get even more complicated when you consider all the budgeting rules that Google or other search engines have put in place.

In order to explain budgeting rules, let's review a little known feature that google calls 'Over delivery'

What does AdWords Over delivery mean?

User traffic fluctuates from day to day. To make up for these fluctuations and to ensure that your campaigns reach their potential, Google may allow up to 20% more clicks (or impressions, for cost-per-impression campaigns) in one day than your daily budget specifies. Google calls this over delivery.

However, Google makes sure that in a given billing period, you're never charged more than the number of days in that billing period times your daily budget. For example, if you budget US$100 per day, and you're charged for a 30-day billing period, the maximum you would pay is US$3,000. If Google over delivers your ads, resulting in more clicks than your budget allows, you'll receive a credit in your account. Credits for excess clicks are listed on your Advertising costs page (accessible from your Billing Summary) as an Over delivery credit.

In summary, if your daily budget is $100 ($3,000 for a 30-day billing cycle), Google can deliver up to $120 worth of clicks per day due to over delivery rules. In a hypothetical scenario, if this continue throughout your billing cycle, you will end up spending $3,600 ($120X30) and google will refund excess $600 ($3,600 - $3,000) at the end of the month.

While it sounds fair and reasonable on the surface, that's not always true. Let's take a look from a different angle. What if you only run your campaign for 20 days in a month(let's just say you do not run on weekends). Same calculations would result in a charge of $2,400 ($120X20) and technically you have paid $400 more than what you hope to spend in 20 days. However, in this case Google would not refund you a penny since your charge ($2,400) for the billing cycle is still less than the overall budget($3,000) for the billing cycle!

This is why it is some important to have a good handle on your PPC cost and good tools to analyze your cost and ROI. In addition, when budgeting, think about tax consequences. If you can write off all or part of your advertising initiative come tax time, or if your net profits can be shielded from the government, your profit calculation will change.

Do you need help with your Pay Per Click (PPC) campaign? Contact us for a no obligation free quote today!