PPCPPC Budget Forecasting 101

PPC Budget Forecasting 101

As pay-per-click professionals, we're often asked to play with our numbers, shift our budgets, and essentially predict the future. A daunting task, for sure. Here's a simple walk-through on how to answer those tough budgeting questions from clients.


As pay-per-click (PPC) professionals, we’re often asked to play with our numbers, to shift our budgets, and essentially to predict the future. A daunting task, I know. Some common questions we get from our clients about our search accounts cover the following:

  • Could you spend an extra $20,000 this month? What would that look like?
  • How many clicks or conversions are we leaving on the table with our current budget?
  • Are we maximizing our impression share?
  • What’s the potential that we could spend without impacting our CPA?

Surprisingly, I’ve learned that many advertisers don’t have a quick and efficient way to answer these questions. They get caught up on which data sets they should pull, which campaigns are performing best, what their tipping point is, their average positions, etc.

Instead of spending a ton of time thinking about the details, I’m going to walk you through the simplest form of budget forecasting, dubbed “Budget Forecasting 101.”

In this example, we’ll pretend that our client is an online-only electronics store, called LightningElectronics.com. Their products are considered “luxury” and come with a significant price tag.

Our current CPA from our search account over the last month is about $39 per purchase (or conversion, which typically ranges from a $3,000 to $10,000 sale). We have limited budget for our current campaigns, and have spent $2,300 in the last 30 days.

It’s 9 a.m. Monday morning, at the start of a new month. The client sends an email:

Hey John,

Great job on all the PPC work you’ve been doing! I’ve talked with my manager and we’re open to spending a bit more this month. So, I have a few questions for you:

    • Do you think you can spend an extra $3,000?
    • If so, what would that look like?
    • How many more conversions can you get and at what CPA?

Looking forward to hearing back by tomorrow afternoon.



Now, don’t flinch! You’ve got more than enough time to create a rough forecast that will help answer these questions.

To do this, we’ll take a really simple route and recalculate your search account’s potential using “Lost Impression Share.” Essentially, we’re going to ask ourselves, “What is possible if we had 100 percent impression share for all of our active campaigns?”

Step 1: Login into AdWords

Navigate to your “Campaigns” tabs, add in the “Impression Share” and “Lost Impression Share (budget)” columns. Then, download the last 30 days of your data (or even 14 days if you feel you’ve made significant changes recently).

Step 2: Organize Your Data

Open your data spreadsheet in Excel, ensure you’re looking at live campaigns, and line up your columns so that they look like the screenshot below (delete anything that’s unnecessary). Keep in mind that I’ve changed some titles (i.e., “Conversions” was “Converted Clicks” and “CPA” was “Converted Clicks/Cost”).

Last 30 Days of Campaign Data in an Excel Spreadsheet

When looking at your data, you might notice that your Impression Share + Lost Impression Share (due to Budget) doesn’t equal 100 percent. That’s OK. There’s another type of Lost Impression Share (due to Rank), which we’re leaving out of this calculation for simplicity.

Step 3: Start Calculating What it Would Look Like if You Gained Back Your Lost Impressions

For example, in our Televisions campaign, we can see that we are only getting 39.29 percent of our impression share, so we’re going to calculate how many impressions we could get if we picked up the remaining 60.71 percent of impressions we’re missing.

To do this, we’ll create a new column called (P) Impressions (P = potential). The formula is (Impressions/Impression Share)*Lost Impression Share due to Budget. Or, (C3/J3)*K3.

Potential Impressions

Step 4: Keep Calculating More ‘Potentials’

Assuming that your click-through rate (CTR), conversion rate, and average CPC remain stable.

Potential Clicks Conversions Cost CPA

  • (P) Clicks = (P) Impressions*CTR (or L3*D3)
  • (P) Conversions = (P) Clicks*Conv. Rate (or M3*I3)
  • (P) Cost = (P) Clicks*Avg. CPC (or M3*E3)
  • (P) CPA = (P) Cost/(P) Conversions (or O3/N3)

Step 5: Figure Out What it All Means!

We can see that our campaigns have quite a bit of potential, just from our budget restrictions alone. When we add together the potential Totals, we see that are missing out on more than 200,000 impressions and 7,800 clicks.

The cost to secure these additional clicks will be $2,433. Assuming that conversion rate stays stable, we could get these additional conversions at $47.57 a pop!

Step 6: Understand the Limitations

Now that you know the potential, you need to understand the limitations. The calculations we’ve created assume that the rate people are clicking and the rate people are converting don’t change.

We also aren’t factoring in any new campaign builds, no additional keywords, and no extra boost from other on-or-off-line activity. We aren’t assuming there’s a tipping point and we’re not factoring in how much impression share could be gained if we adjusted our rank. However, we are making progress and are able to have an understanding of our potential in just 10 minutes.

You’ll see that from this simple exercise, we’ve gotten to a baseline understanding of what is possible for LightningElectonics.com. The rest, is up to you.

Hi Ted,

Glad that you are happy with our PPC work!

I’ve taken a look at the numbers and know that we have the potential to spend another $2,400, just from increasing budgets on current campaigns. We could easily get this to $3,000 with some new keyword additions or campaign builds.

The additional conversions that we’d get from the extra $2,400 will be at a slightly higher CPA of $48, but could be responsible for about 50 more sales. This would bring our overall CPA to about $43 for this month. It’s only a small increase for double the amount of conversions we had last month.

The cheapest conversions will come from miscellaneous accessories ($12 CPA) and from Watches ($22 CPA).

Let me know what you think!



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