Calculating A Search Engine Marketing Budget
Basically there are 3 steps to working out a search engine marketing campaign budget.
Step 1. What is your conversion rate?
This is simply the number of customers it takes to view your website before one buys and is usually expressed as a figure like 1 in 30 or 1 in 50.
Your website traffic statistics package should be able to help you accurately calculate this. (Information about traffic tracking and analysis options can be found at www.viz.co.nz/traffic-monitoring.htm )
Step 2. What is the value of a visitor to your site?
Is a visitor worth 5 cents? One dollar? Ten dollars?
To ensure you don't spend too much on customer acquisition this is a figure that you really should know before undertaking any marketing actions. To work this out simply plug your figures into the X and Y values of the following:
"For
every X unique visitors to your website, $Y in revenues are
generated."
e.g.: If your net profit is $60 per sale and 1 out of every 100 unique
visitors buy (1% conversion rate), then these hundred visitors equate
to $60 in revenues. $60/100 = value of 60 cents per visitor.
NB It's important that we use profit (sale price minus costs) here rather than gross sale revenue.
Step 3. How much are you prepared to spend?
By this we mean, how much are you prepared to spend to get a customer? (The maximum customer acquisition cost you can afford).
As long as you don’t spend more than the value of a visitor (in this
case 60 cents) you won’t be losing money.
How much you choose to spend depends on the profit margin you require
and the nature of your business. If you need a 50% mark-up you’ll
not want to spend more than 30 cents acquiring each new visitor (assuming
the value of a visitor is 60 cents).
Obviously, the more you spend the lower your profit. However if your
business gets repeat sales from the customers it acquires you can
probably afford to spend more on customer acquisition than if you
just had one-off sales. This is because of the customer lifetime value
to your business, (i.e. profits you make from ongoing sales)
Next topic: Search Engine Marketing Campaign ROI Analysis
 
This page last updated
May 03, 2010
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