Simple budget estimation for SEM’s

April 30, 2019

As a standard at Four15 Digital we provide our clients with budget recommendations for their digital media spend. In addition, we frequently receive requests from clients to estimate budget or performance if they want to make some changes.

As an agency when we are given a budget it is our responsibility to allocate that budget per their instructions, OR if no instruction is given, it is our responsibility to provide a budget plan and recommendations.

When it comes to SEM budget recommendations there are a few simple rules I personally like to follow.

Budget allocation

Planning where you should spend should be simple and straightforward. These are my three rules for budget planning:
   1. Allocate budget to every channel or breakout as required by the client
   2. Allocate as much of the channel budget or required breakout to that campaign that is performing the best to goal. e.g. if I have an SEM budget with no break-out requirements, I’ll max out the budget on those campaigns that are meeting or beating the client’s goals. I start with the top performing campaign (CPA or ROAS) then go down the list by performance from best to worst.
   3. Allocate a portion of the budget for test-and-learn. This will be difficult if you have very low budgets to start, but for all clients you want to always be testing so you should have some portion of your budget set for new campaign testing.

If I follow these rules I accomplish three things:
   1. I put my best foot forward and ensure the best possible performance with the budget available (not counting optimization work on top of budget allocation).
   2. I meet the client’s budget requirements.
   3. I get to test!

Testing is imperative for growth so it must be imperative that you as a marketer convince the budget holders that testing is a required element of SEM. Your competitor is testing and exploring new ways to capture their target customers, so why shouldn’t you?

Budget estimates

So, you know how to allocate budgets, but now you need to build a budget estimate or recommendation, how do you do this? Well, you could go ahead and use Google’s new Budget Planning tool – assuming your account has access. This is a new tool currently being rolled out to select accounts but should be available in the next few weeks to every account.

In addition to this tool, I have two tried and true methods that I use depending on the type of estimate needed.

1. A request is for budget potential for an existing SEM campaign or account that is budget capped:
   a. You can use the metric “search impression share” to identify how much potential budget can be spent at your current rate of performance.
   b. The function to predict monthly spend looks like this:

(current spend for 30 days) X (1 / current imp share for the period)

   c. This assumes that you are reaching 100% impression share. To get a more realistic or conservative estimate replace the “1” with a decimal like .99 or .95
       i. Note that reaching 100% imp share is almost impossible and not recommended as it may mean spending more on poor performing terms/ads/ad groups.
       ii. This calculation assumes that CPC’s will remain constant as you reach 100% impression share which isn’t always the case
   d. It is recommended that you do a split based on rank and budget. Google provides imp share lost to budget and rank which allows you to create a spend estimate if a) you max budget and b) max ad rank – BOTH impact how much you can ultimately spend.
        i. The formulas for this are similar, except you use the lost imp share:

current spend for 30 days X ((current imp share + impshare lost to rank or budget) / current imp share for the period)

Using this impshare method is great directionally, and the split between budget and rank really help hammer home how much volume is currently lost because of budget vs rank (optimization).

2. A request is for the budget potential for a new SEM campaign
   a. Use Google’s keyword planner tool with an expanded seed list of keywords. This provides you with an estimate of average CPC, monthly trends, and most importantly, a budget for running those terms.

All of these methods are directional, there is no way to predict budgets with 100% accuracy.

With option 1, I also often include estimates of performance when imp share lost to budget is at zero. This gives my clients a better understanding of what they are missing by not increasing spend!

I also like to provide multiple recommendations to show how my recommendation is the best one to meet their goals. I typically do this by building a simple calculator that includes current spend & performance alongside an adjusted budget and the estimated impact it has on performance. This is important because it shows that you have explored other options and are using data to provide your recommendation, not just guessing or relying on instinct.