Fixing PPC budgets to previous revenue will fail - Part1
Bookassist's Ecommerce Project Manager Mark Dolan explains why fixing Pay Per Click (PPC) monthly budget as a percentage of the overall website revenue from the previous month is a mistake
Many hotels discuss a "lower risk" strategy of fixing their budget for the current month's PPC campaigns based on a percentage of the previous month's revenue. We don't consider this to be a sound strategy for online revenue growth. There are two reasons:
1. High performance in PPC will be restricted due to lack of budget
2. Low performing PPC is masked by overall growth and will be allowed continue to overspend.
To illustrate these cases I will use the following example:
Suppose a company had a revenue figure of €300,000 in July and currently has three salesmen: "direct", "organic" and "referrals". The MD hired a new salesman "PPC" in August who has promised great returns on investment (ROI) of greater than 10:1. There is a cost however of €100 per sales call. To minimise costs the MD set the salesman's PPC’s budget at 1% of overall monthly revenue, so his budget for August is €3,000 which works out at 30 sales calls.
PPC salesman gets fantastic results, an ROI of 20:1 resulting in revenue of €60,000. Salesman PPC thinks he can double the number of sales calls for the next month and bring revenue generated by him up to €120,000. He will not get the opportunity. The other 3 salesmen didn't do as well so the overall revenue figure stayed at €300,000. The MD understood PPC performed very well but stayed with the formula of 1%. So PPC was restricted to just 30 sales calls for September instead of the 60 he had hoped for. This equates to a missed opportunity to have increased revenue by a further €60,000.
Result: High performing salesmen PPC is penalised by other poor performers and will be restricted due to lack of budget.
PPC salesman was all promises and only brought in €6,000 from his 30 sales calls. The MD is obviously disappointed but has signed up for a contract so continues with PPC hoping the salesman improves. At the end of the month however the other 3 salesmen perform quite well so overall revenue grows to €350,000. This means that instead of reducing the budget for the PPC and taking time to fix the problem, he actually gets to increase the number of sales calls in the following month.
Result: Poor performing salesman PPC is masked by overall growth and will be allowed continue to overspend.
Set an advertising budget for your PPC (Pay Per Click) campaigns and vary those budgets depending on the PPC campaign performance to maximise revenue potential.
Mark Dolan is Ecommerce Project Manager with Bookassist.
He manages the Traffic Builder department that manages online marketing for hotels.