Ah, an age old question.

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We’ve been asked this so many times that it’s practically ingrained into our minds. Being asked this question often, meant that we had to find a way to answer clients as clearly as possible and find a system that anyone could use.

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This where goals come into play. A client needs to have a revenue goal in mind. 

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They also need to know what their backend AOV (Average Order Value) is and their Website’s Conversion Rate.

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With these numbers, you can reverse-engineer the different metrics in order to land on a recommended spend.

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If you divide the revenue goal with the AOV, you’ll land on the number of sales that you need to reach the revenue target.

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Now that you know how many sales you need to reach the goal, we need to consider how much it will cost in terms of generating enough traffic to the site to hit the target, factoring in Website Conversion Rate.

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To do this, you have to look at outbound CTR which signifies how many people in the audiences are clicking on their current ads as a percentage; and CPM (which signifies how much it costs to show up in front of that audience). 

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The way these 2 metrics interact with each other define the Cost Per Click. High CTR and low CPM will equal a low CPC, though it’s all relative and benchmarks for these metrics will vary by industry.

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So with the current Website Conversion Rate, what is the necessary amount of site visitors to reach the goal number of sales? (Formula: Sales Needed / Website Conversion Rate %)

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Now you can work out the recommended budget by taking the number of link clicks needed and multiplying it by the CPC that we spoke about earlier.

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Bonus: Though paid ads can change overall website conversion rate for businesses where you reaching a lot of new, cold traffic, all of a sudden, you can actually work out approximate Cost Per Purchase (CPP).

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To do this, just divide your CPC by your Website Conversion Rate %.

We often find this helps identify when clients have revenue targets significantly beyond their possible investment.

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Sometimes, clients come with a breakeven ROAS and are willing to spend anything, providing that goal is being hit; which we will cover next week.

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Hope this helps!