Most ad budgets are round numbers picked in a meeting. The account then spends them, whether or not the numbers work. Start from the other end instead.
The arithmetic
Take the profit on an average sale, decide how much of it you are willing to give to advertising, and divide by the conversion rate you can realistically expect. That is your maximum cost per click. If a €40 profit, a 50% share for ads and a 2% conversion rate gives you €0.40 a click, and the auction wants €1.50, the campaign cannot work at any budget.
What this changes
- You stop launching campaigns that are losers on paper.
- You can raise a budget with confidence when the numbers hold.
- The conversation with a client becomes about margin and conversion, where it belongs.
