I am often asked to project pay-per-click costs and revenues. The task is difficult due to variables such as historical data, trends, competitors, and most importantly, unforeseen factors.
However, here is my approach.
Historical data
Reviewing past data is my first step in assembling projections. Static numbers are useful, but the real value lies in trends. Let’s say I project costs and revenue for the first six months of 2024. Here are examples of expenses, revenue, and return on ad spend for the first six months of the previous three years.
January | FEBRUARY | March | April | Can | June | |
---|---|---|---|---|---|---|
Expenditure: 2023 | $40,000 | $39,000 | $42,000 | $55,000 | $59,000 | $63,000 |
Expenditure: 2022 | $37,000 | $38,000 | $40,000 | $48,000 | $52,000 | $54,900 |
Expense: 2021 | $38,000 | $38,500 | $39,000 | $46,000 | $48,000 | $51,000 |
Turnover: 2023 | $83,000 | $79,500 | $88,500 | $135,000 | $145,000 | $156,000 |
Turnover: 2022 | $74,000 | $81,000 | $81,000 | $107,000 | $122,000 | $130,000 |
Turnover: 2021 | $60,000 | $63,500 | $82,100 | $101,000 | $110,000 | $115,000 |
ROAS: 2023 | 107.50% | 103.85% | 110.71% | 145.45% | 145.76% | 147.62% |
ROAS: 2022 | 100.00% | 113.16% | 102.50% | 122.92% | 134.62% | 136.79% |
ROAS: 2021 | 57.89% | 64.94% | 110.51% | 119.57% | 129.17% | 125.49% |
Note the trends:
- Expenses, revenue, and ROAS increase significantly from Q1 to Q2.
- Expenses and income have generally increased each year.
- Expenses and income tend to increase each month of the second quarter.
After reviewing these numbers, I’ll look at account activity to put them in context. Increased costs make sense for more campaigns and keywords: additional coverage requires more budget. Conversely, consistent campaigns and keywords could still result in higher costs per click. Google confirmed in its recent antitrust trial that it inflates CPCs.
Keyword Planner
Google’s Keyword Planner provides search volume and cost per keyword for the previous 12 and 24 months. For example, the keyword “roof rack” had an average of 27,100 monthly searches last year. Searches slowed down during the winter months, picked up again in the summer, decreased in the fall, and increased as the holidays approached.
The tool also estimates top, low and high bids. I’m only looking at the high end because I assume costs will increase. For “Roof Racks”, the top bid high estimate is $3.22. So, the monthly cost for this keyword is:
27,100 searches * $3.22 = $87,262
A monthly cost of $87,262 could represent an entire advertising budget, not just a single keyword! Fortunately, this figure is only a mirage. It doesn’t take into account bidding strategy, conversion choices, and negative keywords.
A more precise projection can be found in the “Forecast” section, which includes bidding strategy and match type, but not, notably, ROAS or cost per acquisition targets. So a “Maximize Conversions” bidding strategy will cost more without these objectives.
Google “Forecasts” use historical search data, bidding competition, traffic and ad interactions. Here is the projection below for “roof rack” and associated keywords with a conversion maximizing bidding strategy over the next year.
Again, the numbers are estimates, an educated guess. A similar tool, “Performance Planner”, projects existing campaigns.
Final plans
After reviewing the historical and forecast data, I can create the projections. I typically offer “soft” and “aggressive” options to help clients visualize the potential revenue from a higher spend. I sometimes plan in more detail, for example by account or by initiative.
I will start with a conservative “soft” plan and focus closely on the goals while taking into account the likely higher costs.
Here is an example. The client aims to increase monthly revenue by 10% while keeping its target ROAS within 5% of 2023 performance. The January 2023 metrics were:
- Expense: $40,000
- Income: $83,000
- ROAS: 107.50%
A 10% increase in revenue would equate to $91,300 and the ROAS cannot be lower than 102.13% (5% lower than in 2023). A $45,000 spend will generate a ROAS of 102.89%:
($91,300 – $45,000) / $45,000 = 102.89%
Adding $5,000 to the January 2024 budget represents a 12.5% increase over January 2023, for a 10% revenue gain and a 4.29% lower ROAS. Projections assume CPC increases with minimal ROAS loss (5%).
The “aggressive” plan typically focuses on customer acquisition – additional revenue from higher spending – not ROAS. I’ll likely use Google’s projections, which are aggressive by default, combined with realistic adjustments, such as a client’s risk level and maximum budget.
Continuing the example, Google’s projections show a $60,000 spend in January 2024, a 50% increase from last year. Achieving an ROAS of at least 96.76% (10% lower than last year) would result in a 42.2% increase in revenue, to $118,056.
($118,056 – $60,000) / $60,000 = 96.76%
Forecasting Google Ads costs and revenue is not an exact science that takes into account all variables. But it’s helpful to set goals and expectations for advertisers.