Super simple formula to calculate starting PPC bid

Wondering how to calculate starting bids for pay-per-click (ppc) campaigns? Below is the simplest way to to use the data you already have to find that magic number.

I’ll explain how to optimize campaigns through segmentation and figure out ROI in future posts.

First question: what are you willing to pay for a customer?

Before we get to the equation – you will need to decide on an acceptable customer acquisition cost.

 

Here are some resources on calculating customer acquisition cost:

 

Now let’s crunch some numbers.

 

The formula:

(acquisition cost)*(conversion rate) = (max cpc)

 

Pretty simple right? I’ve laid out two examples below: one simple, one complicated.

 

Here’s a simple example:

A blogger wants to send paid traffic to a sales page.

The page converts on average at 2%.

$100 dollars is the most she can spend to acquire a new customer.

 

(acquisition cost)*(conversion rate) = (max cpc)

($100)*(.02) = $2.

 

The blogger’s maximum bid should be set to $2.

 

Here’s a more complicated example:

A SaaS company is holding a webinar.

They expect 25% of attendees to purchase and are willing to spend up to $300 to acquire a customer.

The company uses paid traffic to send people to a webinar registration squeeze page.

10% of visitors register for the webinar on the squeeze page, but only 50% of those who register actually attend.

This one is tricky because there are a bunch of conversion rates to worry about. Luckily it’s pretty simple – just multiply them!

 

(acquisition cost)[(rate a)*(rate b)] = (max cpc)

($300)[(.25)(.10)(.50)] = $3.75

 

Now it’s your turn!

Find your max bid

Plug in your customer acquisition cost and conversion rate(s) in the formula to find your max starting bid.

 

Decide where to advertise

The best place to start is to check your analytics. See what traffic sources have performed well in the past.

 

Make sure you can afford it

Once you have a couple networks to advertise on

 

Here are some links if you need some ideas:

Here’s a cool article about online advertising option.

 Know more places to advertise online? Leave a comment.

 

Don’t forget about this formula:

cpc = (acquisition cost)*[(conversion rate a)*(conversion rate b)*…]

3 Comments

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  • Hi, thanks for the formula, Nice and simple! If I’m doing my first bid for a new facebook ad, how can I know or calculate a conversion rate? or should I start the campaign with automatic bidding? Thanks

    • Hey Andrea, Good question! If you have other traffic sources you can look at your conversion rate across your site from social, organic, etc. and just use that rate to give you a good start.

      If you don’t have anything to start with the automatic bidding should be okay if the audiences you’re targeting aren’t too expensive, just remember that it’s in Facebook’s favor for you to spend more money 😉 so make sure to set a maximum budget for the campaign.

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