So far in 2011, pay-per click (PPC) budgets have increased industry-wide. Surveys and research show that more companies will allocate more of their marketing budget to PPC in 2012 than they allocated this year. It is also assumed that the following years will show more of the same.

Increases in PPC budgets mean a number of things to business owners, competitive marketplaces and the agencies that provide PPC campaign management services.

For business owners and their competitors, PPC budget increases mean that there will be stronger bid competition for top keywords and spots. It also means that some site owners may have to return to their on-site content for re-development to improve message, quality and conversion. Additionally, making a daily study of your site analytics and bidding prices on keywords will help your PPC campaigns run at peak performance.

For the agencies and campaign managers, further interest in PPC means all of the above, in addition to providing superior intelligence and service and making sure that their every client feels that their advertising dollars are working harder for them in PPC than they would in other advertising mediums.

At the end of the day, conversion and return on investment (ROI) are the goals. One should budget accordingly.

Let’s take a look at some of the PPC numbers from the State of Search 2011 research:

• More than half of client-side respondents (56%) expect to spend more on paid search in 2011 compared to 2010, while 10% say they will spend less.
• Compared to last year’s results, a larger proportion of companies anticipate their spending on PPC to increase (56% compared to 50% in 2010).
• On average, companies expect to spend 31% more on paid search in 2011 than they did in 2010.
• More companies also say they observed a change in the prices for paid search ads for the keywords they routinely bid on. The most significant increase has been in the proportion of organizations saying that costs are now 20% higher
• Google revealed that the average cost-per-click on its web properties increased approximately 5% over the fourth quarter of 2009 and 4% over the third quarter of 2010.

Again, PPC interest and budgets are growing year-over-year. There are also price increases to keywords and campaigns as more entrants join the paid search market. So, how do you estimate your own PPC budget?

The Answer: Carefully.

Everything varies from case to case. From the professional PPC agency perspective, there are a number of elements that are crucial to determining an adequate or, perhaps, aggressive PPC budget. A professional PPC campaign manager – like the ones at Sweet Spot Marketing – will always take the following elements into consideration before speaking to a client about a recommended PPC budget:

1. An analysis of the website and the competition in the market (very important) for product, service, and messaging.
2. Utilization of the Google Keyword Tool for relevant keywords and phrases that are already native to the site content.
3. A compiling of a list of keywords that are sorted both by monthly searches and competition. (and a cross-referencing of that data).
4. A determination of assumed daily, monthly and quarterly PPC budgets based on the above findings.

And as the above may make all due sense, some still ask “what do keywords cost and how do they affect my PPC budget?”

Once again, it varies by industry and market. If you are selling automobile insurance policies online, a recent bit of research shows that the competition is pretty stiff. Were you to create an ad using the phrase “buy car insurance online,” the “insurance” keyword might set you back as much as $50 per hit (depending on your location and strength of competition in the market of course).

Something like “flexible dedicated hosting plans” for your hosting solutions business might cost you $30 per hit for the “hosting” keyword.

The Takeaway.

When it comes to a paid search or PPC campaign, the experts agree that budget flexibility will offer the site owner the biggest conversion and revenue payoff. The experts also know that business owners are sometime uncomfortable with the term “flexibility” in a monthly or quarterly budget.

Here’s why: Every college-level marketing course teaches that a business owner must identify a marketing budget and stick to that budget or see their ledger run red with ink. Unfortunately, this is a school of thought that developed their curriculum prior to the advent of internet marketing where everything can change without a moment’s notice.

Fluctuations in PPC costs do exist and will happen due to seasonal trends, anything that might affect product or service buzz, news reports, new entrants into the market, competitive product research and development, advances in technology or processes, and natural cost-per-click (CPC) inflation.

Are we saying that the perfect budget for PPC is no budget? No, not at all.

The perfect budget (all other research and number-crunching already performed) is one in which a daily or monthly budget is set but with a reserve available to combat market and competitive fluctuations that may drive costs higher than expected. PPC campaign managers are not in business to spend all your money – but rather to ensure that the money spent meets the needs of the business and the goals of the organization.

As always, the professional PPC campaign managers at Sweet Spot Marketing work with each client to ensure that their PPC budget meets their product or service marketing goals. They then manage each aspect of client PPC campaigns to perform within those goal ranges. With trained eyes on the market and a direct line to the client, a seasoned PPC campaign manager will continuously look for new traffic sources and utilize budget reserves (when approved) to fund shortfalls when needed.