In order to determine your budget, you should reverse to check the sales brought by advertising. Don't be nervous because it’s no complicated mathematical formula!
Take selling facial masks as an example. Two things need to be taken into consideration: profit and conversion rate of selling each product.
If your product sells for $2,000 and you earn $1,600, you make a profit of $1,600 for every set of goods you sell. Conversion rate is the ratio of people who actually place an order to the number of total users who visit your website. If 10 out of 1,000 people place an order, your conversion rate should be (10/1000)*%=1%
During the sales process, how much are you willing to pay Google?
If $1200 is the maximum amount in your mind, the commission rate you are willing to pay Google for a single order by keyword ad is 25%＝$(1600-1200)÷1600.
The sum of these numbers is Maximum CPC.
Maximum CPC = Profit Per Unit x The Commission You Are Willing To Pay Google x Conversion Rate
Maximum CPC = $1600× 0.25× 1% =$4
If the conversion rate is 1%, you can still earn $1,200 after paying $4 for keyword CPC.
Now, calculate your maximum CPC to determine your advertising budget!
It is a common misconception that a lot of hits are needed to get your ads evaluated. Actually the ad performance evaluation process begins when the first consumer clicks on your ads. Of course, the more data you have, the more significant results you will get. It does take quite some time to get a certain amount of data, but it doesn't matter if you only get 20 clicks a day at the beginning. In this example, your daily cost is $4×20 = $80. If you conduct the advertising campaign for 10 days, your total advertising cost will be $800.