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WMQA: How Much Should I Spend On PPC Advertising?

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Dear WMQA -- I have a simple question. What should I be looking for in respects to ROI on keyword spends? I know some retailers use 3.5x. What's the range? See, simple! Thanks -- Green
Dear Green -- Because your site is direct response, you're taking the right approach thinking ratios, rather than absolute budgets. Your target ad spend % depends on your margin. One decent rule of thumb: Target A/S = (1 – cogs – variable) / 2 So, a retailer with 65% COGS and 5% variable order costs (credit card discount, pick-pack-ship costs, phone support, etc) might spend (1-.65 -.05)/2 = 15% of net sales on advertising. In your lingo, this means each ad dollar has to bring in 1/.15 = $6.67 in sales. Gift and clothing retailers typically spend at the 30% A/S level. Electronics and tech are down around 8% or 10%. Again, its all about the margin. Where'd that formula come from? See this post -- Little Known Way To Determine How Much To Advertise -- for the ideas behind and the limitations of that rule-of-thumb. That post also gives a nifty spreadsheet to help out with the math. Cheers -- WMQA
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