How much does search engine marketing cost? It’s a question every business owner asks when exploring SEM to reach new customers.

How much businesses spend on SEM varies widely, but not because it is mysterious or risky. On the contrary, it’s widely accessible and detailed reporting ensures transparency.


Creating your SEM budget


If you want to create a budget for SEM, you should come up with a number based on your goals and business operations. Consider how many new leads you’d like to bring in.

A car dealership could set a goal of creating 50 sales leads per month from its SEM efforts. To start, the marketing team needs to know the number of visitors to the dealership’s website and how many of those become leads for the sales team.

With this data they can calculate how different levels of SEM investment might result in different levels of success. If they currently pull in 25 qualified leads a month from their website, they need to double the website traffic to achieve their goal of 50 sales leads.


Flexibility is key

Your budget can go further than you might think if you take the time to research and target the right customers.


Targeting


Before investing in SEM, know who you are targeting. SEM should be part of an overall marketing plan that includes developing an ideal customer profile and buyer personas. An ideal customer profile will help you decide who you should be marketing to, while buyer personas help you figure out how to sell to the different decision makers in that group.

Once you know who you’re trying to attract, you’ll be able to create ads and campaigns that target these personas, increasing the likelihood of success. The car dealership mentioned above would have a profile of the ideal customer likely to purchase its vehicles. It would also develop more detailed buyer personas to target its ads.


Test, then adjust


When exploring SEM for your business, test different approaches to see what works best. You may want to compare how different keywords perform. See what happens when you try narrow or broad matching, which is a way of figuring out how closely someone’s search needs to match your keywords for your ad to show as a result.

You may try changing your ad copy or creative marketing to test the response. You might test a high value keyword to see what happens. If it brings in more qualified leads, it might be more valuable than a cheaper keyword that brings in few.

Be open to spending more at the start and testing for a few months. This way you can create a realistic budget based on what works. A larger budget in the beginning will allow you to test more variables, which will give you valuable insight when confirming your plan and a long-term budget.

Keyword research pays off

Get creative with your keywords. Targeted keywords can help you spend wisely and do more with a small budget. Once you understand the platform, more specific search terms, called long-tail keywords, might hold more value for you

Google AdWords keyword planner is a great place to get started. With a free account you can search keywords related to your business. It will provide you with related keywords to help you understand what your customers are searching. It can help you narrow down your keywords so you can get your ad in front of the right customers.


How SEM works


SEM is marketing through search engines or paying to show up when an interested customer searches using keywords relevant to your business. It works like an auction. You bid on keywords that will get your ads in the most prominent positions possible. When you use pay-per-click (PPC) advertising you only pay when someone clicks on your ad. Learn more about how powerful this platform can be. (to be linked)


How is my SEM budget spent?

You control what you spend on SEM by creating budgets for each campaign you manage. This means you can run separate campaigns targeting different key searches. You can set maximum amounts per month and monitor ad spending, pausing when or if needed.

An auto dealership might have different campaigns for each vehicle brand it sells. It might have one for sales and another for services, each with its own budget.

Google Ads is the most common platform for SEM and provides resources that show how Google ad costs and quality are determined.


What can affect my costs for SEM?


Industry cost-per-click averages

Average cost-per-click (CPC) can vary depending on competition and prices for keywords. A useful guideline is to consider the lifetime value of a customer in your industry. If a company can expect a high amount of revenue from a customer over time, it can justify a higher acquisition cost.

Compare the lifetime value of a customer purchasing a pair of shoes with the lifetime value of a customer who spends 10 years with the same insurance firm. The insurance firm customer is more likely to stick with it for years and spend more money. This means the insurance firm can consider spending more per customer on SEM than the shoe store.

It is helpful to research examples of industry CPC averages when creating your SEM budget. For instance, in the United States, the overall average CPC for Google Ads is between $1 and $2. However, the average CPC for industries such as insurance and law can be $40 or more.


Customer acquisition cost and lifetime customer value


Calculate your cost for gaining each customer and compare that to the average amount they might spend with your company over a lifetime. If the amount it takes to bring them in is less than their value to you over the long-term, SEM can be a profitable channel for you.

Detailed calculations of potential SEM costs and rewards will help you make the right decisions.


Ad quality and relevance


The costs associated with SEM will also depend on the quality of your ad, the relevance of your landing page and content, as well as the location, device, search context, and other factors. All of this affects your quality score, which can influence your bidding costs.

Google will assess both the ad and the landing page to ensure it is sending searchers to content that will answer their questions or offer solid solutions.


Here’s how to calculate your SEM budget


Start with your overall marketing goals and consider how your business currently brings in customers. You may want to expand your business by a certain number of customers per month over the next year.

Look at your current website traffic and the number of visitors who become customers. This is called your conversion rate. Each time a visitor calls or purchases a product, they become a customer or a qualified lead for your sales team. If they become a lead for your sales team, dig deeper to see the number of qualified leads your team converts into sales.

If you know the amount of traffic it took to create your current customer base, you can work backwards to figure out how much website traffic you might need to produce enough leads to meet your new target. This exercise can also help you see if you need to improve website conversions or sales.

Your website traffic goal can be multiplied by the average CPC in your industry to give you a potential SEM budget for your business. Is this a final number? Not yet.


How does SEM tie into my overall marketing campaign?


The amount you spend on SEM also depends on your total marketing budget. You’ll want to create a workable plan to cover all your marketing efforts, then break out amounts for each type of marketing you choose to do. Your cash flow must cover the costs you’ve planned.

Lastly, determine if your business can handle the extra customers.


Managing your SEM

Ensure someone on your team can check on your SEM campaign frequently. Although SEM is easy to set up, it is not a set-it-and-forget-it solution. Trends, search volumes, keywords and other factors can change daily. If you do not have the resources in-house to consistently review insights and optimize your campaign you may want to outsource this to a local agency. With the right effort, SEM can become a valuable source of revenue growth.