When it Comes to Budget—How Much is Too Much?
By Thad Kahlow, CEO, BusinessOnLine
In pay per click advertising (PPC), people are
constantly saying, “The more you can spend the
better.” What most people don’t talk about is the
point at which additional investments stop
generating an equivalent incremental gain. It is the
law of diminishing returns, and if you aren’t paying
attention you might be paying too much for your PPC
At what point does increased budget fail to produce
an exponential—or even linear—increase in
conversions? It can be difficult to determine, but
achievable through testing. That’s right, in PPC,
testing is key. Just as you test ad copy, landing
pages, and ad position, testing the effectiveness of
budget increases, and learning how to identify the
point of diminishing returns is critical to ensuring
What makes this type of testing so complicated is
that the search environment is extremely dynamic and
there are numerous variables involved. In order to
measure, you must first ensure a sound testing
environment and a plan.
Here are some key steps to follow when outlining a
Make sure your account is optimized. It doesn’t make
sense to test the point of diminishing returns on a
brand new account, because you will not have a valid
benchmark to compare results. Without benchmark
data, you will have nothing to gauge the results of
the test and, therefore, won’t know if your test has
Tip #1: Make sure the account has been running
smoothly for at least a few months before you begin.
Don’t make account changes during the test. Keep as
many of the variables fixed as possible so you can
reasonably assume the test outcome is due to budget
changes. If you are trying to test budget increases
while drastically increasing the number of keywords
in your account, the results will be skewed, and you
will not have an accurate representation of the
Tip #2: Plan to assess budget increases during a
time when you are able to perform minimal changes to
Clearly outline a plan and stick to it. Once you’ve
set up a testing schedule DO NOT change it. It may
seem logical to decrease the budget if you aren’t
seeing the results you anticipated, but reducing
budget mid-test will skew all your results, and you
will have to begin again. It is important to go
through the entire testing period and then analyze
the data, so you get a clear understanding of how
the budget is affecting your account. So, run your
testing schedule consistently and analyze the data
once the entire testing period is complete.
Tip #3: Remember, it is normal for your PPC account
to experience peaks and valleys throughout different
times of the day, days of the week, weeks of the
Ensure the testing cycle relates to your business
model. Use historical data to determine the test
length. If your average month consists of heavy
sales in the first week and tapers off toward the
end, then do not use one week as your test length.
If your business relies heavily on the holiday
season, then do not begin your test in the fall.
Tip #4: Make sure your testing period is long enough
that it is statistically significant, but not too
long that it encompasses many seasonal changes.
Confirm results. Once the test is complete and you
have found your optimum spend, continue to monitor
the data diligently. With so many unknown variables,
testing will never be 100 percent accurate. Many
factors affect your PPC account and advertising ROI.
If, in three months you notice your ROI is slipping
and conversions aren’t what they used to be, do some
Ask yourself these questions: Have more competitors
jumped in the space and driven up bid costs? Is your
product/service pricing no longer as competitive?
Are your ads no longer bringing in the most relevant
traffic? Are your landing pages outdated?
Tip #5: When things shift dramatically, consider
re-optimizing your account and start the test again
based on a new benchmark and new testing schedule.
Budget testing is not easy, but should be an
integral component of any PPC campaign. It should be
as much a part of your overall strategy as any other
critical measure, because discovering the point of
diminishing returns is the number one way to ensure
you don’t overspend.
Testing methods and duration will vary depending on
your business, but the underlying concept is the
same—devise a clear plan and stick to it!
---Source: Thad Kahlow is CEO at
BusinessOnLine, a pioneer in the interactive
marketing space with a 14-year track record of
successfully leveraging the interconnectedness of
the Internet to help companies grow their digital
presence. Reach Thad at
or follow him on
LinkedIn and Twitter @tkahlow.