What factors should you consider when setting a budget for E-commerce search advertising?

Assuming that the calculation needs to be done for Amazon advertising: Work backwards from your sales. You want X sales, out of which Y% can come from ads. For Y number of orders, you need Z clicks (consider your conversion rate. If you are new, consider 2-3% conversion on high ASP categories and >8% on low ASP categories. With the conversion, see how many clicks you ll need From there, look at your CTR and CPC and find average budget.

Budgets are the input for your output. Hence, start with determining what is your main Goal. With a proper goal in mind, determine which sort of campaign you are planning to proceed with. Then based on the industry norms or with your previous experience with key metrics such as CTR, CPC & and CVR you can reverse calculate the budget you need to get the desired end objective. The main mistake most of advertisers do is not starting with the proper goal where your ad spend would be like shooting in the dark

Typically it starts from north star metrics such as TACoS or TROAS. These show the real impact of your advertising initiative on total sales. Moving on you can focus on specific targets such as CTR, CPC, or CVR but they're usually more difficult to control and it is a lot about A/B testing.

The Goal-Oriented Budget: Your advertising budget should align with your goals like a compass pointing north. Defining clear objectives ensures every dollar spent serves a purpose.

Start by thoroughly understanding what you want to achieve with your advertising campaigns. Are you aiming to boost website traffic, drive more conversions, increase sales, or maximize revenue? Once you've defined your goals, choose the KPIs that will best measure your success in achieving these goals. For example, if you're focused on sales, your KPIs might include conversion rate, ROAS, or total revenue generated. Your budget should reflect the scale of your goals. If you're targeting substantial sales growth, be prepared to allocate a budget that can support the necessary advertising efforts.

Target audience and keywords are pivotal in e-commerce search advertising. Tip: Define your ideal audience, conduct thorough keyword research, and segment your campaigns effectively. This ensures that your advertising budget is well-spent, reaching the right people with the right message at the right time.

Your targeting combined with your ad matters the most for you success. A great ad can’t work on the wrong targets/keywords and vice versa. So make sure to align targeting & ad & also landing page. For search based ads keywords needs to seem fundamentally decomposed into their search terms. You have to understand what search terms can trigger your broad match keywords etc. your job is to match the right search terms (audiences) with your right ads to the right products (landingpages)

The Keyword Navigator: Keywords are the signposts in the digital landscape. Invest wisely in those that lead to your treasure trove of conversions.

Watching your competitors can tell you a lot for free. Watching where they are investing their dollars--what keywords, what placements, what bids--can teach you what is effective, and what isn't. In particular, looking at which strategies competitors test and abandon can steer you away from costly mistakes and towards better marketing decisions.

The Competitive Edge: The online marketplace is like a bustling bazaar. Understand your competitors to haggle for the best advertising deals.

Keeping a close eye on your competitors and the broader market is akin to having a radar system in e-commerce search advertising. It's about staying informed and agile. Tip: Start by identifying your main competitors in your niche. Analyze their advertising strategies, including the keywords they're targeting, their ad copy, and their bidding patterns. Tools like SEMrush or SpyFu can help uncover valuable insights. Pay attention to how competitors position themselves and what unique selling points they emphasize. Differentiate your own offers by focusing on what sets your products or services apart.

Your campaign structure won't seem important until your business scales and you need to manage bigger accounts. You can't manage a scaled account if your structure isn't proper. Consider the naming convention as a way to tell you and others what each campaign is seeking to accomplish.

Aligning search campaigns with their objectives provides a valuable framework to structure and manage them, guiding decisions throughout the campaign's definition, execution, and ongoing optimization. For instance, a campaign targeting competitors' shoppers may prioritize attracting new customers with a higher threshold for ROAS, while showing flexibility in CPC. Conversely, a campaign focused on attracting category shoppers may set different targets, emphasizing a balanced approach between new customer acquisition, ROAS, and CPC. Defining campaigns based on their objectives enriches the context of 'traditional' media metrics, ultimately leading to more insightful analysis and, consequently, better-informed decisions.

Campaign Architect: Think of your campaigns as a well-designed storefront. Structuring them logically can enhance the shopping experience for your customers.

A clear naming convention is key to a clean and readable campaign structure. Don’t mix up to much different things in one campaign because it is easy in the setup. Make sure you Cluster campaigns based on your targetings and based on your advertised product / landingpages. Add specific campaigns for defense and or experimental growth targets

Test one thing at a time. For the cleanest most accurate data, don't run multiple tests at once. This makes it hard to pinpoint which initiative is driving the results.

Testing is crucial but very hard. Coming up with ideas what to test might seem simple but to run a proper test requires some knowledge about statistics too. You can test a certain campaign on one products. Maybe it works. Does it mean it will work across all products? No! You will have to setup Tests with sample sizes that are significant and could give you the right insights

The Optimization Alchemist: Just like refining gold from ore, continuous testing and optimization turn your budget into a source of ever-increasing value.

The Audience Whisperer: Your audience isn't a faceless crowd; they're individuals with unique desires. Tailor your budget to speak directly to their needs. Market Watcher: The market is a living organism, constantly evolving. Keep a vigilant eye on its movements to make timely budget adjustments.

For Amazon: I think first budget should be set to get enough number of clicks for you to evaluate the keyword efficacy. Evaluate based on conversion and cost per order. Once you are convinced about the efficacy, increase spends to get the highest impression share from that keyword.

A very important aspect is: which marketing funnel level are you addressing? Do you want brand awareness? Top funnel (PPC, generic keywords) Do you want conversion? Bottom funnel (DSP, branded keywords)