Many auto dealers understand the value of including a Search Engine Marketing (SEM) campaign in their advertising efforts. They know that their dealership determines a daily (or monthly) budget and is charged only when someone clicks on their ad and is sent to their website. What some dealers don’t know however, is how much they should be spending on their SEM budgets.

Before you start thinking about SEM budgets, do a quick search for some keywords that you want to include in your SEM campaign. When you look at the search engine results page, what do you see? How many ads appear on the sponsored links? Do you see any of your competitors? Are there only a few ads or is the whole page full? Who appears first in the organic, or non-sponsored, search results?

Checking out the landscape of a search engine marketing campaign before you begin will help prepare you for selecting a budget. The more competitors that appear on the search results, the more expensive it will be to appear closer to the top of the paid search results, if that’s where you want to be. If the search results display only a few ads, then chances are your cost per click will be lower.

Once you’ve determined the competition and structure of your search results, it’s time to start thinking about your marketing goals. Setting goals is one of the most important factors in determining your budget. Let’s say, for example, you decide you want to send 100 people to your website every day through your SEM campaign. The next step is to research the cost per click for specific keywords using the keyword tools in your SEM account. Let’s also say that after researching your keywords, the maximum you want to pay for a click is $3, which is a pretty strong bid without being unnecessarily expensive. That means you need a $300 daily budget to reach your goal; that comes out to about $9000 for your monthly budget. Of course this is merely an example and each dealership will have different circumstances surrounding their budget decisions. No matter what your circumstances are, however, setting goals and knowing your threshold for click costs can help you make your SEM campaign a success.

Some dealers may want to start with a small budget at first. This is a fine strategy, but you must make sure to set aside significant time to analyze the results. Do your ads suddenly stop showing? Are your bids so low that you are not in a competitive spot on the search engine results page? Campaigns with insignificant daily budgets tend to run out of money too early in the day, which causes the ads to stop showing until the next day. Some dealers launch a SEM campaign, go online, search specific keywords in the morning, but by the afternoon their ad no longer appears. Keep track of when your daily budget is maxing out and that will help determine how much to increase the budget in order to make sure it lasts throughout the day.

My sample budget of $9000 may seem expensive, but compare it to what you would be spending on television, radio, or newspaper ads. Television works very well at distributing a detailed message to a large number of people. There are many people who watch television commercials, however, that are not interested in buying a car. There is also a chance that people who are in the market for buying a car do not see your ad on TV. The story is very similar for radio, although the audience is much smaller. Newspapers are the traditional route, but in today’s market, the majority of in-market car buyers begin their vehicle search on the internet, which is why SEM is such a useful marketing tool. With Search Engine Marketing, you are only targeting specific search terms with targeted messages. That means only those who are interested in the cars you sell will see your ads. With SEM you can target your message to a specific audience who is actively looking for you, not the other way around.

Another important thing to remember about SEM budgets is that no matter what budget you set, you only pay when someone clicks on your ads. If you have a $5000 monthly budget, but you only get $4000 worth of clicks, you only have to pay $4000. This is also a good way to see if your budget has reached its maximum potential. If you have a $5000 monthly budget, and it consistently hits $4000 each month, then you probably won’t need to raise your budget any higher.

While I can’t give a magic number that every dealership should use for their SEM budgets, I can make suggestions on the factors to look at before deciding on that number. Picking a random number out of the air is not the way to go. Think about what your marketing goals are, research the costs involved in appearing in a competitive position on the search page, and monitor your campaign closely so you don’t have an overinflated or underinflated budget.

Tom Knoop is director of search engine marketing for Stevenson Advertising.