We just released a new, free white paper for search engine marketers: “PPC Budgeting Best Practices: 10 Tips for Setting Your 2012 Budget.” You can read Part 1, which includes the introduction and the first tip, in our last post. Below you’ll find tips 2-5.

2. Base Your Budget on Profitability

This tip seems pretty straightforward, but with all of the nuts and bolts and minutiae that go into running successful PPC campaigns, managers sometimes forget to focus on the most important metric: profitability. As with all things PPC and marketing in general, remember to base your decisions on profitability and the way your business actually runs. Areas of your account that are more profitable should get more attention and more of your budget.

3. Don’t Arbitrarily Cap Profitable Spend

If your campaign is profitable, why do you need a budget? Shouldn’t you be acquiring as much profitable business as possible? If you’re running a small shop that can only handle so many leads, or you don’t have the inventory to support anything beyond a certain budget, that may be fine and perfectly reasonable, but ask yourself the question: Why not take on the additional profitable business?

Many times advertisers set arbitrary numbers as a cap on what they’re willing to spend because it fits nicely into a larger marketing budget, but if you’re generating profitable leads and sales, your budget may be unnecessarily limiting. You might be able to just bid to profitability (i.e., if traffic stops being profitable when you have to pay $3 per click, take all of the profitable traffic you can get paying $2) and drive as much traffic as you can buy.

4. Don’t Just Slash Budget for Unprofitable Campaigns – Optimize Them

The inverse is also true: If your campaign is still running and isn’t profitable, that’s likely not something you want to address with budget. Rather, you should solve this issue through bidding changes, optimizations around Quality Score (better targeting and campaign structure), and so on.

If you limit budget on unprofitable campaigns, you’ll be spending less, but still allocating money in an unprofitable way. Instead, fix the problems in that segment of your campaign. If you’re not sure what the issues are, try running your account through the AdWords Performance Grader, a free PPC auditing tool.

5. Understand Your Business’s Seasonality

Whether you’re just starting a campaign or have historical data to leverage, it’s important to know what your seasonal swings will be before you start to set budget. You might want to keep a tighter rein on your monthly budget for July than your budget in the winter months if you sell heating oil or ski trips.

Even if you run a business that doesn’t have obvious seasonality built in, like a B2B software company, your summer months may be slower than winter months. If you don’t have historical data to look at, analyzing keyword trend data from third-party tools can still be helpful.

Click below to get the rest of this free guide, including the next five tips.