How much to budget?

This question is directed to etailers. As a percentage of margin, how much should be allocated for the PPC budget? Granted it depends on the overall strategy (customer acquisition vs. maximizing ROI) and factors such at life time value, but I'm curious what others are doing.

Thanks

When starting a new campaign I keep spending at a percentage of profits agreed to by the advertiser. It is usually necessary for this to start out higher than you intend it to stay as there is a latent period between ads first running and consistent sales of at least 7-10 days even for inexpensive products and much longer for high dollar items.

For most e-commerce sites I currently work to keep ad costs under profit margins at all times because our primary goal for advertising is to generate direct sales within the same month or sooner.

Eventually as Web sites are improved, better newsletters and auto-responder contacts are created and conversion rates are stabilized the lifetime value of customers can be considered.

It is necessary to know what the approximate conversion rate of a site is to calculate reasonable ad spending limits. It is prudent to keep risks low by locating and buying sufficient inexpensive traffic if at all possible to determine conversion rates.

If conversion rates are not strong enough it may be necessary to improve the Web site before expanding advertising or even pausing advertising if it is too weak to be profitable. Once profitability is established then you can expand to more expensive traffic.