Google Adwords: How To Set Your Online Advertising Budget

Google Adwords: How To Set Your Online Advertising Budget

What should your advertising budget be when creating a campaign in Google Adwords?

This is a question I get a lot and the answer I give is, "it depends". The first thing everyone wants to know is how much money do I need to spend on Adwords. There is no single budget that will fit all advertising needs. A small budget may work fine for some businesses while a much larger budget is needed for other types of businesses.

Pricing for Google Adwords is based on a real-time action system where several advertisers bid simultaneously on a keyword and Google determines the winner of the auction and the placement order in the search results in a fraction of a second.

Factors that determine how much you will pay for a single click and what order you will appear in the Google search results are:

  1. What your bid is on that keyword or your Max Bid, which is the maximum amount you set you're willing to spend on a click for that keyword.
  2. The quality of your ad, which is part of your Quality Score rating.
  3. The expected click through rate for your ad, Google wants to show ads people will click on because that is how they make their money.

Quality Score is a 1-10 scoring system assigned to keywords you are bidding on that rates the quality of your ad, your landing page and how relevant the keyword you are bidding in relation to your ad and landing page. A low Quality Score means you will pay more per click than another advertiser with a higher Quality Score. A low Quality Score also makes it more difficult to capture the top advertising spots in the search results.

So the quality of your campaigns matters just as much as how much you are willing to spend.

Google looks for the following when determining the Quality Score for a keyword you are bidding on:

  • Your ad's Expected Click-Through Rate (CTR)
  • Ad's Historical Adwords Performance
  • The Quality and Relevance of your Keywords
  • The Quality and Relevance of your Landing Page
  • The Quality and Relevance of your Ad Text

As you can see, there are a lot of factors that determine how much you pay and where you will be placed in the search results beyond just how much you're willing to pay for a keyword.

Before you start your advertising campaign, I suggest you start with the Google Keyword Planner, it'll help you get an idea on how much search volume a keyword gets and also get a general idea on how much a click for that keyword will cost. Bear in mind, it is a general range, so expect the actual cost to be somewhere in that ballpark but not exact.

You also won't know how many clicks it takes to generate a conversion so you'll have to run your first campaign to help determine that and use it as a base for making improvements to your advertising campaign.

When determining how much your budget should be, there are two things you need to understand.

Getting Enough Clicks To Analyze Results

Your budget needs to be large enough to generate enough clicks and sales to determine the effectiveness of your advertising campaign.

How are you going to know if an advertising campaign is working or not if you do not have enough data and sales to analyze the results?

Most businesses start and end advertising campaigns without ever knowing if it was going to work or not simply because they did not give the campaign enough time or budget.

To know how much budget is needed you need to have enough conversions in order to make that determination. For your product or service, you may need 25 clicks to generate a sale or lead. Other businesses may need 50 clicks to generate a sale or lead.

So how many conversions do you need to start analyzing your campaign? Google's own built in conversion optimizer requires 15 conversions in a month to begin to analyze a campaign, so 15 is probably a good low end number to use. If possible, I would suggest 25-30 conversions to make the data even more reliable.

With this data in hand you should be able to see patterns in your campaign. Things like:

  • On average, how many clicks are needed to make a conversion.
  • The click through rate for my ad, is my ad interesting enough for people to click on it?
  • What visitors are doing when they get to your landing page. Are they leaving right away or spending quality time on the page?

When you have enough conversions then you have data that is more reliable. Then you can look at the data and start to make improvements to your campaign.

You may find the issue is the ad itself, people are not clicking on it. Or it may be the landing page, people are leaving without reading the copy. Or it could be your keywords, some are converting and others are not.

At least now you can start making smart adjustments to your ad campaign and slowly increase its effectiveness and conversions.

Example: An ad is costing you $3 a click so with 100 clicks you are getting 2 sales which equals a 2% conversion rate. So it cost you a total of $300

$3 per click ->100 Clicks -> 2 Sales = 2% Conversion Rate ($300 in advertising for 2 sales)

Have Enough Budget For A Sustained Campaign

You need enough budget to sustain a campaign for several months so you can test and improve your campaign.

It may take you a few weeks or several weeks to get enough data to make your first round of improvements. And once you make those improvements you may need another several weeks to generate enough conversions to analyze and improve your campaign again.

Most advertising campaigns do not produce amazing results right from the start. It is incremental improvements over time that eventually lead to great advertising campaigns.

So if you determine you'll need a $500 budget to run your first test, make sure you have enough budget to run subsequent tests. A $500 initial campaign budget may really need $2500 hundred in total advertising spend to get your campaign converting how you want it.

Keep in mind that during these tests you will be generating leads and sales so you'll be reaping benefits from these tests. But your goal is to get your campaign to the point where you are getting reliable conversions at a cost that works for your business.

Determine Your Own Advertising Budget

So as you can see, there are too many variables to have a single budget suggestion for everyone. Your best bet is to do your initial research and planning and get your first campaign up and running.

Then you'll be able to determine what type of long term budget is required to get your advertising campaign producing conversions that makes you and your business happy.

Great advertising campaigns are created over time, with lots of analyzing and testing, make sure you have enough enough budget in place to get there.

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CEO at 3Bug Media
Gary Shouldis is the founder of 3Bug Media, a web marketing company that helps businesses create 360 Marketing Strategies to dominate their market. His blog is read by over 20 thousand small business owners a month and has been featured in the N.Y. Times Small Business, Business Insider and Yahoo Small Business.
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