How Big Should My Google Ads Budget Be?
One of the most common questions I get when asked about Google Ads is, “How large should my budget be?” When you talk to a typical marketing company, they're likely to say you need a really large budget. Even if you are a small local business they will usually say something like $3,000 per month. Of course, they are then going to take a percentage of how much you spend as their fee. That is the way they get paid. I take a different approach.
To determine your ideal Google Ads budget, we need to look at two overarching factors – the size and goals of your individual business and what’s happening with Google Ads in your geographic area and professional field. Keep reading to learn more about determining your Google Ads budget, and don’t hesitate to reach out to me to learn more or get a personalized Google Ads proposal.
Business Factors
The business factors we need to keep in mind when determining your ideal Google Ads budgets are very concrete. Essentially, we’re talking about return on investment (ROI). How much can you reasonably spend on a Google Ads campaign to make the most of your marketing investment? In order to determine this number, you should start by asking the following questions about your business:
· How much is the average customer worth? –What is the average price a customer pays for your product or service? Are people likely to visit you or use your service once or twice, or do you have customers who stay with you for years? On average, how much revenue are you likely to receive from one client over their entire lifetime working with you? If you are selling a physical product you will also want to consider your Cost of Goods Sold and what your profit is on the items you are advertising.
· Do you have a certain capacity for your business or can you only take on a limited number of new clients per month? – Are there restraints that will prevent you from providing services for more than a specific number of customers. How many customers a week, month, or year are you trying to bring in to achieve your ideal business capacity?
· How big is your service area? - Are there any limiting factors to where you can do business? If you are in a service based business with an office, how far is a customer willing to drive to your location?
Google Ads Factors
In addition to how your own business functions, you should also consider how Google Ads campaigns actually work for your industry. Some Google Ads factors that impact your budget include:
· What is the Average Cost per Click (Avg CPC)? – Certain keywords, geographical locations, and industries mean higher prices per click. Targeting a more specific service area or “niche” is often a great way to find a more affordable per click rate and keep your budget lower.
One way to come up with a minimum budget would be to multiply your Avg CPC by 100 so you can get 100 visitors to your website in a month. Anything less than 100 clicks does not give your campaign much of a chance to succeed and limits your visibility to potential customers.
· What sort of Conversion Rate do you expect from your ads? – A Conversion refers to someone taking a desired action on your website. Examples include phone calls, filling out a form on your site, downloading a whitepaper, etc. So if 9 people call your office out of 100 users on your website then you would have a Conversion Rate of 9%. Over the entire internet that average Conversion Rate is about 5%, but this can vary greatly by the type of business you are in.
· What sort of Cost per Acquisition do you expect from your ads?
This refers to how much it cost to get a Conversion or a new customer. If you spend $500 on ads and you get 5 leads then your Cost per Acquisition would be $100.
If one new client from every 1,000 clicks will more than pay for the campaign, you may not need to worry as much about this, but if you need to get a new client from every 50 or 100 clicks to pay for the ad, it may be time to take a closer look at your how much you are paying for each lead.
Example: Counseling
Kristen owns a Counseling practice in the suburbs of Chicago and wants to figure out what her budget for Google Ads should be. After digging into her practice management software, she figures out the answers to some of the questions above.
How much Revenue or Profit does the average customer bring in?
Kristen finds the average patient pays $100 per sessions and comes for 30 sessions, so her average revenue per client is $3,000.
Do you have a certain capacity for your business or can you only take on a limited number of new clients per month?
Kristen just hired Alice as a new therapist for her practice, and Alice needs clients so capacity is not an issue for now. If the Alice’s and Kristen’s schedules both get full, this might become an issue later.
How big is your service area?
After doing some research Kristen finds that most patients do not drive more than 20 minutes to see her. This will be a limiting factor in how far away she should advertise and how much she can spend on her ads per month.
What is the Average Cost per Click (Avg CPC)?
Kristen works with a Google Ads expert on some keyword research for her area and finds that on average she will pay $3.00 per click. She also wants to get at least 100 clicks per month, so she decides to start with a $300 budget.
What sort of Conversion Rate do you expect from your ads?
Kristen is not sure on this, so she starts by assuming that 5% of users that come to her site will either call her or fill out a contact form.
Based on all of this here is how we can look at our budget and what sort of performance to expect out of our campaign.
Example: B2B
Ray is the owner of a company that manufactures Nitrogen Generators which are used in various manufacturing and packaging processes. He sits down to finalize his Google Ads budget and comes up with answers to our questions.
How much Revenue or Profit does the average customer bring in?
The average Nitrogen system Ray sells is $60,000 and he has a excellent profit margin around 50%. So his profit per system is $30,000.
How big is your service area?
Ray can ship his Nitrogen Generators to all of the lower 48 states in the U.S. and decides to target that entire area.
What is the Average Cost per Click (Avg CPC)?
Ray does some research and thinks he will pay around $5.00 per click. This is higher than the average keyword, but these clicks are valuable to both Ray and his competitors so he thinks it is worth it.
Do you have a certain capacity for your business or can you only take on a limited number of new clients per month?
These are complex machines and Ray’s company can only produce 10 in one month. This is a major limiting factor on how much he can advertise
What sort of Conversion Rate do you expect from your ads?
Ray knows that this is a big purchase and that many potential customers will not make it through the buy process after the initial call or form. He thinks only 1% of clicks to his website will lead to a sale.
Based on the above Ray decides on a $5,000 per month budget. He figures this should get him 1,000 clicks per month with an Avg Cost per Click of $5.00. If he can get 1 in 100 users on his site to order Nitrogen Generators then he should be able to sell at his capacity limit of 10 units per month.
The table below shows a summary of Ray’s findings and what he can expect from his campaign
These two examples can give you an idea of how big your budget should be. Feel free to leave a comment below or contact me if you have any questions.