Google AdWords: How Much Should You Spend?

/Google AdWords: How Much Should You Spend?

Whenever we host a Google AdWords webinar, one of the most common questions we hear is:

How much should I be spending in Google AdWords?

Google AdWords Budget

 

That’s a great question.

There are really 2 answers to this question.

 

First, Start with a Test Budget.

When you’re just starting out, you’ll want to contain your costs, because you don’t know what’s going to work.

You’re in testing mode. It’s possible that your initial test campaign will be profitable, but you may only break-even, or you may lose a little money. We’ve created a lot of campaigns that were profitable right out of the gate, but you shouldn’t expect this to happen. Instead, your mindset should be that you’re investing in market research.

With your initial testing, you’ll gain insights into what ad messages are resonating with your target market, and you’ll also learn what keywords are converting into qualified leads and customers. Plus, you’ll be able to test which messages on your landing pages are working best for converting clicks into leads and customers.

What should your test budget be? You can roughly calculate your test budget by multiplying the number of keywords you want to test by the cost per click and by a minimum of 100 clicks. As a general rule, you’ll want to get at least 100-200 clicks on a keyword to determine whether it converts for you.

So, for example, if you’re going to test 10 keywords with a cost per click of $1, we’d recommend you plan on a test budget of $1,000 to $2,000.  Most likely, you’ll have a mix of winning and losing keywords, ads and landing pages from this initial test. As you see the results come in, you’ll “prune” your campaign — keeping the winners, dropping the losers  — to bring your campaign to profitability.

 

…Then, Ditch the Budget.

Once your campaign is profitable, you should ditch the budget.

The most successful advertisers don’t cap their budgets. They know that effective advertising is one of the best investments you can possibly make in your business.

Think about it: If you’re investing $1 into AdWords and getting $1.25 or $2 or $3 or $5 in return, why would you want to put a cap on that?

Assuming you want to grow your business, you should want to make that investment as many times as possible.

 

Focus on ROI, Not Cost

If you want to be the dominant advertiser in your market, you can’t just focus on managing costs — you must focus your energy on maximizing your return on investment (ROI) from advertising.

We have a private client who spends more than $100,000 per month with Google AdWords. And he’s happy to do so because he earns a healthy profit on that advertising. In fact, every month, he’s asking us for ideas for how he can invest MORE money into advertising!

So how do you get to the point where you’re scaling up your advertising and capturing more market share?

 

Focus on EPC, Not CPC

You can’t just focus on cost per click (CPC). Many advertisers just focus on getting their CPC down. They try to write better ads to improve their AdWords quality scores so they can get cheaper clicks. But that’s only half the equation.

Of course, you should always be looking for ways to make your advertising more efficient. But minimizing CPC is NOT where the real leverage is located.

Instead, the real leverage in Google AdWords is in increasing your earnings per click (EPC).

If you have the highest EPC in your market, you can outbid your competitors and gain more clicks, more leads, and more customers. That’s how you really win the AdWords game.

 

How To Calculate Your EPC

It’s simple.

Just multiply your conversion rate (the percentage of people who click you become paying customers) by your customer value (the amount of money you earn, minus fulfillment costs, from 1 new customer).

Here’s the equation:  Customer Value X Conversion Rate

For example, if an average customer generates $100 and you have a conversion rate of 1%, then your EPC is $1.00.

That means you could advertise profitably on keywords with a CPC under $1.00.

But what would happen if you increase your EPC to $1.50 or $2.00? Well, you’d be able to profitably increase your bids and gain more market share. In our experience, when you can increase bids by 50% or 100%, you typically will gain much more than 50% or 100% more traffic (typically it’s a multiplier effective where you can get a TON more traffic).

So if you really want to dominate your competitors in Google AdWords, you need to focus on maximizing your EPC. And in our next article, on Monday, we’ll go over some tips for how to do that.

 

Want More Google AdWords Tips?

We put together a Google AdWords checklist to help you get your campaigns set up for success. Click here to get our Ultimate Google Adwords Checklist

Ultimate Google AdWords Checklist

Need Help With Google AdWords?

Click here to request a quote. If you’re just getting started with Google AdWords, we’ll send you a quote to get your campaign up and running.  And if you’re already advertising in Google, we’ll give you a quote to manage your campaigns.

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By | 2017-11-12T10:19:06+00:00 September 30th, 2015|Categories: Pay Per Click Advertising|Tags: , , , , , |

15 Comments

  1. […] Last Friday we tackled the question, “how much should you spend in Google AdWords?” […]

  2. Manish Rai October 7, 2013 at 4:35 am - Reply

    i think this is a nice guide but most of the people when fell into such questions seek straight and simple idea, the reason is because this looks such a brain sucking question when you are starting, you dont have any base analysis to put your self on and to start you just want a kicking answer, though those who have spend a month or so with adwords will definitely find it very useful, in my opinion, you must experience any type of advertising for atleast one month with low budget.

  3. Darren Roberts October 9, 2013 at 4:29 am - Reply

    Thanks Phil –

    I agree with Manish – for new businesses the lifetime value of a customer is a bit of a stab in the dark.

    Actually, from my experience, a lot of companies have no idea when you ask for the lifetime value of a customer.

    So then you’re left with setting up Conversion Tracking in Google Adwords, as well as Goals in Analytics – which will likely give different results from each other.

    At least if you set up all 3 – Conversion Tracking, Goals, and have an average lifetime value for the customer, then you can assess the viability of a campaign.

    Thanks,
    Darren.

  4. Phil Frost October 13, 2013 at 8:05 am - Reply

    Hi Manish and Darren,

    I agree with your points. When a business is just starting out with an AdWords campaign then I always advise them to think of the first month or two as market research. We do everything we can to mitigate the risk, but you never know the best keywords, offers, and copy until you test, test, test…

    Some campaigns will be profitable right out the gate, but most require optimization by analyzing the data, adjusting keywords, offers, and sales copy, testing some more traffic, then rinse, repeat.

    – Phil

  5. larric December 26, 2013 at 11:22 pm - Reply

    Thanks for the great info I am new to adwords and am trying to find all of the information i can about using them. Anyone Think a budget of $100.00 Would work to start out?

    • Phil Frost December 29, 2013 at 11:03 am - Reply

      Hi Iarric – Your budget depends on the cost per click of the keywords you want to target and the economics of your offer. If your keywords cost $5/click, then you could only get 20 clicks with a $100 budget. That’s not enough to test. If your keywords are only $0.20, then you could get 500 clicks with $100.

      Generally speaking, 100 – 200 clicks on a keyword will give you a good idea about whether or not the keyword is going to work for your offer. Anything less than 100 clicks is not a fair test because your sample size is too small.

      Use Google’s Keyword Planner tool to get an estimate for the cost per click of your target keywords: http://adwords.google.com/keywordplanner.

      • larric January 1, 2014 at 4:25 pm - Reply

        Thanks for breaking it down even more I appreciate it.

  6. Anonymous January 10, 2014 at 5:22 pm - Reply

    $1000 to $2000 to test? Seriously?

  7. Vietnam March 10, 2014 at 6:59 am - Reply

    1000$ it’s a little bit too high, totally agree

  8. Jack Wells August 27, 2014 at 4:04 am - Reply

    Hi, here at http://www.completeoffice.co.uk we have recently started an ad word campaign. We spend around £50 a day on marketing, £18000 a year at the moment to generate sales, we are in the office refurbishment industry and i can properly say that after 1 month of ad word campaigns we made our money back just on 1x large project!

    Adwords is a great tool, but you must spend the money, being tight and not wanting to spend the money will get you no where, you have to let your money go, because at the end of the day you will get a return.

    I strongly recommend finding a company to set up your ad words who have had years of experience, they can save time and money and cost around £70.00 a month?

    Have a great day all, great blog by the way

    Regards Jack
    Website Developer / Marketing Manager

  9. Idigihub January 21, 2015 at 7:16 am - Reply

    Keyword planner comes with conversion projection plan, although you cannot rely on that but you can estimate some figures. Nice post..keep sharing

  10. Ahmad Nawaz December 2, 2015 at 5:59 am - Reply

    i want to start Adword campaign for my Web development company . Can you please suggest me good agency and tricks for that?

    i will be very thankful to you.
    Waiting from you…

  11. samrk December 18, 2015 at 3:26 am - Reply

    Can Anu one suggest me how to create ads on mobile aps

    • Phil Frost December 21, 2015 at 3:53 pm - Reply

      Hi Samrk, you can target mobile apps using Google’s Display Network.

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