Setting a Google Ads budget is one of the most crucial decisions that small and medium-sized business owners face when diving into digital advertising. With limited resources and the pressure to generate tangible results, determining the right budget can be challenging. This guide provides a step-by-step process to help you calculate an approximate Google Ads budget for your campaigns, ensuring that your investment leads to measurable outcomes.
Note: This is just a guide to help you calculate an approximate budget and should not be used as expert or legal advice
Understanding the Cost per Click (CPC)
One way to understand your Google Ads budget begins with understanding the average cost per click (CPC). CPC is the amount you pay each time someone clicks on your ad, and it can vary widely depending on the keywords you choose to target. Keywords with high competition, such as those in the legal or financial sectors, can have significantly higher CPCs compared to less competitive markets.
To determine an average CPC:
Research Keyword Costs:
Use tools like Google Ads Keyword Planner to research the average CPC for your targeted keywords. This tool provides estimates based on historical data, giving you a realistic expectation of what you might pay per click.
Estimate Daily Clicks:
As a general rule for businesses just starting out, you should aim for at least 10 to 20 clicks per day. This ensures that you generate enough traffic to gather meaningful data on your campaign’s performance.
Calculate Daily Budget:
Multiply the average CPC by the number of clicks you want to achieve daily. For example, if your average CPC is $2 and you aim for 20 clicks, your daily budget should be around $40.
Starting with this calculation will give you a baseline budget. However, remember that this is just a starting point—you can adjust it as you gather more data and optimize your campaigns. At a conversion rate of 2 - 3% you can expect to get 2 to 3 conversions per week.
Conversion Rate in Google Ads
The conversion rate is a critical metric that helps you understand how well your ads are performing. In Google Ads, the conversion rate represents the percentage of users who take the desired action after clicking on your ad, such as making a purchase or signing up for a newsletter.
To set realistic expectations:
Initial Conversion Rate Expectations:
For new campaigns, a typical conversion rate ranges between 1% to 3%. This means that out of 100 clicks, you can expect 1 to 3 conversions. As your campaigns mature and become more optimized, conversion rates can improve significantly, potentially reaching 15% to 20%.
Estimate Conversions per Day:
Once you have an estimated conversion rate, you can calculate the number of conversions you might achieve with your daily budget. For instance, with a 5% conversion rate and 20 clicks per day, you might expect to see 1 conversion daily.
Adjust Based on Performance:
As your campaigns run, monitor the actual conversion rates. If your conversion rates are lower than expected, consider revisiting your ad copy, targeting, or landing pages. Conversely, if your conversion rates are higher, you might consider increasing your budget to capitalize on the strong performance.
Understanding and estimating your conversion rate allows you to set realistic goals for your campaigns and better predict the outcomes of your Google Ads budget.
Conversion Rate on the Website
While the Google Ads conversion rate gives you insights into the effectiveness of your ads, it’s equally important to consider the conversion rate on your website. This metric is particularly relevant if your sales process involves multiple steps, such as filling out a form or scheduling a consultation before making a purchase.
To factor in website conversion rates:
Identify the Sales Funnel:
Map out the steps a visitor must take from landing on your website to completing a purchase or conversion. Each step represents a potential drop-off point, where users might leave without completing the desired action.
Estimate Website Conversion Rate:
The conversion rate on your website will typically be lower than your Google Ads conversion rate, especially if the process involves multiple steps. For example, if 10% of users who click on your ad fill out a consultation form, but only 50% of those who fill out the form end up scheduling a consultation, your overall website conversion rate would be 5%.
Calculate Desired Conversions:
Determine how many conversions you need on your website to make your Google Ads investment worthwhile. This calculation should also consider your closing rate—the percentage of consultations or leads that result in a sale. For instance, if you need to close 1 deals per 5 consultations, and your website conversion rate is 5%, you may need 100 clicks on your ads to achieve that goal.
By understanding the conversion rate on your website, you can better estimate how many clicks and conversions you need to make your Google Ads budget effective.
Cost per Conversion
Cost per conversion is a critical metric that helps you understand the efficiency of your Google Ads campaigns. It represents the average amount you spend to acquire a customer or lead.
To calculate cost per conversion:
Start with Conservative Estimates:
When calculating your cost per conversion, it’s best to use conservative estimates to avoid overspending. Assume a lower conversion rate, such as 1% to 2%, especially if you are new to Google Ads or operating in a highly competitive market.
Calculate the Required Clicks:
Based on your desired number of conversions per day or week, estimate the number of clicks needed. For example, if you aim for 2 conversions per day and estimate a 3% conversion rate, you’ll need around 67 clicks (2 conversions / 0.03 conversion rate) daily.
Set the Budget:
Multiply the required clicks by the average CPC to determine your daily budget. If your average CPC is $2 and you need 67 clicks, your daily budget should be around $134.
Optimize for Efficiency:
As your campaign runs, monitor the cost per conversion and adjust your budget, bidding strategy, or targeting to improve efficiency. Aim to achieve at least 5 to 10 conversions per week to gather enough data for optimization.
Understanding your cost per conversion helps you set a budget that is aligned with your business goals and ensures that you are getting a good return on your Google Ads investment.
Conclusion
Setting a Google Ads budget is a strategic process that involves multiple factors, from understanding CPC to factoring in conversion rates. For small and medium-sized business owners, this process is crucial for ensuring that your investment in Google Ads yields tangible results and contributes to long-term growth.
By following the steps outlined in this essay, you can set a budget that is realistic, data-driven, and aligned with your business goals. This approach not only helps you maximize the effectiveness of your Google Ads campaigns but also ensures that your marketing spend is contributing to sustainable profitability.
Article written by Basar Optimization Inc, a digital marketing agency based in Calgary with offices in Edmonton, Chicago and New York.
Basar Optimization specializes in Search Engine Marketing (Google Adwords, Facebook Ads and LinkedIn ads) and Search Engine Optimization. Click Here to book a free consultation today
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