Determining your Google Ads budget can be challenging, especially if you’re new to pay-per-click (PPC) advertising or lack prior data to base your forecasts on. To see a return on your investment in Google Ads, you need to invest a sufficient amount to gain adequate data but how much is sufficient? What factors should influence your spending?
This comprehensive guide will provide you with a clear understanding of how to calculate your Google Ads budget, along with practical formulas and examples.
Before diving into calculations, it’s essential to grasp the concept of a Google Ads budget. In essence, your budget is the amount you’re willing to spend on a daily or monthly basis for your Google Ads campaigns. This budget controls how often your ads appear and how much you’re charged for clicks.
Google Ads operates on a daily budget system at the campaign level. That means even after you’ve figured out your budget spend, you need to allocate individual budgets to your campaigns.
You set an average daily budget on each campaign, and Google ensures that your monthly spending doesn’t exceed 30.4 times your average daily budget.
However, it’s important to note that Google allows for some flexibility. On some days, your actual spend might be slightly higher or lower than your daily budget, but your overall monthly spending will remain within the limits.
In addition to individual campaign budgets, Google Ads also offers shared budgets. With a shared budget, you can allocate a single budget across multiple campaigns. This can be beneficial for managing spending across related campaigns or for testing different campaign strategies without exceeding an overall budget limit.
There are several approaches to determining your Google Ads budget and different marketers and businesses have unique ways of calculating budgets. Marketers usually track budget calculations on a strategy template that is shared across the team. Here are some of the most effective methods:
A simple way to calculate your Google Ads budget is to allocate a percentage of your revenue to advertising. This method is particularly useful for established businesses with stable sales. The percentage you allocate will depend on your business goals and growth stage:
Maintaining Current Sales:
If your business is stable and you’re aiming to maintain current sales levels, allocate around 5% or less of your revenue to advertising.
For a small business with monthly sales of $20,000 or less, a modest budget of under $1,000 per month for Google Ads is a reasonable starting point
Steady Growth Mode:
If you’re seeking consistent year-over-year growth, invest between 5% and 15% of your sales in advertising.
For instance, if your monthly sales are $50,000, your Google Ads budget could range from $2,500 to $7,500
Aggressive Growth Mode:
For new businesses or those aiming for rapid expansion, invest around 20% or more of your projected sales in advertising.
Don’t wait for sales to materialize before investing in ads; be proactive from the outset.
For example, a local plumber with monthly revenue of $10,000 might allocate $500 (5% of revenue) to their Google Ads budget to maintain their current customer base. On the other hand, a new online clothing store aiming for rapid growth might invest $4,000 (20% of projected revenue) in Google Ads to quickly gain market share.
If you have specific sales targets, you can calculate your budget based on your desired outcomes. Here’s how:
This method ensures that your budget is directly tied to achieving tangible business outcomes.
Researching your competitors’ spending can provide valuable insights into industry benchmarks. While it’s not always easy to obtain precise figures, tools like SEMrush and SpyFu can offer estimates of your competitors’ ad spending. This information can help you gauge a competitive budget for your campaigns.
However, it’s important to remember that your budget should be determined by your own business goals and resources, not solely by what your competitors are doing.
You can also use a simple formula to calculate your Google Ads budget if you have a strict budget based on your desired daily or monthly spending:
Daily Budget = Monthly Budget / 30.4 7
Monthly Budget = Estimated Daily Budget x 30.4 7
For example, if you have a monthly budget of $1,000, your daily budget would be $32.89 ($1,000 / 30.4). Conversely, if you want to spend $50 per day, your monthly budget would be $1,520 ($50 x 30.4).
To refine your budget calculation, you can use Google Keyword Planner to estimate the average cost-per-click (CPC) for your target keywords. This tool provides insights into the competitiveness and cost of your desired keywords, allowing you to adjust your budget accordingly.
It’s important to consider the average value of each sale when determining your Google Ads budget. If your average sale is $100, you can afford to spend more to acquire a customer than if your average sale is $10. This will help you ensure that your advertising spend is generating a positive return on investment.
Once you’ve determined your Google Ads budget, you can set it up in your Google Ads account by following these steps
Your choice of bidding strategy can significantly impact your budget and overall campaign performance.
Manual bidding gives you complete control over your maximum cost-per-click (CPC) bids. You can set different bids for each ad group, keyword, or placement. This approach allows you to fine-tune your spending based on the performance of specific elements within your campaign.
On manual CPC, you have more control in allocating a budget at the campaign level and then tweaking CPC bids at the keyword level to move budget to high performing keywords.
Automated bidding strategies leverage machine learning to optimize your bids for conversions or conversion value. Google’s Smart Bidding strategies, such as Target CPA, Target ROAS, and Maximize Conversions, automatically adjust your bids in real-time to achieve your desired outcomes.
Budget allocation must be closely monitored since you don’t have control into which keywords receive more budget. The bid strategy will optimize towards you conversion objective within your target constraints and you won’t be able to spend more on a keyword as bidding is automated.
Google Ads also offers a “budget bid strategy” that automatically optimizes spending towards key metrics you’ve chosen for a plan. This strategy can make changes to individual campaign budgets, bids, and bid adjustments to help you achieve your desired outcomes.
Determining the optimal Google Ads budget for your business can feel like navigating a maze, but by understanding the key factors and strategies can help you can make informed decisions that drive results.
The core message here is simple: spend wisely, not necessarily more. Don’t fall into the trap of thinking that throwing excessive amounts of money at Google Ads will automatically guarantee success. Instead, focus on aligning your budget with your specific objectives, continuously monitoring your campaigns, and making data-driven adjustments.
Start optimizing your Google Ads budget today! Experiment, analyze, and refine your strategy to maximize your return on investment. And if you need expert assistance, don’t hesitate to check out our Google Ads Lead Generation Course which covers budgets in more detail.
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