How much should I spend on AdWords?
Building a Google AdWords budget is one of the toughest challenges faced by both new and experienced pay-per-click marketers. Budget planning can feel overwhelming, time-consuming and downright thankless.
But a well-planned budget is an essential part of being successful with AdWords.
During my career as a digital marketing consultant, I have been asked to plan and adjust AdWords budgets on a daily basis. With that frequency, I needed an easy solution that would generate ballpark Google AdWords budgets quickly and accurately. So, I built a budget calculator.
The calculator eventually became known as the “Million Dollar AdWords Tool,” because I followed a similar framework to help clients build million-dollar AdWords campaign strategies in just a few minutes. Today I am sharing my AdWords Budget Calculator with you! You can download the AdWords Budget Calculator for free and use it to plan your budget.
The rest of this post will guide you through the strategy that goes into planning a successful Google AdWords budget and show you how to use the AdWords Budget Calculator.
How much should you spend on Google AdWords?
Some advertisers spend until they hit a monthly quota. Others focus entirely on revenue to guide their spending. My strategy preference has always been to focus on maximizing profit within your desired Google AdWords budget.
To create a profit-driven budget strategy, we need to know some basic data about our business.
Gathering this data can be difficult, but well worth the payoff. This guide will walk you through how to find data for your AdWords budget the easy way. The guide and the budget calculator will also help you find estimates when the data you need isn’t available.
How to plan your Google AdWords budget
Step 1: Gather your organizational data
Budget Estimate – First, you need a baseline budget. Start out with an amount that you’re comfortable with spending each month. Make sure it’s within your company’s expectations as well. You can adjust this number to be more accurate as you gather data from your real-life campaigns after launch.
Average Cost-Per-Click – This is the average amount Google will charge you when one of your ads is clicked on. You can find cost-per-click estimates using the Google Keyword Planner. But be sure to take these estimates as a loose guideline, and feel free to adjust based on historical advertising data you have available.
How to use Google Keyword Planner to find cost-per-click estimates
To obtain estimates in the Keyword Planner input any search term that you might want to advertise on into the “product or service” field. If you haven’t done any keyword research yet, you can enter your website address into the “landing page” field to generate keyword ideas.
Google’s Keyword planner will then return a list of keyword ideas correlated with your search term. You can use the number from the suggested bids column as your cost-per-click estimate. Your actual cost-per-click will vary, so make sure to compare your initial budget to your actual results.
Note: When you start creating ads you will want to go beyond Google’s Keyword Planner to find the best search terms. If you want to learn more about keyword research, our Free PPC Mini-Course includes a lesson on advanced keyword research techniques.
Conversion rate – What is the rate your visitors convert into customers on your website? If you don’t know your conversion rate, use ~1-2% to start. That is the “average” for the web, although most sites convert at a much higher, or lower rate.
Step 2: Enter your data into the AdWords Budget Calculator
This is the fun part!! First, download our Google AdWords Budget Calculator provided below. Then follow along with the rest of this guide.
The grey cells in the spreadsheet are variables you can change to see how the adjustments affect your return on investment (ROI).
Inputting the data you collected in step 1 will provide you with some preliminary projections.
Step 3: Project how online advertising affects your bottom line
To develop a budget that will accurately reflect your return on the money you spend in AdWords you need to include some of your cost and sales data in the Budget Calculator. These values are defined below. Once again, you can use estimates if this data is not readily available to you.
Average deal size is the average amount of your customer’s total purchase.
Product margin is the amount of income you generate above your cost of goods sold. For example, if your cost of goods sold is $1.00 and your product price is $1.50, then your product margin is 50%.
Proposal (quote) given is the rate at which your ads result in a customer being given a price estimate.
Quality leads (connected sales opportunities) is the rate at which leads enter into your sales cycle and connect with one of your sales representatives.
New customer acquired is that rate at which leads turn into paying customers.
Factoring your product costs into your Google AdWords budget
If you are primarily an online seller, then product margin and average deal size will be the most important metrics to focus on in the lower half of the budget calculator. You can fill in the other numbers at 100%.
Evaluate how your sales structure affects your AdWords budget strategy
If you plan on using AdWords to traffic customers to any offline sales channels, then you want to have an idea of how successful you’ll be at converting those leads into customers. Offline sales channels can include follow-up calls or emails made by salespeople after a customer submits information into an online form. These metrics are represented in the budget calculator by connected sales opportunities, quote given, and new customer acquired.
If you sell exclusively online and do not do any lead generation, then all the offline metrics [connected sales opportunities, quote given, new customer acquired] should be marked 100% in the Budget Calculator. Since you’re selling online, the visitors that click through on your ad will either purchase or leave your site. You could also modify this sheet to include details about any lead nurturing funnels you have in place.
With all your data in the calculator, you get a more precise idea of how your costs affect your AdWords budget. You can also start to see where your efforts need to be directed to create a profitable advertising strategy.
Step 4: Use your estimated budget to plan your AdWords strategy
Which areas of your advertising plan or sales strategy do you need to focus on to make your AdWords budget efficient? Improving your website, landing pages, or sales funnel to increase conversion rate is one of the most common ways to make AdWords more profitable.
Targeting low-cost keywords to reduce cost-per-click can also have a big impact on your ROI.
If you’re in a low traffic market, you may need to increase the price of your product, or decrease cost, to make your ad campaigns profitable.
There are many adjustments that you can make both on and offline to increase the effectiveness of your advertising. The AdWords Budget Calculator can be used to focus your PPC strategy, and help you make the most efficient changes.
The key to finding the most effective AdWords budget formula is to start out small and test your optimizations
As you make adjustments to your AdWords marketing strategy, you can input your data back into the calculator and measure the impact on your ROI. Once your strategy starts to become effective, you can ramp up spending to increase the amount of profit your ads are generating.
Now that you know the how to develop a data-driven Google AdWords budget, we can answer the initial question.
How much should you spend on AdWords?
You should spend… Enough to test the optimizations you need to make to your advertising, sales funnel, or product offering. Then, after you’ve found the right formula spend as much as you want, as long as it continues to be profitable!
You can use the Google AdWords Budget Calculator to keep your advertising strategy on-track as changes happen over time.
In PPC Mastery Course, we provide all our students with our advanced AdWords Budget Planning Tool as a bonus. The advanced tool includes my AdWords lead generation model.
Want to check it out?
Have additional AdWords budget questions. Post a comment below!