Google Ads Cost, How Much Should You Budget?

One of the main questions I get asked when first discussing marketing via Google Ads (PPC advertising) is ‘how much should I spend on ads?’. Now, of course, this is a totally valid and important question when discussing paid advertising but the answer can often be initially hard to pinpoint as it is driven by data collected from various metrics such as the average cost per click, relevant keywords, cost per acquisition, lifetime value of sales and available paid search volumes.

Just work out how much you want to spend per click, easy right?

Ok bear with me here, I want to break down an example of how a typical ad campaign could work, imagine you had a monthly ad budget of $3,000 and were paying a PPC management fee of $1,100. Say the average cost per click is $25 and you average a sale every 30 clicks at an average value of $2,000. You would have spent $4,100 and made 5 sales with a $10,000 return on investment. Happy days, right? 

Well maybe, you would have spent $4,100 and brought in $10,000 but if the profit margin on a sale is 40% then your gross profits was $4,000 but you spent $4,100 so lost $100 or did you? Well if those clients had a lifetime value to your business of 5x you actually now created a projected income from that month of $20,000.

The above example is designed to shine a little light on how complicated it can be to work out the correct Google Ads budget. Sometimes it is easy as there is a lot of profit on each sale so once you work an achievable and profitable cost per acquisition (CPA) you could potentially have a limitless budget as if every time you spent $1,000 you get back $2,000 why not do that as often as possible.

How to find your cost per acquisition (CPA)

Whether you already have a rough CPA in mind or you have no clue how much you should expect to pay. When starting a Google Ads campaign (previously called an AdWords campaign) you should think of it as a blank slate.

Finding your cost per acquisition (CPA) can be a bit of a process when you’re first starting out. I would recommend starting with an automated bidding strategy like ‘maximise conversions‘ where the main goal of this type of bidding strategy is to get conversions.

Once you have taken the campaign live I would wait at least 2 weeks to let the campaign run and do its thing before making any major optimisations (like changing budgets, removing a specific keyword, adding a longtail keyword etc). The biggest thing here is we don’t want to disturb the A.I from learning and want to give your campaign as much time as possible to optimise.

Keep an eye on your conversions coming through and you should start to see a trend on how much it’s costing for each one and how you may be able to reduce your cost. At a minimum, I would wait for at least 10-15 conversions to come through before you know how much it is costing you for a conversion.

From here you can then look to put your campaign on a more controlled bidding strategy like target cost per acquisition (TCPA) where we can now set your CPA from your prior learnings. This strategy is great because Google will now optimise the ad performance to meet the CPA that you set. 

Optimisation tactics to increase the click-through rate (CPC)

When optimising to increase click-through-rate there are a couple of things you can do to help ensure you get as many users to click on your ads as possible.

First, relevancy. Think back to search queries you have performed on Google and you’ve seen an ad that enticed you to click it. When creating ads make sure the keywords you’re targeting are within the ad copy. Ideally, you want to insert your targeted keywords in the headline along with the description but use your discretion here.  

Secondly, don’t be afraid to get creative. For the best ad performance, you need to stand out from your competitors. If your ads are dull and boring this will, of course, reduce your chances of being clicked. In your ad be sure to use your USP’s (unique selling propositions) in the headline along with special offers or even ask questions. It’s all about getting the user interested enough to click your ad over all the others on the page.

Lastly, use as many ad extensions as possible. Ad extensions have proven to help increase clickthrough rate as they add extra relevant content to your ads. You have plenty of different types of extensions at your disposal like site link, call-out, call extensions… the list goes on. Have a play around and see what works best for your business.

Can your monthly budget scale? 

In short, yes. But you have to be careful at the same time as it could blow out your results.

What you’ll often find when you’re trying to scale your budgets is that your CPA’s (cost-per-acquisition) and your average CPC (cost-per-click) will tend to blow out and get higher. 

This happens because Google initially optimised to get you conversions and clicks at a smaller daily budget. By increasing this it generally means you’ll be paying more per click as your campaigns will need to go after more expensive terms and positions which will also potentially start to target people higher up the funnel. 

A better way to do this is to initially opt for a more controlled bidding strategy which allows you to set how much you’re spending per click. Using a bid strategy like ‘maximise clicks’ (with a bid cap) or ‘manual CPC’ with your bids limited to the maximum bid you want to spend.

Now you’ll be able to increase budgets without the worry of the average CPC or CPA’s blowing out so much.

Down the track, it’s a good idea to get your campaign onto a fully automated bid strategy like TCPA (target cost-per-acquisition) or maximise conversions where you’ll be able to reap the added extra benefits like user signals and A.I that Google has to offer.