The Google Ads Budget Formula and a Metric to Help You Beat Your Competitors
Google Ads have helped many businesses thrive because of their power in generating leads and sales. The problem is that this power can be difficult to navigate, which has left some businesses on the sidelines wondering why they didn’t see results.
The topic of how much to spend is one that is tossed around among users and professionals, alike. The answer depends on how well you run your ad campaigns.
Budget for New Google Ads Campaigns
When you first use Google Ads, limit your budget. At this point, you do not know which keywords, ads or landing pages will be most effective, so you need to test different strategies. Because some of the money will be lost, you don’t want to waste too much.
The goal during this stage isn't to make a huge profit. It’s to either make a small profit, break even or only lose some money. Your mindset should be that you’re investing in market research for a much more successful future with Google Ads.
Limiting your budget is a bit arbitrary. Simple math can give you a concrete amount for a budget.
Multiply the estimated cost per click of each keyword you want to test by a minimum of 100 to 200 clicks. This will ensure you're giving each keyword a fair test. For instance, if you are testing 10 keywords with a cost per click of $1, you should consider having a budget of $1,000 to $2,000.
Growing Out of the Budget
You will know when you’re out of the testing phase when profits exceed your budget. This is the sign that tells you to abandon the budget.
Yes, you read that right — no budget.
It’s not about how much you spend on Google Ads — it’s about how much return on investment (ROI) you’re get from it.
Think about it for a minute. If you’re making $2, $3 or $4 off a $1 investment, why would you want to cap that? That’s success right there, and you might as well run with it.
Switching From CPC to EPC
Too many people focus on the cost per click of their keywords when they really should be paying attention to their earnings per click (EPC). If you have the highest earnings per click vs. your competitors, then you know you can outbid them to gain more clicks, more leads and more customers.
So, how do you calculate your EPC? All you have to do is multiply your conversion rate (the percentage of people who become paying customers) by your customer value (the amount of money you earn from that customer).
To understand this better, let’s say one customer generates $500 for you. If your conversion rate is 1%, then your earnings per click is $5. This is your golden number. Keywords with a CPC less than $5 will be profitable if your conversion rate remains 1%.
With this in mind, it's important to note that increasing your EPC is the best way to compete in Google Ads.
The cost per click for your target keywords is not likely going to go down ... In fact, there's a good chance you'll need to pay more per click in the coming months and years. That means your EPC is your biggest competitive advantage.
You know that spending a lot of money on Google Ads isn’t what produces results. Ad campaigns need to be run effectively and a budget needs to be used in a way that helps identify what works best in your market. Once that information reveals itself, removing the budget (if possible) and focusing on ROI is the best decision, moving forward.
And remember, the business with the highest EPC has the advantage in Google Ads.
Want more tips to improve your Google Ads campaigns? Click here to grab a copy of our "Ultimate Google Ads Checklist."
Phil is Founder and COO of Main Street ROI. Phil leads the company’s operations and is primary creator of Main Street ROI’s marketing training programs. He is an expert in search engine marketing, website analytics, and sales funnel optimization. Phil’s marketing thought leadership has been published on Forbes.com, Inc.com, MSN.com, and many other major business media outlets.
Phil earned his Master of Engineering Management degree from Thayer School of Engineering and Tuck School of Business and his Bachelor of Arts and Bachelor of Engineering degrees from Dartmouth College. While attending Dartmouth, Phil started every game on the varsity football team as the defensive safety.