02 Aug How To Decide An Optimal Google Ads budget
Not sure about an effective Google advertising budget?
Don’t worry, you’re not alone. In fact, one of the most common questions that clients ask here at Growth Accelerators is “How much should be my optimal Google ads budget”.
Google ad (formerly known as Google Adwords) does not limit an advertiser with a minimum or maximum spend. You end up paying only when someone clicks on your ad for the amount that you have already been bidding for, known as cost per click (CPC).
How much you can spend on Google ads depend upon certain factors like:
- Your advertising goal.
- Competition in your industry.
- Search volume for your relevant keywords.
- Target geographies.
That being said, to determine a budget resulting in achieving the desired goals, you need to go through a process. In this post, we shall share the approach you may want to consider while deciding on your Google ads budget for an effective outcome.
1. Set up clear marketing goals :
First and foremost, realize your purpose for doing Google ads. Have a clear roadmap of what you want to accomplish through investing in Google ads.
Your goal could be:
- Boosting brand awareness & Increase website traffic
- Lead generation through Query form submissions, more phone calls
- Achieving given number of Sales/ Customer acquisition
- A certain number of Return on Ad Spend (ROAS)
Determining the goals in advance not only helps in the budget planning process but also gives a clear view of the key performance indicators (KPIs) and further, in optimizing the account to improve overall performance.
The goals may change over time, and accordingly your need to revise your budget. For instance, if you are looking at increasing your leads by 20% of what is current, you need to increase your particular campaign or overall account budget.
2. Determining keywords and their Cost Per Click ( CPC)
Now that you are aware of the end goal, you can move ahead in the budget planning process and initiate keyword research. Use Google’s Keyword Planner Tool to search for relevant keywords and their average CPC.
The average CPC for your chosen keywords will help you figure out the spending that is required to achieve a certain number of clicks to your landing page.
For instance, you have a set of 30 keywords with avg. CPC of INR 20. In case you are looking at 100 clicks per day; you can calculate an estimated budget as follows:
Avg. CPC: INR 20
Number of clicks required per day: 100
Cost spent in a day: Avg. CPC * Number of clicks = 20*100 = INR 2000
Monthly Budget: Days in a month * Cost/day = 30*2000 =INR 60,000
Which means, you need to spend approx. INR 60,000 / month to get 3,000 clicks in a month (100clicks*30days)
3. Analyze The Website Conversion Rate
If your advertising goal is not limited to website traffic, instead its lead generation, then figuring out an estimated ‘click to lead’ conversion rate is a crucial step in determining an optimal budget for your Google ads account.
Google Analytics (GA) for your website can be helpful in knowing more about your conversion rates. Kindly note, analytics provide data through various channels/sources, and each channel will have a different conversion rate. That being said, you could get an averaged out number from your GA data.
In case you don’t have enough data to determine your conversion rate, use 2% to start with. This is an industry average, although this may differ from company to company.
Let’s do some Math for easy understanding:
Est. Conversion rate: 4%
Clicks (From the above example): 3,000
No. of Conversions: (Conversion rate * Clicks) = 4% * 3000 = 120
So, if the ‘120’ conversion number matches up with your goal, the estimated budget of INR 60,000 (as per the above example) would be good to go ahead with.
4. Know Average Revenue per sale
Revenue per sale is simply the amount your customers pay for each purchase. Knowing this is significant to evaluate the efficacy of your estimated budget.
Understand it this way, if on average your business earns INR 3,000 from each conversion/sale, then the cost per conversion of INR 500, would make sense. However, a business with a transaction value of INR 800, would find INR 500 as an expensive conversion cost making Google ads a non-profitable mode of advertising.
It is imperative to know the average transaction value you will end up making with each purchase. This helps you know if you are moving in the right direction or improvements are required and in which performance metrics.
5. Most importantly, Calculating the Return on Ad spends(ROAS)
Undoubtedly this is the most crucial step. Ultimately it’s all about the returns you get on your marketing expenditure and the profits you make out of them.
Let’s look deeper into this with some calculations as shown below. This kind of Math helps in knowing if the budget is optimal and also if there are performance gaps in any of the KPIs.
You run an educational institute providing 3 months diploma courses.
|Monthly Google Ads Budget (Est.)||100,000|
|Avg. Cost per click (CPC)||20|
|Clicks/ Visits to Website||5000|
|Click to lead Conversion rate||5%|
|Number of leads||250|
|Cost per conversion||400|
|Number of admissions||7|
|Lead to sale conversion rate||3%|
|Revenue per admission||20,000|
The above example depicts that though the lead numbers are good but the lead to sales conversion rate is low, which is affecting the ROAS. Hence, there could be primarily two issues that need to be addressed here:
- Quality of leads
- Quality of the sales team
The lead quality could be improved by choosing more relevant keywords, a more informative landing page, and adding validations on the lead form to avoid junk leads.
The working process of the sales team needs to be evaluated along with your product competition analysis based on features, pricing, etc.
Once you start getting better conversion rates, the ROAS numbers would be more profitable, and then accordingly you may increase your budgets to boost the sales numbers.
The bottom Line…
Your spending on Google ads should be well thought of and planned so that you start the campaigns on a solid foundation. That said, learning is a continual process, and you may tend to increase the efficiency of your campaigns over time.
Google ads are an excellent way to boost brand visibility, increase website traffic, conversions and profitability.
Remember, there is no standard budget that you can follow; you need to carve your own path by understanding your goals, conversions rates, competition in the industry, and of course as much your pockets allow you to invest.