Google Adwords Budget: an Easy Beginners Guide

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Written by: Tom Donohoe
Last updated: June 29, 2018

How much should I spend on Google Adwords?

I get asked this question weekly. Here’s my honest answer:

Spend as much as possible.

This response is always met with a shocked look and “we can’t afford it”.

In this guide, I’ll show you how to set up an ROI-focused Google Adwords budget.And why you shouldn’t restrict your budget at all.

Sounds crazy right?

But I will prove why it’s so effective throughout this guide.





Chapter 1

Google Adwords Budget (how it works)

To run ads on the Google Adwords platform you need to set a daily budget cap.

Now:

For most business owners this is unusual. As budgets are set on a monthly, quarterly or annual basis.

It’s nothing to worry about as with a simple formula (I’ll cover later) you can work out how much you should spend.





How Google Adwords budgets work

The daily budget is the average amount you’d like to spend each day over the course of the month. How much you spend on any given day will change but you’ll never pay more than your monthly charging limit.

You might be wondering:

“What if you change your budget mid-month?”

Well, Adwords won’t exceed your new daily budget multiplied by the remaining days of the month.

Here’s an example:

Let’s say your daily budget is $20, and by June 20th you’ve spent $460. On the same day, you increase the daily budget to $30, the most you’re charge for June will be:

$460 spent so far + ($30/day X 10 days remaining) = $760




Chapter 2

Working out a Basic Google Adwords Budget

Here’s the deal:

Not all businesses can spend an unlimited amount on Google Adwords. If this is the case and you have an allocated amount per month then you can do a simple formula to work out daily spend.

(Monthly budget / Average number of days per month = Your Daily budget)

Once you have your daily budget head to your Google Adwords Campaign and set the budget.





How to set daily budgets on Adwords campaigns:

Setting your daily budgets on campaigns is a simple two-step process. Here’s how you do it:

Step 1: Go to the campaigns tab (1), Settings (2) and then Budget (3).

Creating a Google Adwords account

Step 2: Type in the dollar amount that you want to set.

Creating a Google Adwords account

If you have multiple campaigns set up you will need to divide your budget between each campaign. If you’d like to share the budget between campaigns you can do that using a shared budget.

How to set up a shared budget in Adwords:

Step 1: Click on the spanner (1), Navigate to shared budgets (2) and click.

Creating a Google Adwords account

Step 2: Click on the blue plus symbol (1), give your budget a name (2) and input the your budget amount (3).

Creating a Google Adwords account

Step 3: You can also set your budget delivery settings (1) to standard or accelerated.

Creating a Google Adwords account

Step 4: Add your shared budget to the campaigns you’d like to shared this budget

Creating a Google Adwords account

These are the two ways to easily manage your spend on Google Adwords.




Chapter 3

Setting up an ROI-Focused Google Adwords Budget

If you want to scale your Adwords account then an unrestricted budget may be for you.

This strategy isn’t something that you can start with from the beginning. You will need to collect data for a couple of months. So you can start with the basic budget approach mentioned above.

But want to know the best part?

Once you collect enough data you spend as much as you like and remain profitable.





How to set up an ROI-focused Google Adwords budget

To get an ROI-focused budget working for your business follow these 5 steps:

Step 1: Find out your websites conversion rate:

To find your website conversion rate for each campaign look in your Google Analytics.

You’ll want to go to Acquisition > Adwords > Campaigns. Change the date range to the last 3-6 months. But make sure you have at least 200 clicks for each campaign.

Now export this data into excel and save it for later.

Step 2: Work out your business strike rate

This will depend on your sales funnel. There are 2 common cases here:

Case #1: Your website conversion is a sale, usually in e-commerce. You can skip this step.

Case #2: Your conversion is a website lead and you still haven’t closed a sale yet.

If you’re case #2 then you need to work out your strike rate. For example, if you get 50 leads but you only make 25 sales your strike rate is 50%.

In this case, you’ll need to work out your profitable cost per conversion with this in mind. If you don’t have internal data with these numbers start collecting them immediately.

Step 3: Working out a profitable conversion for your business

Now:

We will work out your cost per conversion target for Adwords. To do this you will need all the costs involved in making a sale.

Here’s the formula if you don’t have to worry about strike rate:

Total sales – (cost of goods sold + operating costs) = net income

For example: $12,000 – ($8,000 + $2,000) = $2,000

In this case, the business would make $2,000 per sale. How much would you be willing to spend on advertising on Google. Possible $500.

If you get website leads but still need to convert them offline the formula is a little different:

(Total sales – (cost of goods sold + operating costs) = net income) * strike rate

For example: ($12,000 – ($8,000 + $2,000) = $2,000) * 0.50 = $1,000

With a strike rate on leads of 50% this business will make $1,000 per sale. And may want to spend less on Adwords.

Step 4: Setting your conversion target

You should now have your target cost per conversion and website conversion rate.

Next:

We need to make sure our bids are set to result in profitable conversions. Here’s how to work it out:

Target cost per conversion * Conversion rate = Max CPC

$500 * 0.05 = $25

In this example, to make a profit, based on a 5% website conversion rate you should pay no more than $25 per click in AdWords.

Step 5: Work it out by campaign

Head back to your Excel file from earlier and repeat the above process for each campaign.

If your campaigns have products that range dramatically it may be worth doing it on an ad group level.

A good way to go about managing your cost per conversion target is to rename the campaign or ad group to reflect it.

Example: Men’s Shoes Campaign – $25 CPA target

This helps you whilst managing your bids.




Chapter 4

Benefits to this approach

Why should you take this approach?

Other than the obvious benefit that you are making profit. There are a few other core benefits of the ROI-focused approach.

And I’ll take you through them below.





There are some benefits to taking this approach to your Google Adwords budget:

  • Scalability: you can grow your business at scale. Predicting the lead volume you get from Adwords each month
  • Optimisation: with a clear cost per conversion target it makes optimisation easier.
  • Accountability: knowing cost per conversion targets can hold your people accountable. Think your employees, advertising agencies or even yourself. And improve your chances of hitting those targets.

Even if you don’t wish to have an unlimited budget it’s still important to go through this process. If your advertising in Google is not measured and profitable you are wasting money.

This approach isn’t guaranteed. Some weeks your cost per conversion will be up and others it will be down. But over a quarter or a year you will see a pretty stable CPA.




Over to you

I’ve revealed my approach to setting a Google Adwords budget, and now it’s your turn.

Take your time with this and get it right from the beginning. You’ll thank yourself later!

If you have any questions, or would like some help working it out for your business. Drop me a comment below and I’d be happy to help you out.



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