How To Determine your Adwords Budget

Calculating how much budget you should be spending on Adwords can be daunting. Usually, when businesses hear the words ‘Adwords budget’ they think, “high cost”. This doesn’t have to be the case. The reality is, you can create a successful Adwords campaign on a modest budget.

When determining your AdWords budget there are a few key metrics to consider:

  • Your goals for Adwords traffic
  • The CPC (cost per click) for your keywords
  • Your business KPIs

Your Adwords goal

There are many different goals that can be set up for an Adwords campaign.

Your goals could include driving traffic to your website, receiving phone calls, capturing leads, a purchase, an email enquiry or simply awareness. These goals will help you to determine how much money you are happy to spend on an average CPC.

For instance, if you are looking to convert a lead which will bring in $1,000, and your conversion rate is 10%, you may be happy to spend an average of $10 per click to pay an average of $100 for a converted lead.

If your goal is to create awareness, you will be focusing on impressions of your ad. So if it costs $10 to be the top result of an ad, and $5 to appear in the top 3, you will opt for spending an average CPC of $5 rather than $10, as you are looking to increase impressions (the number of times your ad is shown)

As an Adwords budget is typically set out on a month to month basis, it provides you with the flexibility to higher or lower your budget based on the performance of your previous month.

The CPC (cost per click) for your keywords

Your Adwords budget will be highly reliant on the CPC of your keywords. Determining the cost per click for a keyword can be determined using this simple formula: CPC = Total Costs / Total Clicks.

The cost of a keyword is dependent on different variables including competition for that keyword, the relevancy of that keyword to your ad, the relevancy of that keyword to your landing page and your quality score.

If you have a flexible budget, then you should aim to choose the highest quality keywords for your goal and create a conversion ratio as mentioned in the Adwords goal topic. If you do not have room in your budget, then you may need to set a cap for your CPC at your maximum budget and decide on keywords at or below that range.

To give you a better idea of how much you can expect to pay, Wordstream has created an average CPC by industry (for 2018).

adwords-industry-benchmarks-average-ctr

As well as the average conversion rate by industry.

adwords-industry-benchmarks-average-conversion-rate

Your business KPIs

Your business KPIs play a major role in determining your Adwords budget. If you are chasing a sales target then you may need to increase your Adwords budget, if you’re looking for more email sign-ups you may need to tweak your keyword targeting instead.

Some typical KPIs include:

  • Impressions – Every time your ad is displayed it’s considered an “impression.”
  • Click-through rates (CTR) – Measures how often your ads are actually clicked.
  • Conversion rates – This measures actions taken after someone has clicked your ad and landed on your site (did they fill out your form, etc.).
  • Cost per conversion – This shows you the average amount of money you spend on PPC for every conversion earned.
  • Average position – Average position is an indication of where your ads fall when they’re triggered and how much traffic each location receives.
  • Quality score – Quality score is an expression of how reliable your company is at showing relevant content in your ads (low scores pay more).

By understanding which KPIs are more important to your business, you will be able to better budget your spend.

So, what’s my budget?

At the end of the day, there is no real formula for knowing what your exact Adwords budget should be. It is important to monitor your ads on a regular basis to understand what keywords are and aren’t working for you and to note any opportunities that you may be missing.

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