What budget do I need for AdWords?
23rd Dec 2015

What budget do I need for AdWords?

How to plan your AdWords budget for the best chance of profitable advertising.

One of the earliest questions we’re asked by new customers is: “What budget do I need for AdWords?”

The answer to that question can often take a little while to gauge. That’s because:

  1. some business sectors are more competitive, and therefore more expensive than others (for example, the cost per click for car insurance, personal injury claims and loans is very expensive compared to more niche markets)
  2. do you want to dominate the paid search results with a bigger budget to maximise clicks, or are you happy to get a smaller slice of the market share?
  3. there’s always a testing and optimising period at the start of any new campaign to figure out what’s working and what’s not, and how much you should realistically expect (or can afford) to bid for keywords. 

A new campaign is rarely profitable right from the start, so look on your initial outlay as a test budget, and think of your first few weeks as market research. Hopefully, you'll reach a point of profitability very quickly, but this does usually take some careful work in the beginning. 

So what should your test budget be?

Let’s do the basics.

  1. How many keywords will you be bidding on? I recommend you start small and expand gradually, especially if you’re new to managing AdWords.
  2. Multiply the number of keywords by the cost per click (CPC). You can use Google’s Keyword Planner for a rough idea what your CPC might be, but this is notoriously unreliable because there are so many factors which determine what you pay. You may not get a reliable idea of the CPC until your campaign begins.
  3. Allow for at least 100 to 200 clicks per keyword for statistically relevant data worth analysing.

Budget examples:

20 keywords x £0.50 CPC x 100 clicks = £1,000 budget or

20 keywords x £0.50 CPC x 200 clicks = £2,000 budget

Your test budget might last a week or a month; it largely depends on how much search volume there is for your keywords, how often your adverts appear and whether they get many clicks.

Optimising during the testing phase

As the testing and optimising phase of your AdWords campaign rolls on, you can embark on a profitability drive. Which keywords, adverts and landing pages are winners and which are losers? Ditch the losers (you can improve landing pages rather than starting again), and make sure the winners are as good as they can be, leaving your campaign lean, mean and profitable.

AdWords conversion chart

This all sounds very simplistic but of course your AdWords optimising phase will involve a great number of management tasks.  Ideally you’ll have some kind of tracking or goal measurement in place so you can track progress. Eventually, when your test budget is spent or you have enough data to make some decisions, you’ll get to a point when you’ll either say:

“I’ve tried everything I can reasonably try, but I can’t make a good enough ROI from AdWords.”

Or

“AdWords is working for me. I’m getting some good leads/making a decent profit!”

Top reasons AdWords might not be working for you

  • You're bidding on too many keywords – a daily budget of £10 isn’t going to work if you’re bidding on 200 keywords (unless the CPC is under £0.05, and even then they might only get 1 click per day).
  • Your budget is too low – your adverts will only show a fraction of the times they might have done with a bigger budget
  • Maximum CPC is too low – you might be “testing the water” with your first AdWords campaign, but you should be realistic. If you’re bidding £0.10 on a keyword that your competitors are prepared to pay £0.60 for, your adverts won’t show and AdWords won’t work for you.
  • Your profit margins are too low. If the cost of each AdWords conversion bites too deep into your profit margins, AdWords might not be a good platform for you.
  • Your campaign isn’t well optimised. If you can’t achieve good Quality Scores and Ad Rank, AdWords won’t be as profitable for your business.

After the initial testing and optimising phase, Kontrolit will always tell a customer if they think it’s worth carrying on. And we’re always up-front if we think AdWords isn’t working for them.

And if you’re making a profit with AdWords..?

Goose sitting on golden eggLet’s go back to your original question about how much your AdWords budget should be. If your return on investment is positive, why would you cap your budget?

Invest more in AdWords if it’s showing a healthy profit! Here are a few ideas to expand your AdWords advertising.

  1. Look at the column headed Search Lost Impression Share (Budget) in your AdWords admin panel (at campaign level). If it shows a low percentage, there’s scope to increase your budget to capture more impressions.
  2. If you started your campaign advertising on a small area of your business, give yourself a new test budget to advertise a different set of products or a new service, then set out on a new phase of testing and optimising.
  3. Try a different type of AdWords advertising. For example, if you’re running a Shopping Campaign, try running a text ad campaign for your highest converting products. And vice versa if you’re already running text ads. Or create remarketing lists to target adverts at visitors who have previously visited your website, or who have signed up for your mailing list.

Change your focus

Advertisers who are able to focus more on ROI than a fixed monthly budget are far more likely to find AdWords a worthwhile investment.

None of us has an unlimited bank roll, but controlling your budget too tightly can have the opposite effect to the one you desire. Spend enough to make sure your adverts appear often enough, and in good enough positions to get some clicks.  Optimise your campaign thoroughly to push it towards profitability. Then make decisions about what you should spend.

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