Determining the Right Budget for Your AdWords Campaign

Google defines “budget” as “An estimated amount for your daily budget that would likely allow your ads to appear more often for your current set of keywords.” That’s a lot of pressure to determine the right budget! See, “your recommended budget estimates what amount is needed to accommodate the number of clicks that your ads could receive in a day, based on how much traffic is available for your current keywords.” Clear as mud, right?

Google AdWords is a big deal in today’s marketing age, but we understand that it’s intimidating to a lot of businesses. To remedy this, we’re going to walk you through determining the right budget for your AdWords campaign. It’s going to be an in-depth look at the best strategies for budgeting, so grab your coffee and your pen – you’ll probably want to take a few notes. Let’s get into it!

Determining the Right Budget for Your AdWords Campaign

Setting Goals 

The first task of determining the right budget for your AdWords campaign really has nothing to do with the AdWords platform at all. Instead, you first need to determine your goals.

Surprised? Probably not, since we stress this all. the. time. Don’t set out on any marketing campaign without first establishing your goals for the endeavor. It’s no different with an AdWords campaign.

WordStream advises that you ask four key questions before determining your AdWords budget:

1. How does AdWords fit into my current marketing strategy?
2. What (and where) are my competitors spending?
3. How much are the CPCs (cost per click) for the keywords I’m bidding on?
4. Which KPI (key performance indicator) matters most to me?

Let’s break those down.

#1. How does AdWords fit into my current marketing strategy?

How will this AdWords campaign function with the other facets of your marketing? Will it co-exist with them, or do you intend to use AdWords to reduce other marketing efforts?

#2. What (and where) are my competitors spending?

Here’s where you can (finally) head to AdWords. Go to Keyword Planner and type in your best guesses as to what keywords your competitors are using. Where are your competitors spending their AdWords budgets? And, find gaps by finding out where they are not spending their budgets. (If you’re new to Keyword Planner, check out this quick tutorial from Google first.)

#3. How much are the CPCs (cost per click) for the keywords I’m bidding on?

Then, use Keyword Planner to determine the cost per click for the keywords you’re considering. Keyword Planner helps you to not only research the best keywords to use, but to also learn historical statistics and traffic forecasts. While cost per click is not the only measurement you’ll use to determine the keywords and budget to set in place, it’s a good starting spot.

#4. Which KPI (key performance indicator) matters most to me?

Are you familiar with KPIs? They’re great, because they allow your business to set the measurements that matter most to you. For instance, perhaps your company doesn’t actually care all that much about CPC. Maybe your company cares more about cost per acquisition. Or, maybe your company is truly concerned about EPC, earnings per click (more on that later). Whatever KPI you choose to measure, make the decision after much contemplation and logical discussion with various members of your internal team.

Determining Spend per Type of Campaign

Let’s speak in general terms: there’s five different categories of AdWords search campaigns. There’s research, branded, competitor, high intent and top performers. We’ll go into detail on each of them now.

Research keywords

Think of these as the top-of-the-funnel keywords you’re probably already familiar with. For example, “lawyer” or “attorney.” These are highly competitive keywords and usually expensive. For the most part, these keywords aren’t worth it. (However, they do have their time and place. That topic, however, is for another blog.)

Branded keywords

You see branded keywords when you search “Target” in Google and an ad for Target pops up ahead of its organic listing. For many businesses, these keywords are important because, otherwise, their competitors will take them. For instance, one day you might search “Target,” but paid ads for Meijer, Wal-Mart and Trader Joe’s show up first. That’s not good for Target’s business. Snatching up those branded keywords helps to keep those competitors from riffing off your site traffic.

Competitor keywords

These are just like it sounds – competitor keywords work to steal your competitors’ site traffic (just like you yourself were preventing above). Before going crazy on competitor keywords, though, choose the right competitors. Choose competitors that you can beat out in terms of pricing, quality, service or whatever it is that differentiates your business.

High-intent keywords

High-intent keywords are the exact opposite of research keywords. They’re the sweet spot, not costing too much and usually leading to an immediate sale. That’s because they usually target words like “affordable,” “best,” “review,” “top,” and etc. You’re capitalizing on the searcher who is just about ready to make a sale. Then, voilà! Your ad shows up. As you can imagine, with testing and review, you can turn high-intent keywords into major traffic-bringers to your website.

Top performing keywords

These are the keywords that consistently show up on searchers’ screens. Before making assessments of your keywords, though, make sure to run your ads for at least 30 days. You’ll soon see which keywords are performing the best and which ones need to be removed.

Pay special attention to the ads that show consistently but don’t have the corresponding number of clicks. These ads are an opportunity to improve your ad copy, tweak your landing pages, etc. If, after all these improvements, you’re still not seeing an improvement in clicks, then these keywords, too, need to be removed.

A Word on Display Ads & Remarketing

I don’t want to spend too much time on this subject, as, at this point, you’re anxious to have a final answer on what your budget should be on AdWords. Hear me out: though most AdWords budgets focus on search advertising, it’s also worthwhile to consider display ads and remarketing.

Google Display Network

When you think Google Display Network, think billboards. Think ads in a magazine. It’s essentially traditional marketing, but with better targeting and analytics. Google Display ads serve a purpose in the right time and place. Many times, businesses are scared off from Google Display Network because there’s not usually a direct ROI. Conversions don’t usually happen on display ads. However, when you target specific websites or people with browsing history that makes sense for your industry, display ads can replace the Research keywords we mentioned earlier. Use Google Display ads to catch your top-funnel people while simultaneously saving your search ads for qualified prospects.

Remarketing

Remarketing ads are a fantastic way to capitalize on people who have already visited your site, but weren’t quite ready to pull the trigger. The goal with remarketing ads is to bring the same people back to your site over and over again until they finally convert. And, really, isn’t that how most people buy? People who truly impulse buy are few and far between. Most, especially when doing internet research, visit a site multiple times before finally purchasing. When you use remarketing ads, you ensure that, in between visits to your site, your lead doesn’t forget about you.

Percentages of your AdWords Budget

Now that we’ve talked about the many different types of ads to choose from and the types of keywords to target, let’s move on to what percentage of spend each type should receive. As you’ve probably already figured out, spending a large portion of your budget on research keywords or display ads is generally inadvisable. Instead, focus at least half of your budget on top performance and high-intent ads. Competitor ads and branded ads should have a piece of the pie, too – figure about 25-45% of your budget for the two combined. The exact breakdown is up to your and your audience and your goals. Case in point: if your branded ads bring in the highest conversion rates month after month, allocate more resources for them!

You’re not going to know how your ads perform until they’re out there in the open. That’s why it’s so very important to continually assess your ads. You can’t “set it and forget it.” In fact, you should really be adjusting your budget on a weekly basis to make sure you’re getting the highest possible return from your ads.

Best Practices for an AdWords Budget

If you’re still with us, you already have a good idea of how your AdWords budget should be shaping up. Here’s final tips and best practices for your AdWords budgeting.

Start with a test budget. 

This tip is easy to overlook, but important that you don’t. Don’t start with large budget – you might just be throwing money down the drain. After you have some data to back up your hypotheses on which keywords will perform for you, move past the test budget.

Determine your test budget with this simple equation: # of keywords you want to test x cost per click (as indicated by Google) x 100 (and up to 200). Let’s say you’re testing 5 keywords and they each cost $1.00. Your budget for this testing phase would be $500-$1,000., and that’s because you should have 100-200 clicks on a keyword to determine its performance. As you test each keyword, you’ll learn which ones to use, which ones to drop and which ones to fine-tune.

Focus on ROI

It’s easy to get caught up in the cost of AdWords. Really, though, you should be focusing on your return. Think about the true goal of AdWords campaigns: conversions that make your company money. If your ads aren’t making your company money, you’re doing something wrong. In actuality, your ads should be bringing in x amount to every dollar you spend. When that’s the case, don’t cap your AdWords budget. What??! Yes, you read that right. Don’t cap your AdWords budget. Sure, sure – you only have a specific budget to spend. But, think about it: done correctly, your AdWords campaigns are making your company money. As long as they’re doing that, why would you want to slow down (or stop) how much your company is making?

Focus on Earning per Click (EPC)

This last tip is directly related to the one before it. Focusing on earnings per click, rather than a measurement like cost per click, helps your business to figure out the true ROI. Main Street ROI gives this equation for determining EPC:  Customer Value X Conversion Rate. If each new customer earns your company $500 (take the average) and you have a 2% conversion rate, then your EPC is $10. That means that you can bid on keywords with a cost per click of anything under $10 and still be making money.

Final Thoughts

If there’s one takeaway from this blog it’s this: determining the right budget for your AdWords campaign is not a guessing game. It’s rooted in hypotheses, in testing and in analysis. To determine the right AdWords budget for your company, always be testing. Don’t get comfortable with the performance of your keywords. Always strive for better. Over time, you’ll turn your keywords and your their corresponding AdWords campaigns into major money-makers for your business.