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How Much Should You Spend On AdWords?

Finding Your Budget

When I first meet a client to open a new account, they rarely know how much they should budget for their AdWords campaign. Usually, I just say "whatever you feel comfortable with", but others look for a more precise answer. After all, any small business owner will be over conscious about their money, and throwing it at AdWords isn't always the best strategy.

Before we begin, let's learn about a few key concepts:

 

Calculating your Max CPC (maximum cost-per-click)

Your Max CPC is the most you're willing to pay for a click on your ad. If you're not sure what a reasonable amount is, you'll need to do some research and make an educated guess based on your industry. You can also use the AdWords Keyword Planner as a comparison tool. 

Conversion Rate (%)

A conversion rate is the percentage of customers you were able to acquire per ad click.

Profit Per Customer

The profit you stand to make by converting a visitor to your website into a client. 

Profit Margin (Advertising)

The amount by which revenue from sales exceeds costs in a business.

I Need An Example!

Consider this formula: Max CPC = (profit per customer) x (1 – ad profit margin) x (conversion rate)

Let's say that your average profit per customer is $100, that your advertising profit margin is 10% and that out of 500 visitors to your website, you convert 10 into customers. Your conversion rate would then be 2%. 

The calculation would look like this: Your Max CPC = 100 x (1 - 0.10) x 2% = $1.80

 

Remember, stay within your Max CPC!

If your company’s Max CPC is $1.80 and the AdWords Estimated CPC of a keyword is $1.25, then it makes sense to buy that keyword. If the estimated CPC is $3, the campaign will most likely lose money. Simple enough.

Questions or Comments?

Questions about this article or AdWords in general, please feel free to contact us.

Need help managing your Google AdWords account? I offer very affordable rates and quick turn-around. Contact me today.

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