How to Determine an AdWords Budget

Kim Kohatsu

6 years ago

How much should I spend on Adwords? (now called Google Ads)

Editor’s Note: As of late July 2018, AdWords is now called Google Ads.

I once prepared a PPC proposal for a hair transplant office in Beverly Hills. In the process of putting it together, it became clear to me that AdWords was not the best channel for this business. “You’re not spending enough for it to work,” I explained to the owner. “So how much should I spend on AdWords?” he asked.

I’ll summarize my answer: The hair transplant industry is so competitive online that the average cost per click, even for long-tail keywords, starts around $15. The client told me his previous agency had managed a monthly spend of about $2,000. At $15/click, that’s only 133 clicks over the course of a month (or only four clicks to his website per day). No wonder no one was calling to set up an appointment. With traffic numbers that low, the campaign never had a chance of working.

I was honest in my proposal and said that the previous budget was grossly inadequate. I recommended a much higher spend. He never called back. That’s okay. Honestly, it’s better.

The truth is, when it comes to paid search, there is a threshold where your money would be better spent elsewhere.

How to determine an AdWords budget: minimum spend

$2,000 is undoubtedly a lot of money. I don’t mean to sound cavalier by saying it’s not enough to spend on AdWords. But in PPC, and really, with any paid channel, you have to spend enough for critical mass. 133 clicks over the course of the month will never achieve critical mass.

So how do you know what’s enough? Well, there’s no hard and fast rule. The truth is every account is different, and in many cases, $2,000 is more than enough for a monthly AdWords budget. The best I can offer are a few general guidelines. Your mileage may vary, and very likely will.

My rule of thumb is to budget enough to garner at least 1,000 clicks per week.

A thousand clicks per week might sound like a lot, but you’re only looking at between 100-150 clicks per day. Great, right? Well, sure that’s great… but remember, those 100 or so people are not as engaged with your business as you are. They won’t spend the same hours poring over your copy and landing pages as you have. Visitors to your website will decide within seconds whether your site meets the needs of what they were searching for.

No matter how much you optimize your website, a proportion of visitors will bounce, usually by hitting the Back button. That’s inevitable, and you have to build that into your budgeting calculation. You pay every time your ad is clicked on, even if users immediately click out of your site.

But don’t despair. That doesn’t mean you should dismiss PPC altogether. A proportion of your visitors will engage with your website, and some proportion of those visitors will take the action you want them to take, such as filling out a form, calling your office, or buying something.

What can I expect?

I used the term “some proportion” above because you never know what percentages you’ll see. Every campaign configuration, website, and competitive landscape is different. I don’t say that to be dodgy or to hedge; I say that because it’s absolutely true. Any PPC manager who tells you differently is bullshitting you.

However, I do use a rough estimation as a starting point:

Assume a 1% conversion rate. I’m not saying that 1% is all you should aim for, or even that 1% is a guaranteed minimum. Neither of these is true. But as a baseline, assume that if 100 people are visiting your website every day, only one of these people will convert (and conversion doesn’t necessarily mean a purchase – it might just be contacting you).

If only one person out of a hundred is going to take an action, you can see why the 133 clicks over the course of a month like the hair transplant example simply won’t have an effect. On second thought, it will have an effect: wasting $2,000 a month.

How to determine an AdWords budget: When the numbers don’t add up

In this example, clicks on long-tail keywords started at $15. So if our goal is to get 1,000 clicks per week, we need to estimate at a minimum $15 per click x 1,000 clicks = $15,000. Of that, we assume 1% of visitors will take action. 1% of 1,000 = 10. So for approximately $15,000, we might realistically expect only 10 phone calls per week. Cost per lead = $1,500.

How much should I spend on AdWords = $15,000 x 4 weeks = $60,000/month.

Again, these are all rough estimates not for the purpose of scaring you off AdWords. Obviously, in working with an experienced PPC professional, you can improve your performance and maximize your budget. But the example illustrates how inadequately this account was funded, and why it was doomed to fail from the outset.

I can’t spend that much. Now what?

It’s okay! My business can’t afford to spend that much either. And remember, clicks in your industry might not be as expensive as this example (or they could be even more expensive – yikes!) When CPCs are that high, the best answer to “how much should I spend on AdWords?” is sometimes “don’t spend money on AdWords.”

When you understand that your marketing dollars may be outmatched in this channel, there are other ways you can put those dollars to work more effectively. Consider display advertising, where CPCs are likely cheaper, social media ads, a creative promotion or giveaway, sponsored content marketing, or other avenues where the barrier to entry isn’t as high. Just make sure you set a realistic budget and goals for those avenues as you just did with PPC.

Of course, if your budget does calculate to something realistic using this formula, then AdWords can be an effective and targeted means to find new customers.