Learn How to Set Your AdWords Campaign Budget

AdWords budget

Learn how to set your AdWords budget to get the maximum out of your campaigns.

One of the most confusing questions during the initial AdWords campaign set up is how to set up your campaign budget. And the usual simple answer is – the amount you would like to spend each day for advertising. But selecting an AdWords campaign budget is a more complex task than normally people think.

Your campaign budget has a big influence on the success of your AdWords campaigns as it directly influences the exposure of your ads and the number of clicks it receives.

What will be an ideal budget to start an AdWords campaign?

I would like to put a word of caution here first. AdWords is a very complicated advertising platform. So do not start spending heavily on your first AdWords campaigns without assessing the suitability of AdWords for your business. Usually new advertisers tend to start with small budget campaigns and then increase the budget after analyzing the results.  So I am not touching the dangers of high spending during the initial stages of a new AdWords campaign here.

When someone starts their AdWords campaign as a new advertiser there are few thoughts that influence budget allocation.

  1. I am new to AdWords, I am trying to find how effective it is for my business as an advertising platform.
  2. I don’t want to spend a lot of money initially. I want to test first, and I will increase my budget if AdWords is profitable for my business.
  3. I have this limited budget for advertising, I cannot spend more on AdWords at this stage.

All these arguments/thoughts are completely valid. It will be foolish if you spend huge amount of money without finding how beneficial AdWords is for your business.

But at the same time starting your AdWords campaign with unrealistically low budget will also be a huge mistake. There are few important factors that you should consider before deciding your AdWords campaign budget.

Your AdWords budget will influence two most important aspects of your AdWords advertising campaigns.

  1. How often your ad is displayed when someone searches with your selected keywords (Impressions).
  2. The number of clicks (visits) you will get based on your average cost per click (CPC).

Impressions

AdWords provides two ad delivery options for each account.

Standard delivery – This is the default ad delivery option. With this option selected, the AdWords system will try to show your ads throughout the day. But if your budget is low, the system will achieve this objective by showing your ads occasionally. Because if your ads are shown every time when someone searches with your selected keywords, there are chances that your ads will get clicks early in the day and your budget will be exhausted, stopping your ads from appearing for rest of the day.

Accelerated delivery – The system will try to show your ads more quickly till your budget is reached. Here again if your campaign budget is low, it will be depleted earlier in the day, preventing it from appearing for the rest of the day.

And what if your customers are more active during the later parts of the day, when your ads are not appearing?

This will be a huge problem if your customers tend to research longer before making the purchase decision. Your ads will accumulate click cost during their initial research phase, but you will miss out on conversions as your ads will not be visible when they search later in the day with the intention of buying.

Clicks

You must analyze how many clicks you can buy with your proposed daily budget.

Every click in AdWords comes with a cost, which is called as CPC (cost per click). And there is certain number of clicks that you can buy with a specific budget. Let’s do some math

Your monthly budget for AdWords is $900

So your daily budget is 900 divided by 30 (no of days in a month) = $30/Day

Now assume that the average cost per click (CPC) in the industry segment that you want to advertise is $2 per click.

Now with your daily budget of $30 you will get an average 15 clicks per day ($30/$2)

Now assume your conversion rate (number of people purchase a product from you or give you a lead) is 10%, then you will get a maximum of 2 leads/sales per day.

2 leads or sales for $30 spend is a reasonable return, isn’t it?

But things are not ideal as explained above

10% conversion rate is not usual. On average advertisers get maximum 2% to 5% conversion rate. There are industries where average conversion rate is even lower than 1%. So in the above example think your conversion rate dropped to 5%. There are chances that you may not even get a single conversion for some days!

With a low budget once you receive a few clicks, your ads can’t afford to get clicks from top positions (cost per click will be high on top ad spots) any more. An option here is reducing your bids and showing ads at lower positions on the page among search results. This position change can be detrimental for your AdWords campaign as usually click through rate (CTR) are very low on lower ad positions. Low CTR will reduce your quality score, which will further increase your average cost per click (CPC).

The Effect of low budget on Data Accuracy

Your ads will not display every time when a potential customer searches, if your daily campaign daily budget is too low. You are going to miss a lot of potential clicks because of this. This will make it impossible to accurately measure your AdWords campaign potential. You will not get accurate data as your sample size (impressions, clicks or conversions) will be very small.

And there are chances that you may get wrong positive results (for example high conversion rate as the number of clicks received is less) which will not be true once you increase the budget later.

What is the solution?

During your initial AdWords campaign testing period, your budget must be sufficient to generate enough data for a reasonable assessment of its potential. You should decide about the budget after analyzing the local search volume of your selected keyword, average cost per click and how many clicks you will get with your daily budget. You can use AdWords keyword tool and traffic estimator tool to find these statistics.

If the number of clicks and other data generated from the initial campaign is not significant for a fair assessment that will lead to wrong decision making. You may decide to stop the campaign based on ‘bad results’ or you may decide to invest more money in to AdWords because of the ‘good results’. But without an accurate assessment ‘bad’ or ‘good’ results don’t have any value. You should decide about present and future AdWords investment based on your campaign results (revenue generated from the campaign). But this assessment will not be possible if you run your campaigns with unrealistically low budget.

Try these strategies

Decide your budget after analyzing the industry cost per.

Rather than running on low budget for a longer time, you can run the campaign for a shorter period with a higher budget (for example try a 15 day campaign with $60 daily budget than a 30 day campaign for $30 daily budget)

Always try to use more restrictive keyword match type (exact or phrase match) during the initial phase of the campaign. Make sure you are buying quality visits to your website. Don’t use broad match during the initial stages of your AdWords campaign.

Continuously analyze search query report in your campaign. Add proper negative keywords from time to time and make sure your ads are getting clicked for highly targeted search queries.

Analyze geographic performance report and optimize your bids based on geographical performance.

Use ad scheduling. Run your ads only when your customers are more actively searching, and when your business is ready to serve them.

Never use a single campaign for search and display networks, as results will be very different. If you are planning to run your ads on Google display network then create a separate campaign for it.

Conclusion

You should be very cautious while starting your new AdWords campaign and you should start with a low budget. But make sure your budget is sufficient to get statistically significant sample data to evaluate your campaign effectiveness.  And once you find your AdWords campaign is profitable for your business you can spend the amount you like to spend every day!

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