How much to invest in Google Ads is THE big question every advertiser ask themselves. From the small business on a budget that wants to try search ads, to the big brand that wants to advertise on a new product segment. Let’s face it, you can’t know for sure.
Let’s first remember how Google Ads works.
Auction type model.
Let’s imagine you want to buy the keyword « used car » since you sell cars and you want logically to appear on that term.
Your competitors have more likely the same logic and Google has to define which advertiser is going on position #1, #2, #3 and so on.
Every advertiser enters the auction with a specific bid defined in his campaign settings for that specific keyword. You could be tempted to think « Okay, the highest bid wins the auction and takes #1 position ». But it’s not entirely the case.
Google put in place a system called Ad Rank. The advertiser with the highest Ad Rank wins the auction and gets the #1 position.
The Ad Rank is calculated as a « Bid*quality score ». Explaining the quality score would take an entire article. Have a look at this article explaining quality score if you want more info.
Pay Per Click model.
The model is fairly easy to understand. You pay a certain price every time a click is done on your ad.
Whatever it’s a real user clicking, a fake user (bot), a competitor clicking on your ad for you to pay, a user tapping by mistake on your ad while scrolling on his phone,…
You pay for every single click.
The question is now, how much do you pay for that click?
The amount of money you pay for a click is calculated with a combination of your bid, quality score, ad rank, and competitors.
The more advertisers buy that keyword, the higher your competitor’s bids are, the lower your quality score is, the more you will pay for that click.
CPC (Cost Per Click) can go from 0,01€ to hundreds of euros (For one click!!).
This is not fixed price and it changes at every auction.
How to calculate cost per click.
How to analyze search volume.
Since you pay every time a click is done on your ads, it would be great to estimate the volume available. For this, you can use a tool provided by Google which is called the keyword planner.
But let’s be clear about that. A forecast is an expected « search volume » over a specific time frame and a specific location for a keyword, not the accurate volume of clicks on your ads.
Actually Google will give you an estimate of clicks you could potentially acquire. That assumption is a rough average based on your bid and benchmarks for your sector.
There is a forecast of 2.652.114 impressions a month for your «used car » keyword in the location you want to advertise for.
It doesn’t mean that these impressions will results in a click on your ad.
Actually, a very small percentage will actually click. You should read that very interesting article regarding « Zero-Clicks searches ».
Budget estimates are bullshit.
There is so much variables. Quality score, competition, search volume, quality of your ads, click-through rate, position in the auction,…
You can’t know accurately your cost per click since you don’t know the competition (see above) or the volume of clicks your ads will receive.
How do you want to make a realistic estimate then? Even a rough estimate is difficult.
Google gives an average monthly forecast of 10.000 impressions for your keyword.
Google gives an average cost per click of 4€ based on historical data for your sector.
Benchmarks say that the average CtR (rate of clicks) is 5%.
10000 impressions * 5% clicks = 500 clicks expected. / 500 expected clicks * 4€ = 2000€.
You’d be tempted to say that 2000€ is what you need to advertise on your keyword.
But you know what? THIS IS TOTAL BULLSHIT. This is why I always recommend a rolling budget and invest step by step.
The question should not be
How much to invest in Google ads? but
What can I get out of my budget and how to act on it.
A Smart vs a Dumb advertiser story.
Case 01: Test budget + Rolling budget.
Based on the forecast of 2000€, you play it safe and unlock a test budget of 500 euros. After spending that budget over a month, you got 10 leads, and 3 cars sold for a total of 30.000€.
After checking in your Google Ads report, you have 20% of impression shares. This means you are present on 20% of the total search volume for your « used car » keyword.
—> 500€ spend, 30.000€ made. Present for only 20% of the searches.
If I was you, I’d call my bank right away to increase the spending limit on my credit card :).
You can start increasing spending gradually and expand your campaigns since you are profitable and scale your business.
Case 02: Fixed PO budget.
« Hey Joe? The agency told us we need 2000€ a month. Prepare the PO for 2000€ for the next 12 months and make it signed by the group.».
After spending that budget over a month, you got 40 leads, and 8 cars sold for a total of 70.000€. Super happy you are.
By checking your Google Ads report, you have only 40% of impression shares. Which means 60% of the total search volume is still available out there.
—> The group approved a fixed yearly budget for the next 12 months based on your nice bullshit forecast. No extra budget allowed.
You let 60% of potential sales on the road, while your competitor is scaling his business like crazy.
I observe so much lead/sales left to competitors since the budgets are decided upfront on biased data and forecasting tools.
On the other hand, I see also so much wasted budget for the sake of spending it since it’s « signed budgets ».
There are so many variables that make it almost impossible to estimate « How much to invest in Google Ads ».
Be smart, use forecasts and benchmarks as a starting point. Make tests, be flexible regarding investment, look at profitability and business objectives. These are the only reliable indicators.