How Much Should You Spend On Google Ads?

Did you know on average that 2.3 million searches are performed on Google every second? Google is by far the largest search engine in the world and the starting spot for over 90% of customer’s starting their shopping journey. That’s not just online shopping, but over 90% of all shopping – anyone who is looking to buy, starts looking on a search engine!

Individuals and businesses can benefit from this traffic by advertising on Google to drive highly-targeted, qualified visitors to their websites. To help you understand if this advertising model is right for you, we will explain what it is, its potential benefits and how much you should spend.

What are Google Ads?

Formerly named Google AdWords, Google Ads is the de facto advertising service for businesses to market themselves through sponsored links (clickable ads) that appear in search results. Essentially, advertisers bid on the exact keywords they would like their ads to rank for using a PPC (pay-per-click) payment model. These ads show up when users perform searches containing targeted keywords, and advertisers only get charged when the users click on their ads.

Advertisers can also use Display Ads that appear on Google’s Display – an extensive network of third-party websites that have agreed to display ads bid on in Google. The ads shown in Google’s Display Network can be in different formats like rich media, text, image and video.

How Do Google Ads Help Businesses?

Many businesses now consider this form of PPC advertising as a staple of their marketing strategies and lead generation efforts. With the right strategy, your business may enjoy the following benefits:

Instant Exposure
Unlike organic traffic, your ad can appear in Google’s top five results for a specific search instantly, exposing your business to millions of potential customers.

Geo-targeting
You can set your ads to target specific locations and demographics for optimal ad budget spend and higher conversions.

Reach
Reaching potential customers has never been easier. You can show targeted ads to relevant audiences and generate new leads in no time.

How Much Should You Allocate For Google Ad Spend?

Google PPC advertising requires patience and experimenting to get things right. Although the amount you spend on ads will largely depend on your industry, ad budget and competition from other advertisers, you will need to get both feet wet to discover what works.

For best results it is recommended you forget setting an extremely low ad budget. While this may seem risky, it is important to give your ads a chance to generate quality leads and sales. Spending $10 on ads and hoping for the best is a sure way of blowing your ad budget fast and wasting $10 that could have otherwise done something more meaningful. Dipping your toes into Google advertising doesn’t help you learn and find your audience. While every situation is different, ultimately your budget will be defined by the competition for your keywords and this varies by location, number of keywords and a wide range of factors.

Instead, it is generally recommended that you set a sizeable budget, have realistic expectations and test different elements of your ad campaign over 1-2 months. Look out for the highest converting geo-locations, keywords, landing pages, income levels, devices etc.

To determine how much you should be spending on ads, ask yourself these questions:

  • What is the average worth of one new customer to your business?
  • How much profit can you make from one new customer?

Hypothetically, if a new customer’s average worth and profit potential are $400 and $100, your business needs a 4:1 ROAS (return on advertising spend) to break even. Following this example, your business can profitably spend $100 or less to acquire a new customer, i.e., CPA or Cost per Acquisition.

We recommend spending double the CPA ($200) on each targeted keyword to determine a new campaign’s efficacy. For instance, you should have at least $1000 set aside if you wish to target five keywords. After discovering what works, you can scale the campaign according to your business’s capacity to sustain the growing demand.

Final Thoughts

Overall, well-performing businesses thrive on AdWords while bad businesses struggle. Collapsing businesses that turn to Google advertising as a last-ditch effort risk getting outbid by their competitors and wasting the little capital they have left.

Relatively stable businesses that set realistic budgets and invest enough time into learning typically gather valuable information much sooner and set themselves up for long-term success. Remember, the whole point of spending money on ads is to foster business growth.

For assistance in determining if Google Ads is right for you and build a sustainable lead generation strategy, contact Marketing Hatchery at 615-208-5373.

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