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Adwords Quick Fix – Lesson 1: Budgets

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How to decide on a budget for AdWords

Welcome to the first lesson in our 3 part AdWords Quick Fix Mini Course

Choosing a budget is the first step in building an Adwords campaign and it can be very daunting for AdWords newbies.

Although you have the option to change your Adwords budget at any time; it certainly helps to know how much to spend and how to break-down your total budget to test what works.

Choosing an arbitrary budget, can be a waste time for three reasons:

1. It doesn’t reflect what other businesses in your industry are actually paying, so you have no benchmark to compare your returns

2. It takes time AND money to gather data from Adwords before you can see what brings you the best ROI, choosing an arbitrary budget wastes both.

3. The data you collect from Adwords may not be useful at all if you’re wasting your budget or not optimizing it.

Ok, so let’s look at how you can calculate a started budget that actually makes sense for your business.

Phase 1 – Identify your campaign goal

Your business is using AdWords to create greater profits. You should, therefore, have a rough idea of how many new customers/leads you would like AdWords marketing to achieve for you in a month.

This increase in new customers/leads is your campaign objective.

Phase 2 - Approximate traffic requirements

AdWords works by charging you for clicks, so website traffic is a core component in your budget calculations.

In order to select a budget that will hit your target customer goal, you must know how much traffic you will need.

Each business has an average conversion rate. This shows you how much website traffic it usually takes to result in a conversion.

Using this simple formula, you can approximate the traffic requirements of your AdWords campaign: Traffic required = customers needed / conversion rate.

Once you have run a campaign, you can find an accurate PPC conversion rate for your business in your AdWords dashboard but for now use your organic conversion rate as a guide.

Head to Google Analytics. One of your existing goals should be sales or leads.

View your Acquisition tab by channel.

 

In your Google/Organic channel row look across to see an organic conversion rate:

 

For ecommerce stores just look at your conversions overview section:

 

Phase 3 - Discover your average cost per click

In AdWords the cost of a click will vary between industries. Fortunately, AdWords has a handy tool to predict average CPC (cost per click).

In your AdWords dashboard simply click Tools and then select the Keyword Planner:

 

Lesson 1 screen shot 1 select keyword planner.jpg

Then select the Budgets and Forecast tool:

Lesson 1 screen shot 2 select Forecast Tool.jpg

 

Enter your keyword list and click ‘Get forecasts’:

 

 

Now click along the graph until the cursor is at your daily traffic requirement.

The tool will reveal an estimated max CPC. While the behaviour of competitors will affect CPC, the estimate is still useful for a starter budget.

 

Phase 4 - Calculate the starter budget

Now you have all the data you need to calculate a budget based on your objective. Use the following formula:

Traffic required x average CPC = total budget.

 

If you had aimed for 90 new customers a month and your organic conversion rate was, for example, 3%, your required traffic would be roughly 3000 a month.

If your average CPC was estimated at $2, your approximated starter budget would be $6000 for the month.

This is roughly $193.5 for the daily budget to be entered into AdWords, assuming your campaign runs every day.

 

And that’s how you calculate a budget that’s practical and allow you to test different types of ads most effectively.

 

Did you find this lesson useful? How do set aside a budget for Adwords, according to what you can afford or according to your traffic requirements? This could dramatically affect the ROI you receive from Adwords.