If you are limiting your campaigns with low budgets, use this handy formula to fix things.
When it comes to PPC management, there is nothing more important than managing your budget correctly.
A Google Ads campaign with proper budgeting will lead to profits and success. An improperly budgeted campaign will just lead to headaches.
But how to determine the right amount of budget to set initially for a campaign?
What if there is no previous campaign data to base your budget off of? What if it is a new industry? What if the client is money conscious and doesn't want to spend a lot on ad campaigns.
Being able to confidently ask for a PPC budget, and then defend that figure with convincing figures is a skill that will pay off dearly down the road.
In our experience, there are two ways to go about this:
- Trust Google. They give a lot of recommendations, and for the PPC marketer strapped for time, this could be the easiest option. Unfortunately, Google's budget recommendations frequently overestimate the amount of money needed to have your campaign perform effectively. The reason for this is pretty obvious, Google benefits by having marketers spend more and more on your ads.
- Manage your Google Ads budget manually: By managing your budget manually, you retain control.
Since advertising charges only accrue after a prospect clicks on your ad, setting too low or too high of a budget could have drastic effects on the success or failure of your campaign.
Here we will give a quick guide for how best to set a PPC budget, and also tools to help manage PPC budgets after you have set them.
So without further ado, let's go into the details.
How to determine your Google Ads budget initially?
There are three crucial pieces of information you need to know about your business if you would like to run a successful Google Ads campaign.
- What is your average order value? (AOV)
- What is your gross margin percentage? (revenue - cost of goods sold/revenue = gross margin)
- What is your cost per acquisition?
Armed with this knowledge, you can successfully set a PPC budget that is realistically in line with KPIs.
Take an example:
You are a small antique shop, and you would like to see $2,000 in profit from your Google Ads campaign in the first month.
The average order value at your shop is $150 and the gross margin 55%.
The formula to use is:
Number of sales x AOV x Profit Margin - budget = Profit
If you average 40 sales per month, and your average order value is $150 with gross margin at 55%, you can easily calculate your ideal Google Ads budget.
40 sales x $150 of revenue per sale equals $6,000.
Now multiply $6,000 with 55% profit margin to get $3,300.
To get $2,000 in profit, you would have to have your Google Ads budget set at $1,300 and the cost per acquisition would not have to exceed $32.5 (divide $1,300 with 40 sales).
Now depending on your specific industry and niche, you will know whether these numbers are realistic and you can tweak them later.
How to determine whether your budget estimates are realistic?
This is where keyword research comes in.
If you bid on keywords with low search volume, you will never hit the target profit level you have set for your campaign.
There simply won't be enough people searching for your keyword each month, and your budget will not be spent, since your budget can only be spent after someone clicks on an ad.
The best tools out there to aid in keyword research is most likely Google's own Keyword Planner, although other third party tools exist such as SEMrush, Moz and WordStream. You can see a comprehensive list here.
Google's Keyword Planner forecasts monthly spend based on location, estimated cost per click for your keywords, click through rate and volume.
Problems with Google's Keyword Planner
While the keyword planner is great for established industries and B2C businesses, if you are in a niche sector or selling a technical B2B service, search volume will naturally be lower.
Often times, the keyword planner simply will not have data to pull for keywords in niche B2B sectors because of low search volume.
In any case, no data for a keyword is not always bad, but depending on the sector, it could be a sign that a Google Ads campaign will not perform well because you won't reach the necessary amount of clicks. In such cases, display campaigns could be a better option.
How to organize keywords
Once you have settled on your keywords, how you organize your keywords into different ad groups becomes important.
We covered what the best Google Ads Account Structure was in a previous post, but in summary there are two ends of the spectrum you can switch between: SKAGs and STAGs.
SKAGs stand for Single Keyword Ad Groups and is where you have one keyword per ad group. The benefit is that it isolates search traffic so that your ad appears only for the keyword you bid on. The downside is it decreases search volume.
For a tool to quickly create SKAGs click here.
STAGs stand for Single Themed Ad Groups. This is closer to Google's recommendations for setting up ad groups, with anywhere between 5-20 keywords per ad group. The difference is that under STAGs the ad groups are very tightly themed, often targeting customers at different stages of the purchasing funnel. Here you get more traffic which is easier to use smart bidding on with more data, but less control for what search terms your ad is shown.
For a STAGs tool, click here.
Increasing & Decreasing your budget afterward: The Formula
So, you've done your keyword research, you've organized the keywords correctly and you've set an initial budget. Often times after the first two weeks you are hit with the following message:
'Search Impression Share Lost Due to Budget'
In other words, your campaign could receive more impressions and more clicks, if your budget was increased.
While this is just one of many budget recommendations Google gives for optimizing spending, it tends to be the most common one.
To find teh notification, you need to select 'modify column' next to the search bar Find Campaigns and then check the boxes Display Lost Impression Share and Search Lost Impression Share.
If you see zero, then everything with your campaigns is in order and your budget is being fully spent.
Anything above zero means that a bigger budget would allow your ads to be seen by more people and get more clicks.
In other words, people are searching for your things related to your business, but because the budget has been eaten up, your ads are not being shown.
How much should you increase your budget by?
Google will give their own recommendation, but often times this is higher than what is actually needed.
In an excellent post, the SEJournal gives their own formula for increasing budget spend when impression share is being lost.
According to them: "Select a date range of 'last 7 days', and divide the number of impressions actually served by the Search Impression share percentage.
For example, if you have 1,500 impressions / 40% Search Impression Share Column = 3,750 impressions would be the maximum number of ad impressions possible for the campaign during the seven-day date range selected.
Once you calculate the maximum number of impressions, you use the following formula:
- 3,750 impressions x 50% (Search lost IS (budget) column) = 1,875 missed ad impressions because the budget was exhausted.
- 1,875 missed impressions x click-through rate for campaign, 3% CTR = 56 clicks missed
- 56 clicks x average cost per click $5 = $280 more needed per week to fully fund a campaign
- $280 + $325 actual weekly spend gives $605 per week, divided by 5 gives an average daily budget of $121 per day.
If you are using smart bidding options, Google may often overspend the daily budget on certain days, but over the course of the month you will never be charged more than your monthly budget.
There you have it. A quick and simple way for determining how much to increase your budget when you are underspending.
It's important to note that Google will often overspend daily budgets on certain days, but over the course of the month you will always be charged the monthly budget you set.
How to properly manage your Google Ads budget
While increasing daily budgets is a fairly simple process in Google, this is only the case if you have a small amount of campaigns.
Unfortunately, most PPC marketers have to use Google's interface to juggle between several clients with several campaigns, some of whom give you a monthly budget, others give you a budget of several months, while others don't even care about spending and just want the campaigns to remain profitable.
With so many campaigns to manage, it becomes quite easy for an account manager to miss Google's notification that 'impression share is being lost due to budget'.
To help make budget management easier, several third-party tools have sprung up over the years promising to automate the mundane process of budget management.
While these are general PPC management tools that also automate other aspects of PPC such as reporting, campaign creation and ad fraud, managing budgets more efficiently are features within these tools that come in handy. Such tools include Optimyzer and Moz.
These are good options to use to help you better manage your ad budgets and underspending. If you have the money to pay for them, they are worth it.
For a cheaper PPC budget management tool that focuses specifically on managing budgets, you can try Aori's tool here.
Whether you choose to use a budget management tool or not, properly setting your Google Ads budget from the start, and then making sure to manage ad spend afterwards correctly, is often the distinguishing factor that makes or breaks a campaign in the long run and determines how long a client sticks around.
You can use the formula provided in this post for a quick fix to a campaign that is underperforming because of a limited budget.
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