A common question that comes up for new AdWords advertisers is:
What should my AdWords budget be?
While this is an important question, it’s also one that doesn’t have a straightforward answer. If AdWords is profitable for you, then your budget should be AS MUCH AS POSSIBLE. If AdWords is not profitable for you, then your budget should be ZERO.
For most advertisers, the real answer will be somewhere in the middle. Certain products and services may be profitable for you to advertise, while others will not be. Some keywords, geographic locations, platforms (mobile vs. desktop), and other targeting options will be more profitable than others.
The only way to learn what works is to test, test, test. There are research tools available to help you estimate available search volume, cost-per-click, and to identify keywords that will likely produce the best results for your product.
But if you are relying on AdWords to be profitable for you from day one, you are setting yourself up for disappointment. There is often an initial investment required until you can figure out what is working and what isn’t.
With that said, it won’t take you forever to learn whether AdWords will be profitable for you. Depending on how much traffic you are starting with, you should have a very good picture of the potential of your campaign within 2-4 weeks.
So for the first month of your campaign, your budget can be found using this AdWords Budget Tool:
AdWords Budget Tool
|Amount of money you can afford to lose:|
|Your starting daily budget (amount entered divided by 30):||$|
I know this is overly simplified – but it’s the truth. There’s no guarantee that AdWords will work for any business, so you must be able to afford to invest in at least a month of testing. Some businesses invest much longer than that, knowing that once they crack AdWords for their business, they will get their money back many times over.
Now, it’s also important to know whether the amount you plan to spend will get you enough traffic to give you meaningful data.
If you are a criminal defense attorney who wants to spend $1,000 a month, and the average cost per click in your market is $50 per click (giving you 20 clicks total), then you may want to come up with a better plan. 20 clicks is not nearly enough to determine the viability of any campaign.
In the attorney scenario, even if you have a respectable conversion rate of 5%, that 5% may not come until click 21. It may not come until click 100 when you then get a few in a row.
Use this AdWords Budget Estimator to determine the minimum you should plan to invest when starting a campaign:
AdWords Budget Estimator
|Your predicted cost per click:|
|Your average profit (lifetime value) per conversion:|
|Conversion rate needed to break even:|
|Recommended starting investment:|
The recommended starting investment is simply your average profit per conversion multiplied by five. If you spend this much and get zero conversions, then it’s safe to say your campaign will not be profitable without some major changes. In my opinion, you should be prepared to spend this much, even if you are not getting conversions right away. Statistically speaking, you could very well get a few conversions near the end of this initial test.
If you get any conversions after spending this recommended budget, then there’s a good chance your campaign can be successful, even if you did not reach the five conversions necessary to break even. Just one conversion is evidence that at least some part of your campaign is profitable.
Some campaigns need to operate at a loss for a while before you are able to fine tune them enough to be profitable.