How much should you be spending on Google AdWords?

When most B2B marketers think of Google AdWords, the terms “high budget” or “increased marketing spending” might come to mind.

The reality is that you can create a successful AdWords campaign on nearly any budget.

But, this can make it harder to determine just how much you need to spend to see results.

Do you throw more money at your campaign to see what sticks? Or do you dial back your spending on what you know works already?

How much money will you truly need to meet your goals? What happens if your campaign loses money and you run through your budget without seeing ROI?

There’s more that goes into the budget planning process than choosing a number.

Here are a few things you may need to keep in mind and some thoughts on how to choose a budget that will work for your company, your industry, and your desired outcomes.

What Is the Average B2B Budget for AdWords?

Budgets will inevitably vary by organization depending on financial restrictions and campaign goals.

But understanding what the average B2B company spends on advertising can still be helpful.

As of 2016, B2B marketers spent roughly $83 million on digital marketing in the U.S. alone.

The biggest spenders came from the finance and insurance industries respectively, with an ad spend of roughly $4 billion.

(Image Source)

For the last five years or so, marketing budgets have remained relatively consistent compared to the previous years. At least 85% of marketers have recognized this.

But at least 75% of marketers are expected to increase their Google AdWords investments in the next year.

Which makes sense when you consider that on average, businesses earn $3 for every $1.60 spent on AdWords.

But here’s the catch: Depending on the industry you’re in, not all spending is the same.

Even if every company had an AdWords budget of $1 million, few would see the same ROI for their campaigns.

That’s because AdWords works better for certain industries over others.

(Image Source)

SaaS companies, for instance, tend to see higher ROI from their AdWords campaigns than business services.

That makes sense because a lot of AdWords success depends on chosen keywords.

For example, insurance companies might spend the most on advertising because “insurance” as a keyword is one of the most expensive.

Finance industries may be in the same boat if they try to rank for keywords like “loan” or “mortgage.”

When it comes to ROI, it makes sense that a B2B company that wants to rank for the keyword “business services” might not see that much success. It’s considered highly competitive.

And understanding things like keyword costs, general industry spending habits, and potential ROI can all help you keep things in perspective when setting your budget.

But that still leaves the ultimate question: How much should you be budgeting on your AdWords campaigns?

Here are the three key questions you should ask yourself when determining your spending:

  • What specific goals do we have for our AdWords campaigns?
  • How much is the cost per click (CPC) for the keywords we want?
  • Which key performance indicators (KPIs) matters most to our company?

Here are a few ideas on what the answers to those questions might look like.

What Campaign Goals Do You Want to Meet?

Like other types of PPC advertising, AdWords works by placing bids.

You’re not spending thousands of dollars on those bids at once. You typically will select a monthly budget for spending, which you can change based on the results you see over time.

The trouble with having to plan out an easily-changed monthly budget is that it can be tempting to adjust it continually as you track your metrics.

So even if you start with a set budget – say, $100 a month for each campaign – you could easily double or triple that (or seriously make a dent in it) if you’re not paying attention.

That’s why setting goals is important when determining your budget.

Goals might include capturing a certain number of leads, improving conversions by a certain percent, or reducing your CPC for specific keywords.

But, setting Smart Goals, as Google calls them, is an even better strategy for budgeting.

(Image Source)

Smart Goals “help you identify the highest-quality visits to your website and optimize for those visits in AdWords.”

Google applies “machine learning across thousands of websites that use Google Analytics.” These sites have shared anonymous data with Google, such as session duration, location, devices, and so on.

Smart Goals takes this data and applies it predictably to your campaigns.

Instead of only using data from your website, Smart Goals references data from a multitude of sites to give you a better estimate of CPC, for example.

By using this information, you can optimize your AdWords campaigns and see better returns for the money you spend.

In some cases, you may be able to reduce your CPC spending based on these goals. If you do, you’ll have much more breathing room if you want to reallocate those funds to new campaigns.

What is the CPC for Your Desired Keywords?

You will also want to determine your budget based on the success of your chosen keywords.

For example, if you decide to use keywords that have high competition, you may not see as much ROI for your ad spending as you would for less competitive keywords.

The average CPC for any given keyword is calculated by a fairly simple formula: CPC = Total Costs / Total Clicks.

To give you some idea, the average CPC for the B2B industry is $1.64.

(Image Source)

While you do have control over the maximum CPC you pay for each keyword, you will always pay more for highly competitive keywords.

There are a few strategies when choosing a budget for CPC:

  • Set a cap for your CPC at your maximum budget and decide on keywords at or below that range.
  • Set a budget limit and choose to bid on fewer keywords or run fewer ads.
  • Determine which keywords you want and create your budget around their CPC.

If you have an idea of the budget you want to spend based on your goals, you may be better off setting a cap for your CPC and choosing keywords in that range.

On the other hand, if you know your budget is flexible, you can spend more time on keyword research. Then you can choose those with the best potential ROI and set your budget there at the start.

AdEspresso recommends that you first select a range of acceptable CPC for your ads. Then, calculate the number of visits you will need to generate one sale, like so:

(Image Source)

Once you have that, you can determine the ROI of each sale.

For example, let’s say you only have a conversion rate of 1% but are spending more than $1 per click. In this case, you may be losing money unless you have a significant number of visits.

If you see conversion rates at 2-3% or higher, then a $1 CPC is acceptable.

To determine if your traffic will be high enough to sustain your desired CPC, you can use Google’s Keyword Planner.

Under “Tools” select “Get traffic estimates for a list of keywords” and enter in your chosen keywords.

(Image Source)

You can then enter in any negative keywords or locations to refine your search. From there, select “Get estimates,” and you should see something like this:

Your daily estimates will be in the top right-hand corner. If you hover over the graph, you will see your suggested CPC maximum.

After entering your bid, you will see the daily cost and traffic estimates for your keywords.

You can then multiply the total daily cost estimate by 30.4 (the average number of days in a month) to determine your monthly budget.

For example, if your daily total was $4.25 for an ad group, your monthly budget for that ad would be $132.24.

4.25 x 30.4 = 132.24

Depending on how many ads you run, this should give you a sense of how much money you should spend.

If you don’t want to spend time analyzing each bid, you can also set them to run automatically using Google’s Enhanced CPC (ECPC) bidding.

ECPC works by automatically adjusting your manual bids for clicks that seem more or less likely to lead to your goals.

(Image Source)

In the past, the bid flexibility of ECPCs has been bound by the max CPC, and would never increase a bid more than 30% automatically.

One thing to keep in mind as of this year, however, is that Google has changed ECPC bidding to remove the maximum cap.

ECPCs can be helpful if you’re not too concerned about your budget flexing up and down. But fluctuation may happen because ECPC will increase your bids on your behalf based on a set of predefined signals, like browser type, location, and time of day.

But if you have a set or limited budget that must be adhered to closely, you may want to focus on manual bidding so that your budget remains consistent.

What KPIs Matter the Most to Your Company?

Of course, CPC isn’t everything. Other performance indicators will also affect your AdWords budget.

KPIs help you measure the performance of your ads over time, so you know whether or not campaigns are meeting your expectations (or your Smart Goals).

Some typical KPIs might include:

  • Impressions – Every time your ad is displayed it’s considered an “impression.”
  • Click-through rates (CTR) – A CTR measures how often your ads are actually clicked.
  • Conversion rates – This measures actions taken after someone has clicked your ad and landed on your site (did they fill out your form, etc.).
  • Cost per conversion – This shows you the average amount of money you spend on PPC for every conversion earned.
  • Average position – Average position is an indication of where your ads fall when they’re triggered and how much traffic each location receives.
  • Quality score – Quality score is an expression of how reliable your company is at showing relevant content in your ads (low scores pay more).

While all of these KPI metrics are technically important, some may mean more to you and may be more helpful in determining your budget.

(Image Source)

For example, your ads may see relatively similar ROI no matter which location they’re placed in, so “average position” wouldn’t be as important to you. You may choose not to bid on certain locations.

On the other hand, cost per conversion may be a much bigger deal if one of your goals is to increase sales.

If you’re spending money on ads that aren’t converting, you’re wasting a huge portion of your budget on something with little to no ROI.

Keep in mind that KPIs can vary widely within particular industries and for specific companies.

So the KPIs your competitors are measuring (or other companies who aren’t in your industry are measuring) may not be appropriate for judging the success of your campaigns.

You’ll want to spend some time figuring out which KPIs matter the most so you know where to put your money for the best results.

How to Determine Your AdWords Budget

In putting all of the above together, you should have a good idea of where to begin when it comes to setting your budget.

You will want to start by determining how much of your company’s total marketing budget should be allocated to PPC.

For most B2B marketers, PPC advertising takes up between 8-10% of the budget.

(Image Source)

You also want to take into account how much of your marketing budget you want to allocate to AdWords specifically.

There are plenty of other PPC options that may appeal to you, too. Especially if your company is in an industry that doesn’t always see high ROI with AdWords.

You want to make sure that the channel you’re spending the most on is also the one with the best ROI. At the very least, you may want to divvy up the budget between different channels.

(Image Source)

Once you have an idea of the percentage of the budget you can spend on AdWords, set your Smart Goals for your campaign.

Your goals will help you determine which KPIs you should track (and care about) the most, and which ones you can most likely ignore.

You should also do some research into which keywords will have the best impact in your industry. Keep in mind that your budget can make room for any keyword strategy you choose.

For actual budget numbers, you want to calculate the CPC and ROI of your keywords (as shown earlier using Google’s Keyword Planner). That will show you the exact amount of money to allocate per campaign every month (based on daily estimates).

That formula would be: Daily estimates x 30.4 = monthly budget.

It’s important to understand that you can see success with any budget, so don’t think that you need $1 million for your ads to do well.

You just need to know which ads will give you the most return for your money and which AdWords spending habits will break the bank.

Conclusion

Unfortunately, there’s no specific formula for how to determine your AdWords budget.

You should base your budget on many variables, such as your current marketing budget, your desired spending amount, your ultimate campaign goals, your chosen keywords, CPC rates, and KPIs.

The more time you can spend developing Smart Goals, researching keywords with better CPC in your industry and narrowing down your KPIs before you create your campaigns, the more successful they will be.

Make sure that you’re taking time to watch your AdWords campaigns closely, especially if you’re using ECPC.

This will allow you to see which campaigns are giving you the best ROI and which ones are wasting your money.

Directive Consulting Call Us