How much should a Small Business Spend on Google Ads?

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Many of the small businesses we speak to fear using Google Adwords, they are not at fault for this – Google has done a horrible job at making Google Ads easily understandable to small businesses.

Google Ads do work though. That is the reason why they are the number one advertising platform on the planet. Google has tremendous scale and data to help advertisers target the right customer at the right time in their buying journey. With that being said, thousands of businesses have wasted tons of money on Google Adwords by trying to do it themselves or working with a bad agency. For every one good agency that truly cares about your business and has the right skills to make your campaign a success, you will run into five that will just take your money and set you up with a basic campaign that does nothing but waste money.

How much do I need to spend to see results?

This is the question we get asked most often and the answer is always, it depends. There is no concrete number that is right for every type of business. This is because there are certain keywords that command a high cost-per-click and some that don’t cost much at all. I will break down how a Google Adwords campaign work and you can see why the answer to how much you need to spend depends on a variety of factors. At the end of this guide, I hope you have a better understanding of how much you should be spending.

The “learning” period

There is no such thing as dipping your toes into Adwords and seeing how it does. This will just lead you to waste money in smaller amounts. If you put $10 into the Google Ads machine, expect that $10 goes to waste. The typical “learning” period for new Adwords accounts is 1 month. See the screenshot below of the learning period for one of our newer accounts.

google adwords learning period

See how in the first month the results were horrible? Then in the second month, the results improved? That is because Google Adwords is a reactive marketing channel. Anyone who manages a new AdWords campaign will need at least a month to see what keywords convert the best. Which landing page variation converts the best. What geolocation converts the best. You can do as much research as you want but you won’t really know how each of these factors will do until you actually spend the money and get real visitors clicking your ads. Once you make these adjustments and eliminate the wasted spend, the sky is the limit.

This is often the reason why many small business owners fail at using Google Adwords. They don’t see results within the first month and they fire the PPC manager/agency. Google Adwords requires you to be fully committed and have a patient mentality. If you can set a reasonable budget, set realistic expectations, then we are sure you can succeed after a 2 month testing period.

Should I have a small monthly budget or a large quarterly budget?

Let’s just say that you’re willing to spend $250 per month for Google Adwords. If you run the campaign for a whole year, you will spend $3000. Did that small monthly budget really pay off as much as it could have? Was it worth spending a whole year on this project?

What if you took that $3000 you budgeted for the whole year and spent it in 3 months instead? For all intents and purposes, you are spending the same amount just in a smaller chunk of time. How would that be in your best interest?

For one, you would save 9 months’ worth of time. Rather than wasting a year on PPC strategy that didn’t work, you only spend 3 months and come to the same conclusion. Spending money quicker allows your PPC manager to make adjustments more quickly, reducing the “learning period.” If you drag it out, your “learning” period could be 6 months instead of 1 month. Google Adwords like many other platform is all about data. By spending the same amount over 3 months that you would’ve over a year, your monthly budget more than doubles. It varies by industry, but some of the competitive keywords could cost as much as $10/click. With a $250 monthly budget ($8.33/day) to bid on you may not even be competitive enough to get any clicks that month or if you do get clicks, it will be in a less competitive timeframe or less likely to convert traffic.

CPC and Targeted Keywords

Image result for google adwords keywords

At the end of the day, as a business owner, you don’ care about $10 CPC or $.01 CPC. You don’t care about bidding on keywords or quality score. You care about results. You rather see your PPC manager spending $10 per click that brings in thousands of dollars in revenue versus focusing on $.01 per click keywords that drive no revenue. You want your PPC manager to go where the money is – not show you metrics that don’t matter to you.

Choosing the right keyword is important if you want to control the best place to spend your money. Don’t try to target the keyword “pets” if you are advertising a pet grooming business. Be more specific and you will get more relevant traffic. If you are more specific about your keywords, you get better traffic. There could be a million reasons why someone would search for “pets.” It would be better to use a keyword like “pet grooming San Leandro” because these searchers have intent in mind.

So… how much should I spend Adwords?!

To determine how much you can spend per acquisition, we will need to do a little math.

  1. What is 1 new customer worth on average to you?
  2. How much profit do you make for that 1 new customer on average?

Let say that a new customer is worth $200 and you make $100 profit on that customer (before marketing cost). This means that we would need to return 2:1 ROAS (2 dollars of revenue for every 1 dollar spent) in order for you to break even on your marketing spend. To put in other terms, you are able to spend up to $100 to acquire a customer or (cost per acquisition, or CPA)

We recommend during the learning phase that you spend 2X the CPA on each keyword you’re bidding on to determine the success or fail on those keywords. At Collide, we offer small business PPC packages from $500/month where we drive all the strategy through full end to end management of keywords, bidding, audiences, landing page, and ad copy. If you need a PPC expert who won’t let you down, get in touch with us.

One thing to keep in mind. Good businesses with good social proof and a solid marketing strategy do better on Google Adwords. This is because Google Adwords is just one part of an overall marketing strategy. If you have bad reviews online, people who click on your ads will find these bad reviews. We recommend you focus on improving your search engine optimization to better position your business on organic results.

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