How Much Should A Business Spend on AdWords

Posted by Carol on 24/08/12 9:04 AM

A question we are often asked is how much should I spend on Google AdWords? How much you spend depends on several factors. These include:

  • Your businesses goals & objectives e.g. sales, leads or brand awareness
  • The competitiveness of the market
  • How well your AdWords campaign is set up (if you are already using Google AdWords)

There is no hard and fast rule on how much a business should spend. It really comes down to what your overall marketing budget and what media is going to best meet the your business goals. So before I address how much to spend, it's a good time to talk about who Google AdWords is suitable for.

Who Is Google AdWords Is Suitable For?

Google AdWords is fantastic for those businesses who already have a website and where people are already searching online for their products or services. If it's a new to world, innovative product then Google AdWords may not be the answer - at least not on the search part of the Google network.

The type of businesses most suitable for Google AdWords is diverse - from e-commerce and bricks & mortar stores to professional services, business services and home improvement services.

If you have a limited marketing budget (don't we all), then it is a fantastic medium to quickly test what marketing communications work and what doesn't. It is also extremely effective at testing how well your website converts visitors into customers.

Google AdWords can therefore be an extremely efficient and effective form of advertising.

So How Much Should You Spend?

In an earlier post, I wrote about how much money you should allocate towards marketing your business. Depending on your business type, you could allocate all or a percent of your marketing budget towards that.  It comes down to what media is best going to reach your business goals.

A big business who has brand awareness as it's goal, might allocate 10% of a $1.4m budget towards AdWords and put the rest of their money on TV. However, not all businesses can afford television advertising. Another business such as an Insurance Company might allocate a much larger advertising spend to Google AdWords. They might use AdWords as a lead generator by providing free quotes and know that 10% of the quotes they provide convert into sales.

We have had one client who started off spending as little as $300 a month on AdWords and others who spend thousands per month.  That smaller business who started off spending $300 per month, found Google AdWords worked for them  and gradually increased their budget over time.

Setting a budget with AdWords isn't always straight forward....

The fact is that some markets are just more competitive than others and are therefore more expensive than others. This is because AdWords operates in an auction system. It stands to reason that if more businesses bid on similar terms, then the price of advertising is also likely to be higher.

Markets like insurance, finance and debt recovery tend to be more expensive than markets like kitchen appliances.

Some keywords might cost upwards of $25 when someone click on your ad. If one click costs that much, you are going to have to spend at least $100 a day to generate any leads. The key is to know your numbers. Key metrics you need to know are:

  • What is the average lifetime value of a customer (if you are a service) or what is your average basket size (if you are retailer)
  • You should also know what your closing rate is after you have a lead

If you operate in a competitive market and have a small budget, Google AdWords may not be the best solution. You might need to consider it versus other forms of advertising or running your campaign over fewer days. You should also consider how much you can afford to spend and if your business can handle the extra work that AdWords might generate.

How much is too much?

With AdWords you can spend a little or a lot of money.

The short answer is that you are spending too much if you aren't getting a measureable return on your investment. The key is to ensure you have your Google Analytics and AdWords account linked up. You also need to ensure you set goals in place so you can track the effectiveness of your campaign.

If you have a lot of poor quality keywords or if the landing page that you send people to is irrelevant to the keyword you bid on, you will find you have a low quality score and that you will pay more for each keyword.

In this instance, you are better off improving the quality of your landing page. Doing this will improve your quality score as well as reduce the amount you pay for each click.

Additionally, if the keywords you are bidding on are too broad, you might find you get more queries that result in "hits" on your website rather than conversions. Effectively, this means you are spending more money that you should on your campaign. If this is the case you need to filter out those irrelevant searches by using negative keywords.

On the other hand, if you have been running a campaign and you notice that your impression share is low, it means you are probably not spending enough.

To ensure your ad reaches more people and appears more often when a user types a search query into Google, you will need to increase Advertising spend.

What Add on services that are worth spending money on?

Without doubt one of the best add on services a business can invest in, is website optimisation and conversion testing. Website Optimisation works by improving the quality of your landing page so you pay less for clicks.

Conversion testing on the other hand works by creating variations of specific pages in order to understand which page converts better than other. The benefit of this is that if you can increase the percent of people who take the action you want on your website you end up being more profitable without increasing your ad spend. With conversion testing, you can also test specific elements on a page and find out which elements are more important in the conversion process.

Another add on service we often recommend is search engine optimisation. This is where activities are undertaken to improve a website's listing in the organic search results.  We often recommend commencing an SEO campaign once there is enough data from an AdWords campaign to throughly understand which keywords are more profitable and what pages on your website convert the best. After all, there is little point setting traffic to a page on your website that is poor at converting browsers into buyers.

What types of keywords should you avoid?

If you are just starting out in AdWords, you should avoid using broad keywords or keywords that only contain one word.

Using broad keywords, may mean that you trigger search queries that are irrelevant to your business. So if you are selling awnings for the home and bid on the keyword awnings, you might find your ad appearing when people type in caravan awnings or awnings for Jeep. If people click on ads when they type in Caravan awning but you are selling Window Awnings, you will find yourself wasting a lot of money.

Consider also that some keywords have more than one meaning.

Also be aware that some keywords are against Google's advertising policies. It is wise to familiarise yourself with their Advertising policies to avoid having your ads disapproved or your account suspended.

You should also avoid using keywords where there is lots of information freely available. If you really want to focus on conversions, words like "free", "reviews", and "info" should be removed. These tend to indicate that someone is not yet ready to spend money.

Some Alternatives to AdWords

If you are not sure that AdWords is for you, it is worth speaking to a Marketing Consultant as well as Google certified consultant.  A Google Certified Consultant will let you know if they think AdWords will help your business. A marketing consultant will look at your total business goals and recommend what other advertising mediums might be also suitable (I personally wear both hats).

Some marketing alternatives may include:

  • Email marketing
  • Direct mail
  • Cold Calling via Call centres
  • Door Knocking
  • Search engine optimisation
  • Or any other traditional form of advertising (think Newspapers, Magazines, Radio & Television).

 

 

Topics: PPC & AdWords

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