How much does Google Ads cost and how to calculate the budget to invest
Do you want to start taking advantage of the Google Ads online advertising channel, but don’t know how much money to invest?
When a potential client asks me for a quote to manage their advertising account, one of the most frequently asked questions is “how much should I invest” ? While many may think that I have to tell them, this is not always the case. An SEO analyst can indicate maximum values on the volumes of searches in a given area, but only those who pay know how much they can allocate each month to the average budget and only those who sell know the margins of their products. So arm yourself with patience and a spreadsheet, or the classic paper and pencil.
In this guide, I’ll show you the analytical method I use to quickly estimate the budget of a Google Ads campaign. The technique is useful in the estimation and prospect phase , in order to provide the customer not only with the agency cost for the optimization and management of the account, but also the average budget , or the estimated monthly costs that he will pay directly to Google. based on the clicks received.
It should be noted that we are talking about estimates , it is almost impossible to predict exactly how much the customer will spend , but we can get close to a true estimate by following some calculations that I will show you in this guide.
First of all we need to get some information, the variables that we will need for the calculations.
The variables that impact daily spending on Google Ads are:
- The list of keywords to buy
- Volume of keyword searches
- CTR (Click-Through Rate)
- CPC (Cost per click)
- Desired position
- Quality score
- Sustainability and Conversion Rate
Some of these variables will be known and we will get them from Google Keyword Planner (requires an active account). Other variables will not be known at the beginning and we will not use them for the final calculation but it is important to know that they will then impact on the actual cost of the customer.
As an example, I’ll make a keyword estimate from a Bose® speaker retailer.
List of keywords to buy
A Google advertising campaign does nothing but show ads when a user searches for certain keywords, so the first thing to do is define which keywords the account will bid on , i.e. make an offer to get out in the search results. For more information on how Google Ads works, I refer you to the guide on how PPC works .
Clearly you don’t have to draw up the definitive list (which is constantly evolving), but the skeleton of what will be the dictionary of words on which the customer wants to have visibility. Not sure where to start? Try reading this guide: how to generate a list of related keywords .
Volume of searches
Now that you have a list of terms you need to pass it to the Google tool that informs you about the average traffic volumes of each keyword. Search volume represents the number of times a keyword is searched on Google each month, it is an average value provided by Google Keyword Planner.
Average monthly research volumes
The CTR is a percentage value and represents the probability that a user will click on our paid result (AdWords ad). CTR is a ratio that indicates how often people who see your ad click on it.
- CTR is the number of clicks your ad receives divided by the number of times the ad is viewed: clicks ÷ impressions = CTR. For example, if you have 5 clicks and 1000 impressions, then the CTR is 0.5%
- Each of your ads and keywords have their own CTR
- A high click-through rate is a great indicator of the usefulness and relevance of your ads to users
- You can use CTR to measure which ads and keywords are performing well and which need improvement. The more your keywords and ads are related to each other and to your business, the more likely a user will be to click on your ad after searching using your keyword phrase.
When I study a budget estimate I generally use three different CTRs which represent the “aggressiveness” of the campaign and the degree of competition. Higher bids typically lead to better positions and therefore higher CTRs. Low competition allows for higher CTRs.
In my example I will use the CTR of 3%, 10% and 20% but feel free to change it if you have a history for the reference sector. For brand campaigns, i.e. based on the keywords that represent the brand name, the CTR is higher, generally ranging between 18% and 30%. In this regard, you may be interested in reading the guide How to Increase the CTR of a Google Ads Campaign .
CPC – Cost Per Click
CPC is the average cost per click that Google charges us each time a user clicks on our advertisement.
With cost-per-click (CPC) bidding, you only pay for clicks on your ads. For campaigns that use CPC-based bidding, you set a maximum cost-per-click bid that equals the maximum amount you’re willing to pay for a click on your ad.
The average CPC of the keyword is provided by Google Keyword Planner.
CPC – Cost per click
Better positions generally have higher bids (with the same Quality Score). I do not use this variable in my estimates (I rely on the CTR) but it will then directly impact on the budget that the customer will spend.
The degree of competition of a keyword depends on how many competitors are buying that word and is provided by Google Keyword Planner. I do not use this value for the calculation of the estimated budget but remember that, as the market rules teach us, if the competitors who buy your keyword increase the cost per click – CPC will also increase.
The Quality Score is an estimate of the quality of your ads, keywords, and landing page. Higher quality ads can lead to lower prices and better ad positions. In my estimate I do not use this variable because it will only become available (and visible) when the campaign is implemented.
Remember that if the customer has terrible landing pages (little text and little correlated) the CPC will be higher since they will have a low quality score. If you want to learn more, you might be interested in reading the guide Increase the Quality Score – Ads quality score .Improve the Google Ads Quality Score
To estimate the budget, I calculate the average monthly expense for each key and then add up all the values.
The final result
We enter all the keywords in Google Keyword Planner, filter the country and languages and download the Excel file. Now all that remains is to add three new columns (CTR budget estimate 3/10/20%) and add the values as shown in the following image. Click the image to enlarge.
How much to invest in Google Ads and how to define the budget
The calculations come up with three budget possibilities for the customer based on how much he wants to push his ads up. Spending can range from just € 64 / month up to € 425 / month but remember that these are estimated and indicative values! In fact, it is enough to add or remove a few words to change the expense and moreover you will have to deal with the quality of the ads and landing pages that will impact on the Quality Score, which in turn will impact on the CPC.
Sustainability and Conversion Rate
Now that we know how much we would have to spend to have a certain query coverage, it’s important to understand the sustainable amount for the company over a medium term, say at least 3 months.
An important aspect to understand is that campaigns can be optimized when you have statistically significant data. Optimizing means generating more clicks and conversions for the same budget, and statistical data is data that makes sense to discuss. Can a keyword that has made 20 clicks be rated? Wait for it to do at least 200, then you can decide whether to remove it or not. This premise is to say that the most critical and probably the lowest ROI phase of a PPC campaign is the initial phase, because there is no data to evaluate.
Once the campaign begins to be optimized, ads and keywords are improved, the Quality Score is raised and so on, the conversion rate of the campaigns and therefore also the CPA or Cost Per Acquisition will be increasingly evident.
The Conversion Rate is a percentage that indicates how many visitors out of 100 convert (lead, transaction, event,…). The CPA indicates how much the campaign spends on average for each conversion achieved. With these two values you can evaluate if the campaign is self-financed or if you sell at a loss. Let’s see an example.
Your XY product has a selling price on the website of 100 €, we reason without VAT. The variable costs (raw materials) allocated to the product amount to € 30, the fixed costs (rent, wages, bills, depreciation, marketing, …) allocated to the product amount to € 15. The margin on the sale of the product is € 100 – € 30 – € 15 = € 55. You earn € 55 every sale of the XY product. Campaigns must be based on this value.
The margin of the product represents the maximum limit that the CPA should have. If the CPA is greater than the margin it means that you sell at a loss, if instead the CPA is lower than the margin, every product sold online generates a profit. The lower the CPA, the higher the profit.
I hope I have provided you with practical help for a fairly frequent task in all PPC agencies. If you have any doubts or questions, don’t hesitate to leave a comment below!