Setting an effective budget for Google Ads is fundamental to the success of your campaign. The digital marketplace is fiercely competitive, and without a well-planned budget, even the most creative and engaging ads can fall short of reaching their full potential. The key to success lies not just in how much you spend but in spending it wisely to ensure maximum return on investment (ROI).

But how do you decide what that budget should be? There's no one-size-fits-all answer, as the optimal allocation will vary depending on your specific business objectives, your industry, and the competition level for your chosen keywords. 

As a Google ads agency, we tend to talk about budgets a lot, so without further ado, let’s discuss how you can choose the right budget for your campaign.

Setting Realistic Goals in Google Ads

Understanding Intent

The first step in defining your advertising goals is understanding your campaign's intent. Are you trying to attract new visitors to your website, encourage previous visitors to return, or convert leads into customers? The intent should align with the stages of the customer journey:

• Awareness: Targeting those who are just discovering your products or services.

• Consideration: Reaching out to those who are evaluating their options.

• Conversion: Encouraging those ready to make a purchase or take a specific action.

By understanding the intent of your target audience, you can tailor your ads to meet them at their stage in the buyer's journey, making your campaigns more relevant and effective.

Top and Bottom of the Funnel

Breaking down your goals further into top-of-funnel (TOFU) and bottom-of-funnel (BOFU) objectives can help in allocating your budget more effectively:

• Top of the Funnel (TOFU): At this stage, your goal is to build awareness and attract as many potential customers as possible. Your ads should focus on broad keywords and content that introduces your brand and its value proposition. Since the intent here is more about brand exposure than immediate conversion, the budget might be allocated towards reaching a wider audience.

• Bottom of the Funnel (BOFU): Here, the focus shifts to converting interest into action. Your target audience is already aware of your brand and considering a purchase. Ads should be more targeted, using specific keywords and calls to action (CTAs) that encourage conversions. Budgeting for BOFU means investing in higher-cost, high-intent keywords and retargeting campaigns that are more likely to lead to sales.

Tracking your conversions in Google Ads 

It’s essential that you measure appropriate conversions to ensure that you're meeting your advertising goals. Tracking allows you to measure the performance of your campaigns against your objectives, providing valuable insights into what’s working and what’s not. Here’s how to set it up:

• Conversion Tracking: Implement conversion tracking in Google Ads to measure actions that are valuable to your business, such as purchases, sign-ups, or leads. This involves adding a snippet of code to your website to track when someone completes an action after clicking on your ad.

• Google Analytics Integration: Integrating Google Ads with Google Analytics offers deeper insights into how users interact with your website after clicking on your ads. This can help you understand the customer journey better and refine your targeting strategies.

• Remarketing Lists: Use remarketing lists for search ads (RLSA) and display ads to target users who have previously interacted with your website. This is a powerful way to allocate your budget towards users who are more likely to convert based on their past behaviour.

By defining your advertising goals with a focus on understanding intent, differentiating between the top and bottom of the funnel, and setting up appropriate tracking, you can create a solid foundation for your Google Ads budgeting. 

Need help in understanding Google Ads? Why not try our Google Ads Training?

Analysing Your Market and Competition

After defining your advertising goals, the next step is to conduct a thorough analysis of your market and competition. This analysis is critical for setting a budget that is realistic and competitive, ensuring your Google Ads campaigns can effectively reach your target audience and achieve your business objectives.

Market Research

Understanding the landscape in which you're advertising is essential. Market research involves gathering and analysing information about your industry's overall size, growth trends, and the average cost-per-click (CPC) for keywords relevant to your business. 

This data helps you gauge the level of investment required to make a significant impact in your market. Tools like Google's Keyword Planner can provide insights into average CPCs, helping you estimate how far your budget might stretch in terms of ad visibility and clicks.

• Identify Your Audience: Determine who your target customers are, including demographics, interests, and behaviours. This will help tailor your ads and budget to the segments of the market most likely to convert.

• Benchmarking: Look at industry benchmarks for key metrics like click-through rate (CTR), conversion rate, and cost per acquisition (CPA). This gives you a baseline to measure your campaign's performance and set realistic budgeting goals.

• Using your own data: To ensure that you are likely to get the best “bang for your buck” understanding your existing data is vital. So look at things like your existing conversion rate on your website (e.g the number of visitors who make an enquiry or a purchase out of the total number of visitors), how much they spend when they do buy, and if you are a service based business - how many of your website enquiries turn into customers. 

  Competitive Analysis

  Analysing what your competitors are doing in the same space can provide invaluable insights into how much you might need to spend to compete effectively. Here are some strategies for conducting a competitive analysis:

  • Competitor Spend: While exact figures might not be available, tools like SEMrush or SpyFu can offer estimates of what your competitors are spending on Google Ads. This information can help you set a competitive budget.

  • Ad Copy and Keywords: Review your competitors' ad copy and the keywords they're targeting. This can reveal gaps in your own strategy or opportunities to differentiate your brand.

  • Landing Pages: Examine competitors' landing pages linked to their ads. The effectiveness of these pages in terms of design, content, and user experience can influence how much you need to invest in your own landing pages to convert traffic into leads or sales.

How much to spend on Google Ads - Calculating your Initial Budget 

Once you clearly understand of your advertising goals and have analysed your market and competition, the next step is to calculate your initial budget for Google Ads. This involves estimating costs and deciding on a daily budget that aligns with your business objectives while considering your average conversion rate and order value.

Estimating Costs for Google Ads Campaigns 

To estimate the costs associated with your Google Ads campaigns, the Google Keyword Planner tool is an invaluable resource. It provides insights into the average cost-per-click (CPC) for your targeted keywords, which is essential for budget planning. Here’s how to use it effectively:

• Accessing Keyword Planner: Navigate to the Keyword Planner tool within your Google Ads account. This tool is designed to help advertisers choose competitive bids and budgets to use with their campaigns.

• Keyword Research: Enter the keywords relevant to your products or services. You can also input your website's URL, and Google will suggest keywords based on your content.

• Average CPC Estimates: The tool will display the average CPC for each keyword, giving you an idea of how much you might expect to pay for each click on your ads. These figures vary based on competition and the quality of your ads.

Remember, the average CPC is just an estimate. The actual cost can fluctuate based on many factors, including the competitiveness of the keyword, the quality of your ad, and the targeting settings you choose.

Deciding on a Daily Budget

With an understanding of the average CPC, you can begin to calculate your daily budget. This involves determining how many clicks you aim to receive each day and multiplying that number by the average CPC. Consider the following:

• Desired Number of Clicks: Estimate how many clicks you would like your ads to receive each day. This should be based on your advertising goals and the expected traffic needed to achieve them.

• Daily Budget Calculation: Multiply the desired number of clicks by the average CPC to get your daily budget. For example, if you want 100 clicks per day and the average CPC is £1, your daily budget should be around £100.

Understanding Your Average Conversion Rate and Average Order Value

To refine your budget further, consider your average conversion rate and average order value:

• Average Conversion Rate: This is the percentage of clicks that result in a conversion, such as a sale or lead. Knowing this rate helps you understand how many clicks you need to achieve a specific number of conversions. For example, if your conversion rate is 5%, and you want 10 sales per day, you'll need 200 clicks (10 sales / 5% conversion rate = 200 clicks).

• Average Order Value (AOV): This is the average amount a customer spends when they make a purchase from your site. Understanding your AOV helps in estimating the revenue that your Google Ads investment might generate.

By incorporating your average conversion rate and average order value into your budget calculations, you can make more informed decisions about your daily budget. This ensures that your Google Ads spend is aligned with your overall business objectives, maximising the potential return on your investment.

Calculating your initial budget for Google Ads requires a balance of strategic planning and data analysis. By carefully estimating your costs, deciding on a realistic daily budget, and considering your conversion metrics, you can set your campaigns up for success from the start.

Optimising Your Google Ads Budget

Once you have set an initial budget for your Google Ads campaigns, the next step is to optimise that budget to ensure your advertising spend is as efficient and effective as possible. This involves adopting a test-and-learn approach to identify what works best for your campaigns and refining your strategies to maximise performance within your budget constraints.

Test and Learn

Continous learning and testing is vital. It's advisable to start with a smaller budget to experiment with different approaches, which allows you to gather valuable data without committing a significant portion of your advertising spend. Here’s how to implement this strategy:

• Split Testing: Create multiple versions of your ads, targeting different keywords, using varied ad copy, or employing different landing pages to see which combinations perform the best.

• Budget Allocation: Initially, allocate your budget across various campaigns to identify which ones yield the best return on investment (ROI). This might mean testing different segments, products, or services to see where your ad spend is most effective.

• Data Analysis: Use the data gathered from your tests to make informed decisions. Google Ads provides a wealth of analytics, showing which ads are driving clicks, conversions, and sales. Analysing this data helps you understand which elements of your campaigns are working and which are not.

Optimising for Performance

After identifying the most effective strategies through testing, the next step is to optimise your campaigns for better performance. This means making adjustments to improve efficiency and achieve better results within your set budget. Here are some tips for optimising your Google Ads budget:

• Adjust Bids: Use the data from your testing phase to adjust bids on keywords that are driving the best results. Consider employing automated bidding strategies that adjust your bids in real-time to optimise for conversions or clicks, depending on your goals.

• Refine Targeting: Look at your campaign data to refine your targeting options. This might involve focusing more on specific demographics, locations, or times of day that have shown better performance. Utilising audience targeting features like in-market segments or remarketing lists can also improve campaign efficiency.

• Optimise Ad Copy: Analyse which versions of your ad copy are performing the best and refine your messaging accordingly. Effective ad copy resonates with your target audience, clearly communicates the value proposition, and includes a strong call to action (CTA).

• Landing Page Optimisation: Ensure that the landing pages your ads direct to are optimised for conversion. This includes fast loading times, mobile optimisation, clear and compelling copy, and a straightforward path to conversion.

• Use Negative Keywords: To prevent your ads from appearing for irrelevant searches, add negative keywords to your campaigns. This helps conserve your budget by ensuring that your ads are only shown to users with a genuine interest in your products or services.

Optimising your Google Ads budget is an ongoing process that requires attention to detail, a willingness to experiment, and a strategic approach to allocation and adjustment. By continually testing and refining your campaigns, you can enhance their performance, ensuring that your advertising spend contributes to achieving your business objectives in the most cost-effective manner possible.

Utilising Google Ads' Tools for Budget Management

Google Ads offers a suite of tools and features designed to help advertisers manage their budgets more efficiently and ensure their campaigns are optimised for their specific goals. By leveraging these tools, you can make your budget go further while driving better results.

Automated Bidding Strategies

Automated bidding strategies in Google Ads utilise machine learning to optimise your bids in real-time, aiming to get the most value out of your budget. These strategies adjust your bids based on the likelihood of a search resulting in a conversion or click, depending on your campaign goals. Here are a few automated bidding strategies that can help manage your budget efficiently:

• Maximise Clicks: This strategy aims to drive as many clicks as possible within your set budget, making it ideal for increasing website traffic.

• Target CPA (Cost Per Acquisition): Target CPA bidding automatically sets bids to help get as many conversions as possible at the target cost per acquisition you set. This is useful for campaigns where maintaining a specific acquisition cost is crucial.

• Target ROAS (Return On Ad Spend): This strategy adjusts bids to achieve a target return on ad spend, making it suitable for campaigns focused on profitability.

• Maximise Conversions: With this strategy, Google Ads will set bids to get the most conversions for your campaign while spending your budget.

Utilising these automated bidding strategies can significantly reduce the manual work involved in bid management and help you achieve your advertising goals more efficiently.

Budget Management Tools

Google Ads also provides several tools and features that help keep your spending in check and make budget management easier:

• Budget Recommendations: Google Ads offers budget recommendations based on historical campaign performance and current market trends. These recommendations can guide you in adjusting your budget to improve campaign performance or capture additional traffic that you might be missing.

• Alerts and Notifications: Set up alerts to notify you when your spending reaches certain thresholds or if there are significant changes in campaign performance. This can help you stay on top of your budget and make adjustments as needed.

• Using Rules and Scripts:

• Rules: You can set up rules in Google Ads to automatically adjust your budget, pause campaigns, or make other changes based on specific criteria you set. For example, you could create a rule to increase your budget by 10% if the campaign CPA drops below a certain threshold.

• Scripts: For more advanced users, Google Ads scripts allow you to programmatically control your advertising. Scripts can automate common procedures or interact with external data to make complex adjustments to your campaigns. For instance, you could use scripts to adjust bids based on weather conditions or stock levels.

By utilising these automated bidding strategies and budget management tools, you can make more informed decisions about your Google Ads spending. This not only helps in optimising your budget for better performance but also ensures that you're able to achieve your advertising objectives more efficiently.

Effectively managing your Google Ads budget requires a strategic approach that combines understanding your advertising goals, analysing your market and competition, calculating your initial budget, and continuously optimising your campaigns for performance. By leveraging Google Ads' powerful tools and features, such as automated bidding strategies and budget management tools, you can ensure that your advertising spend is efficient and aligned with your business objectives. Embracing a test-and-learn mindset and making use of the advanced capabilities Google Ads offers will enable you to navigate the complexities of online advertising and achieve success in your digital marketing efforts.