How An Adwords Pro Determines His Starting Ad Budget
The following ultimate guide was provided for republishing courtesy of WordStream.
Budgeting is a chore. Always. Whether you’re pinching pennies to pay rent for an overpriced studio overlooking a dingy alley, or paving the road to internet moguldom, or both, simultaneously, it drives the average red blooded American up the wall.
There are ways to mitigate the insanity. There is, however, no way to completely avoid budgeting properly without hamstringing yourself down the road. This is especially true in AdWords, where every single click represents either business growth or your hard earned cash becoming kindling.
Unfortunately, resources that take an all-encompassing approach to PPC budgeting are scant. There’s no free app. No extreme couponing. You just have to figure it out.
To help you learn proper AdWords budgeting strategy from the ground up, we’ve put together the following guide. It’s broken into 3 easy-to-digest sections:
- Determining your initial AdWords budget
- Allocating spend across campaign types
- Introducing new campaigns
Does your hatred for the necessary extend past budgeting and into reading? Fret not. We’ve distilled each section into a handful of tweet-length bullets.
Part 1: Determining your initial AdWords budget
You’ve forked over your credit card information and funded your account. You’ve just downloaded AdWords Editor (hopefully steam hasn’t started spewing from your machine yet). Now what?
You need to determine how much money you want to spend in your first quarter. Month. Week. Day. Hour. No. Your first click.
There are four key questions you need to ask yourself when determining your initial AdWords budget:
- How does AdWords fit into my current marketing strategy?
- What (and where) are my competitors spending?
- How much are the CPCs (costs per click) for the keywords I’m bidding on?
- Which KPI (key performance indicator) matters most to me?
Once answered, you’ll be ready to dive into campaign types, optimization, and eventually, expansion. With that in mind, let’s jump into those questions.
How does AdWords fit into my current marketing strategy?
If your business is a staple of the local community or has a well-established online presence (you’re a thought leader driving organic traffic to your site with great SEO and even better content), there’s a good chance leads will show up at your doorstep ready to buy. Conversely, a fledgling business with its finger on the pulse of its target audience can achieve something similar through a rabid social following. Other than time and the salaries of whomever spearheads these efforts, this organic traffic is “free.”
Consider also the other marketing channels you employ in an effort to grow your business. Billboards. Ephemera. Purchased leads. Radio spots. Bench ads. Commercials. Events. Branded urinal cakes?
List out each marketing channel you use and riddle me this: Is the goal of your AdWords account to support existing efforts (to give people a way to use the giveaway code) or supplant them?
What (and where) are my competitors spending?
Google your company’s name. Go ahead, I’ll wait. Now, what do you see at the top of the SERP?
If you’re not new to AdWords, the answer better be “my optimized-to-the-gills branded ad.” If you’re a neophyte, a betting man would wager the screen’s packed with your competitors.
Outside of your branded keywords, you can use a tool like the Keyword Planner or SEMRush (I wouldn’t pay any mind to the qualitative information available, but the keyword lists and sample ads can be valuable) to get an idea of where your competitors are spending their AdWords budgets.
Armed with this information, you can develop strategies to unseat their ads from the SERP, and find (cheaper) keywords nobody was smart enough to bid on before you came along.
How high are the CPCs for the keywords I’m bidding on?
Those tools I just touched on? Bust ‘em out again.
The most rudimentary way to determine a budget is to consider the cost of the keywords you’re bidding on. Should this be the only information you use to establish a budget? Absolutely not. But it’s a nice starting point.
Go to the AdWords Keyword Planner and enter one of your landing pages into the interface on the left. Adjust the remaining parameters accordingly (industry, location, terms to avoid, etc.) and prepare to scroll through pages of prospective keywords along with their relative popularity and advertiser competition.
Now try the same thing with the page that corresponds to each of the products or services you offer. This will no doubt uncover undervalued search terms for you to bid on. Ideally, you want to seek out as many high-traffic, low-competition terms (that also convey commercial intent) as you possibly can. That’s your sweet spot.
We’ll get more in depth on this in a little while, but it boils down to this: Keywords that indicate urgency or familiarity are more likely to convert than ones that don’t. A branded keyword conveys more intent than a competitor keyword. “Limo from Logan to Nashua midnight” is a heck of a lot more urgent (and therefore valuable) than “limo service,” even if the search volume is significantly lower.
Keywords that indicate urgency or familiarity are more likely to convert than ones that don’t.
Which KPIs (key performance indicators) matter most to me?
We’ve saved the most important question for last. A KPI is a measurable value that lets a business or individual gauge performance. Not every business cares about the same thing.
For some, CPA is the be-all-end-all. I cannot tell you how many kickoff calls begin with a cost per acquisition plucked from thin air. If you’re sure this is the KPI for your business, set a goal grounded in logic. If something more concrete is your style, you can figure out how many conversions (RIP converted clicks) tracked through AdWords it takes on-average to result in a bona fide client and determine your actual CPA. You can also leverage your existing CPA from other channels, make that your goal for paid search, and ratchet up or down accordingly once you’ve got more account data to work from.
There are many other KPIs businesses use as barometers for successful AdWords campaigns. If you’re unsure of which is best for your business, here are some resources on performance indicators to get you started:
- AdWords Metrics: How to Make Sense of Your PPC Data – A basic overview of the primary AdWords KPI’s including impressions share, clicks and CTR, CPC, CPA, and wasted budget.
- Easy AdWords Bidding Strategies for Newbies & Math Haters – Includes strategies and formulas for setting initial AdWords bids and determining your CPA.
- Hacking AdWords: Winning at AdWords the Weird Way – Larry Kim’s data-driven approach to maximizing results via Quality Score.
Once you’ve answered these four key questions take a look at your findings. To determine your ideal budget, you’re going to want to think about the KPI(s) that you’re going to judge performance on and the number of sales or leads you’re looking to garner from AdWords. Look at the other marketing channels you’re using and try to apply any relevant goals you’ve established as your AdWords starting point. Finally, consider the cost of keywords you’re likely to bid on by examining the ones your competitors have already chosen (and the ones they haven’t).
- Use data from existing marketing efforts to inform your AdWords account structure and budget.
- Leverage competitor analysis and keyword research to reduce your learning curve and hit the ground running.
- Determine your budget by establishing the KPIs that are most important to your business and working backwards from the figures that represent profitability.
Part 2: Allocating spend across search campaigns
Generally speaking, each of your AdWords search campaigns is going to fall into one the following five categories: research, branded, competitor, high intent, and top performers. Each of these designations is malleable; a few are downright fluid.
Logic dictates that the majority of your budget should be funneled to your top-performing keywords, but what to do with the rest?
More often than not, someone new to paid search is going to build campaigns targeting top of funnel terms. An entrepreneurial yet woefully under-informed personal injury lawyer, for example, will bid on “personal injury lawyer.” Makes sense, right?
Unfortunately, in most industries these types of keywords cost an arm and a leg. For the term above, Google recommends a bid of just over $97. And that’s per click. Yikes. Obviously I chose this keyword to make a point. Is your vertical rife with sky-high CPCs? Maybe. But the biggest issue with these kinds of keywords isn’t even cost: it’s intent.
To illustrate, let’s pretend we’re a scrappy upstart in the highly competitive business card industry. Take a look at these search terms:
Obviously “business cards” has the most average monthly searches. But consider the searchers themselves: Wantrepreneurs who’ll never complete an order. The occasional tween in Cincinnati or Fayetteville working on a project. At a suggested $8.75 per click, I’ll pass. I’d rather spend that $8 on search queries that convey intent (like “buy business cards” or the slightly pricier but more commercial “order business cards”).
Now, this isn’t to say that top of funnel keywords are all overpriced or useless. They’re a great way to build awareness and add prospects to your remarketing lists, but if you bid on them, do so intelligently. Spend $1.33 per click on a query like “free business cards” and remarket the heck out of your prospects. When the time comes for them to take their startup from a Panera Bread to a three floor operation in an iconic Boston landmark, guess who’ll be in the back of their mind?
For some incomprehensible reason the use of branded terms is often contested. That’s poppycock.
Even though your website should be the first thing that show up in the organic results when someone searches for your business, there’s a big old chunk of real estate above the organic listings that your competitors are welcome to claim, if you don’t.
Here’s a real-life example. Earlier this week, after watching the Panthers and Broncos play the first game of NFL season (somewhere in Alabama Harvey Updyke is smiling after all those hits Cam Newton took) I decided I was going to win a big pile of internet money playing daily fantasy football. I searched for DraftKings (whose ads were inescapable in Boston last year) and clicked the first thing I saw:
I was shocked to be greeted by something other than a garish Hulk-green typeface. So shocked, in fact, that I gave DraftKings some free advice:
If my testimonial isn’t enough to convince you, consider this. Competitors are forced to pay a premium to bid on your brand, but the CPCs you’ll see for the same terms will be considerably cheaper. Your domain and landing page copy will be hyper-relevant to the keywords, resulting in maxed out Quality Scores and lower costs.
In short, while branded terms should by no means be the only ones you’re bidding on, allocating spend to ensure SERP domination is a must.
Remember everything I said about branded terms? When it comes to bidding on your competitors the opposite holds true. Just as you did with the top-of-funnel terms, you’re going to want to leverage research and common sense to ensure you’re not blowing budget on search queries that will never convert.
One crucial mistake advertisers make when they start advertising on competitors is bidding on the wrong competitors. As a rule of thumb, when choosing competitors to bid on, make sure you’re choosing companies that you are actually competing against. Choose competitors who you feel you have a competitive advantage over, whether it be better prices, bigger supply, or whatever. In other words: don’t be like fantasydraft.com
If top of the funnel terms are a (costly) wild goose chase, high-intent keywords are golden eggs dropped into your lap.
High-intent keywords come in two flavors: “buy now” and “product.” You’re going to want to ensure the biggest slice of your search budget is being used to bid on keywords that fall into one of these categories (bonus points if you can unearth search terms that live somewhere in between).
“Buy now” keywords are those which, broadly speaking, indicate that a prospect is ready to pull the trigger on your product or service. They’ve done their research (or been referred by a trusted confidant) and now it’s time to buy. Typically, “buy now” keywords are comprised of top of the funnel terms appended with words like:
- Free shipping
To illustrate the difference between research and intent-to purchase, take a look at the keyword “candle” followed by buy-now iterations (why candles, you might be wondering? In the time it’s taken to write and edit this guide I’ve burned through an entire warm tobacco pipe scented candle: the lengths I go to for you people):
Now, we’ll address the obvious first: search volume for “candles” is exponentially greater than that of the other keywords combined. But the other keywords show more intent to buy.
It goes without saying, but be sure to address the specific modifier you’re bidding on in your ad copy: if you’re shilling gluten-free soy-based cardamom-scented candles and bidding on “coupons for candles,” use an expanded text ad or employ ad extensions to convey the quality and offer a coupon code in your ad itself.
Product/service keywords include:
- Branded searches (obviously)
- Specific products or services (“iPhone 6”, “roof repair” etc.)
- Product categories (“summer dresses”, “insect repellant”, “beach accessories” etc.)
This is a much broader category, and not every sort of product keyword is going to become a top-converting term for your business. That being said, the only way to figure out what doesn’t work is to test everything in as calculated a way as you possibly can. If something breaks the bank, pause it. If something converts at a CPA well below the account average, you’ve got a top converter on your hands.
Once you’ve been running your AdWords account for at least 30 days, you’ll have an idea of which keywords are worth your money and which aren’t. The middling terms—ones that your ads show for consistently but never seem to earn clicks—represent opportunity. Focus you efforts on writing great ad copy for these keywords. Make changes to your landing page. Triple-check your ad extensions. If, after a few weeks you’re still not seeing any clicks (or worse, you’re seeing clicks but no conversions), put ‘em on the chopping block.
By moving your top performing keywords into their own campaign(s) you afford yourself more control over how much of your budget is spent on keywords that have, historically, done well. The advantage? No longer is the single converting keyword in an ad group lumped in with twelve other terms that do nothing but syphon your budget away.
A word of warning, though: by moving a keyword out of its original ad group, you lose. Since in the scenario I’m describing above the account is relatively new, it makes more sense to move underperforming keywords into new campaigns.
So, the million-dollar question: how do we actually split up the budget among these different campaigns?
If we were to visualize search campaign budget breakdown, it’d look something like this:
The numbers you see in the pie chart above are completely superfluous, but the relative distribution of spend between campaign types is certainly not.
As you can see, the majority of your budget should be spent on the keywords that have the greatest chance of converting. The exception is branded. While branded keywords represent intent (read: familiarity), they’ve got a low ceiling and don’t necessarily represent “net-new” customers. So while it’s important to dominate your competition when it comes to your branded terms, by virtue of comparatively low volume and maxed out quality scores (thanks to inimitable relevance), your budget should be most heavily concentrated on those “buy now” and product-centric high-intent keywords.
And remember: these categories are fluid. High-intent keywords should be your top performers, but in some instances that isn’t the case. I’ve seen accounts where a competitor’s brand name had better conversion volume and CPA than any other keyword bid on. Every niche, every account, is different.When in doubt, pay close attention to the wealth of data available to you and adjust accordingly.
- Focus the majority of your budget on high-intent keywords (including branded terms).
- Top-of-funnel keywords can eat a hole in your wallet: there are better (cheaper) ways to reach a wide audience.
- Adjust budget allocation on a weekly basis to ensure maximum ROI.
Part 3: Budgeting For Everything Else AdWords Has To Offer
Search is the backbone of most AdWords accounts, but the platform gives advertisers a few other options, too: display and remarketing (usually through display, though remarketing on search can also be effective). Of course, there’s also shopping, but that’s a post unto itself.
Depending on your vertical, these alternatives can complement or completely replace traditional search advertising. Either way, they can drastically impact the way you spend money on AdWords. Let’s take a closer look.
The clicks are cheaper than they are on traditional search, but with the significant drop off in direct conversions, is the Google Display Network really worth it?
The short answer is yes. A thousand times yes.
Remember our old pal intent? Well, when you use the GDN, the people seeing your ads don’t really have much of it. Display is closer to traditional advertising (think billboards) than search, with the added benefits of better targeting and on-demand analytics.
Outside of remarketing, the Display Network has three main functions—brand awareness, showcasing your product, and helping a lengthy sales process along—and puts a plethora of targeting options at your disposal. There’s got to be a catch, right?
The lack of conversions directly attributable to the GDN can make it hard to justify, especially for small businesses with limited budgets. That being said, there are ways to dip your toes in display without lighting money on fire.
When I work with clients looking to give Display a go, I recommend they start with managed placements or In-Market audiences. Without going into too much detail, this gives you the ability to show banner creative on specific websites or to people whose browsing history indicates that their interests align with what you offer.
If you have success here, check out some of these other strategies and grow your Display budget to create the perfect complementary network strategy.
Let me begin with the following: if you run an ecommerce business and dynamic remarketing (remarketing ads that show site visitors the product or products they actually looked at on your website) isn’t set up, take the rest of your day to follow this guide. Future you will thank me from atop a pile of greenbacks.
Really though. Remarketing is an essential component of AdWords. Every business in every vertical can gain from its use.
An easy way to determine your initial remarketing budget is to calculate the percentage of conversions that come from returning site visitors and then allocate that same percentage of your spend to remarketing. Too abstract? Let’s look at an example.
Say your online candle store garnered 1,000 clicks last week and sold 100 of the finest non-GMO, wood-wick artisan candles last week on AdWords, and 10 of them were purchased by returning visitors. Assigning 10% of your search budget to remarketing gives you the chance to bring the 900 non-converters back to your website.
Some account managers are opposed to remarketing because it means you’re paying to bring the same person to your site multiple times. But isn’t that better than said person never converting, or worse still, buying something from your competitor? Plus, repeat visitors are actually more likely to convert!
- Remarketing (especially dynamic remarketing) is not optional: maximize your budget by convincing more visitors to convert.
- Let the Display Network do your top-of-funnel dirty work so your search budget can be saved for more qualified prospects.
A final word: Expanding to other platforms
At long last, your AdWords budgeting bootcamp has drawn to a close!
You’ve determined your starting point. You’ve carefully allocated bread to your search campaigns and begun growing your budget to encompass everything AdWords has to offer. Index finger cramp? Rub some dirt on it. You’re killing it, but you’re not finished.
Outside of perpetual optimization—necessary if you want to maximize your paid search budget—there are other platforms you can expand your efforts to. While Bing Ads is the logical next step, you might find that Facebook advertising (lead ads, anyone?) or LinkedIn (but probably Facebook) provides excellent bang for your buck as well.
What are you waiting for?
Allen is a content marketing specialist and the reigning fantasy football champion at WordStream. He enjoys couth menswear, dank eats, and the dulcet tones of the Wu-Tang Clan. If you know what’s good for you, you’ll follow him on LinkedIn
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