How to get your AdWords bids and budget right

How to get your AdWords bids and budget right

Read how to set your AdWords maximum bids and daily budgets like a pro.

A fundamental flawHow to set your Google AdWords budget

Many AdWords advertisers have a fundamental flaw in their understanding of cost-per-click marketing as offered by Google AdWords.

If you've worked in marketing for many years then you probably grew up in a world where the possibility of measuring the effectiveness of your marketing initiatives was very limited.

Your marketing manager gave you a fixed amount each month which you could use to brand your company and promote your products.

At year's end you all sat down and looked at your sales figures and tried to figure out whether it was your marketing budget which had caused sales to increase or decrease.

Honestly, how could anybody know?

Google AdWords is completely different

With Google AdWords you can quantify your returns and fairly accurately gauge how much revenue and profit you're getting from your ads.

If you also have a good idea of how loyal your new customers are likely to be then you can make a pretty reliable estimate of your ROI (Return on Investment) from Google AdWords.

This means that you should drop your “housekeeping budget” thinking and any idea you have of setting aside a fixed monthly amount for AdWords.

It doesn't matter whether you pay €10, €1,000 or even €100,000 a month.

What matters is that there is the highest possible balance in your bank account at the end of the month.

Fix a maximum price per conversion

As a professional AdWords advertiser the very first thing you should do is decide roughly how much you're willing to pay for each conversion. A conversion can for instance be an order, a newsletter subscription or a customer inquiry.

The maximum conversion price can be set as a fixed amount in euro and cents or as a percentage of either the average order value or your contribution margin before AdWords costs.

If you sell children's clothing, for example, you can decide that your ‘pain threshhold' is 15% of the retail price ex. VAT.

If, on the other hand, your work doesn't involve online sales – perhaps you are a carpenter, a web designer or photographer – then perhaps you prefer to pay a maximum of, say, €10 for each customer inquiry/sale you get through your website.

The percentage or amount you decide on doesn't have to involve a comprehensive scientific analysis.

Having even the most roughly estimated upper limit for the conversion price is always better than having a fixed monthly AdWords budget.

Once you know how much you're ready to pay for each conversion then you can use this amount to control your monthly AdWords outlay.

If in any given month you can achieve a high conversion rate and at the same time keep the cost of each individual conversion as low as possible, well, that's just perfect.

Your AdWords budget may be ballooning but your sales will be too, and faster.

However, if you discover that your price per conversion is exceeding your ‘pain threshold' then you simply freeze the poorly performing keywords, ad groups and campaigns and use less money on AdWords for that month.

“Limited by budget” means limited profits

If your AdWords interface is telling you that your ad campaign is “Limited by budget” then your alarm bells should start ringing.

In principle, you should NEVER hit your daily budget limit.

The message “Limited by budget” means, in effect, that you have said no to making money. Assuming, of course, that you're running keywords and ads which you know from experience to yield a good return.

If you're completely new to Google AdWords then it's quite alright to utilise and reach the daily budget until you achieve a level of control over your AdWords account and you are only running profitable keywords and ads.

Similarly, if you're a more experienced but cautious AdWords user who has traditionally used a fixed monthly budget you can gradually raise the budget limit and slowly build confidence in the concept of ‘unlimited budget' [order] AdWords.

Conclusion

The answer to questions like “How much should I be spending on AdWords each day?” is “You need to use exactly the amount which gives you the best return on your bottom line.”

The most immediate implication of this answer is that your AdWords spend should not be rigidly fixed but allowed to fluctuate from day to day.

You just need to ensure that your maximum bid on keywords doesn't exceed what you're willing to pay per conversion.

Are you ready to take the plunge?

(Remember to use a Google Analytics dashboards for AdWords to track your progress)

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  • About the author

This guide to optimizing your AdWords budget and bidding is written by Troels Kjems.

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