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Budgeting Strategy

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# 1
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Hi Everyone. Smiley Happy

 

Let’s say I have a budget of $1500 a month. Right now I have set it to $50/day and I find there is a fair bit of ‘campaign-start-and-stop’ thus not getting enough clicks and it leads to poor activity. What if:

 

  1. I increase the daily budget to let’s say $150/day and run for shorter period or 10 days in a given month?
  2. Let it run off leash and keep an eye to stop the campaign for the rest of the month once it’s reaches its budgetary limit of $1500?

I know both of above strategies would boost traffic consistency but not sure which would be better and what would my CTR is going to look like at the end of the month?

 

I would be looking at setting all my KWs to exact match.

 

Thanks in advance.

 

Razz

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Accepted by topic author razzc
September 2015

Re: Budgeting Strategy

Top Contributor
# 6
Top Contributor

Hi razzc, this is actually a good example of what I mentioned in my last post; the answer is really there.  While still in a period of testing you're going to need a sufficient daily budget to properly test.  If the CPC is quite high, as yours is, then that unfortunately means a relatively high daily budget.  You really cannot test with a low budget/high CPC because you're missing too big a chunk of the potential clicks to make any accurate assessment of potential.

 

Let's assume your Keyword has a CPC of $20 and a CTR of 10%.  Let's also assume that there are 1000 impressions available per day for this Keyword.  Simple math (ignoring things like the auction and QS, etc.) says that if you want your Ad shown for every impression, you're going to need a daily budget of $2000. (What?  Is that right?  Yes, it is.  1000 impressions at 10% CTR means 100 clicks, 100 clicks at $20 a click is $2000).  Now, you and everyone else reading this thread is now rolling around on the floor laughing because you can't possibly afford $2000 a day, so you decide to spend only $100 a day - that's still a lot of money right?  And it should get you 5 clicks a day so that's OK.  Well, yes, but it's not really going to be a reliable indicator of the performance of a $2000 a day campaign.

 

If all the figures from above are the same, with a $100 a day budget, yes, you can afford 5 clicks.  This means Google can only show your Ad once in every 20 impressions and now the Conversion rate comes along to play.  If every single click converted, this would be fine - you'd get a proportional income, would have a positive ROI and could increase your budget.  Within a couple of weeks you'd be hitting that $2000 a day mark.  But Conversion rates are never 100% and with tough sells they could easily be in low single figure percentages.  So you're already only showing your Ad for 5% of the available impressions and now you've got to realise that each of the clicks you get has only a small chance of actually converting.

 

With a sample size as small as 5% your results really aren't statistically significant and this can cut both ways.  Let's say your $100 a day brings 5 clicks and a single conversion - that's a 20% conversion rate.  So you get excited that AdWords is going to bring you a huge profit, get the bank to lend you a billion dollars and set the business running.  It's only when you start paying that $2000 a day that you see your conversion rate is actually only 3%, why's that?  Nothing's gone wrong, it's just that the 20% figure was based upon a statistically insignificant sample.  Anyone who's run AdWords for any length of time will tell you conversions can have weird patterns - especially when they're normally relatively infrequent and/or high value.  I've got clients who'll have no conversions at all for 2 days then have 3 on the next day alone, I've others who convert 50 times a day but sometimes it's only 40 and other days it's 70.  Even when you're hitting 100% of those available impressions, conversions will vary.  When you're only taking a tiny slice of those impressions the numbers you'll see are pretty meaningless.  It works the other way of course.  You're $100 a day test may show no impressions at all, a 0% conversion rate so you decide to junk your business, but that real 3% may have been all you needed to turn a huge profit...

 

Now, if you're very, very lucky, you could be in a situation where the limited test brings in enough cash to quickly increase the test budget and if the luck holds you may be able to get to the $2000 a day mark quite quickly and see that real 3%.  But life's not usually like that when it comes to money, is it?  The more likely scenario is that you'll get the occasional conversion, maybe just enough to make it seem like it might work so you carry on paying $100 a day for a month, then 2 months, then 3, fiddling here and there, tuning your Account and your website.  Eventually, after many months, you decide AdWords is a waste of time, cancel your Account and go on a worldwide web tour telling everyone Google is evil.

 

So, what should you do?

 

As I said at the beginning of this lecture, you should really treat AdWords as a business proposition and assess, and budget for, a proper test with a defined scope, objectives and limits.   You need to work out a required daily budget to meet a reasonable percentage of daily impressions (I'd say anything above 75% but really the higher the better).  You need to work out how many days it needs to run for to be a good test and you need to know what your conversion rate or cost/conversion needs to be.  You need to allocate the money, run the test and examine the results.

 

Yes, OK, as I said in my last post, most of us are going to go the $50/10 clicks a day route while testing.  But if you want to do it right...

 

Jon

AdWords Top Contributor Google+ Profile | Partner Profile | AdWords Audits

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Re: Budgeting Strategy

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# 2
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Hello Razzc,

 

Generally speaking these budget strategies shouldn't have a noticeable change on CTR. Are you using negative keywords and regularly reviewing your search term report? This might help with the poor activity.  

 

If you do set all your keywords to exact match generally speaking that would improve performance but it would dramatically drop your clicks and impressions.

Re: Budgeting Strategy

Top Contributor
# 3
Top Contributor

Hi razzc, number of things to look at there...

 

First off, I'm not sure what you mean by "campaign-start-and-stop".  $50 a day is a reasonable budget so unless your average CPC is quite high you should be getting a good few clicks per day.  If you're not, it's probably down to the Keywords you've chosen, your Ads, or other settings rather than the budget itself.


As I say all the time, AdWords should not be about a "budget" or a "spend" that's fixed without any reference to anything else.     Assuming we're discussing an ecommerce situation, there's really only two scenarios with AdWords:

 

1)  You pay for AdWords and you make a Net loss on that spend.

2)  You pay for AdWords and you make a Net profit on that spend.

 

If your Account is making a Net profit, your spend (daily budget) should only be limited by how many orders you can physically process in a given period or the total worldwide demand for that product.  In short, if your budget could be $1,000,000 a day, it should be.

 

If your Accont is making a Net loss, you should work on the elements of that Account and the website itself until you are either making a profit, in which case 2) above applies, or you are satisfied that there's nothing that can be done to make a profit, in which case you should stop advertising. During the period of testing and improvement your budget should be just sufficient to provide a reasonable data sample to work with.  It's impossible to say what this might be for any given Account but I'd like no fewer than 10 clicks per Ad Group per day.

 

So, in short, talking about a "budget" without any reference to the actual Account performance really makes no sense. If you're making a profit, the sky is the limit, if you're not you should be spending as little as you should until you are making a profit, or you shouldn't be advertising at all.

 

Jon

AdWords Top Contributor Google+ Profile | Partner Profile | AdWords Audits

Re: Budgeting Strategy

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# 4
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@JeremyL

 

Thanks for your time Jon and JeremyL. Appreciate it.Smiley Happy

 

Jon you're spot on. The Avg. CPC is in double digit, hovering around $15 - $23 so my ad is not on top for too long. It drops down the ranks a fair bit and it cops zillions of impressions thus my CTR is sitting at 0.89% and I am over $200 out of pocket in no time. I've got around 21 clicks with over 3000 impressions. Not to mention not even one query out of it all.

 

Originally when the campaign started, I got 'help' from a Client Manager from Google Engage. Who suggested that I set my daily budget at $50 and go for broad match. I paid for searches ranging from Hot Water Plumber to Plumber In Hot Water. That's where I had to pause the campaign. Something they should have never suggested. Board Match + High CPC + Low Budget just don't mix.

 

Reading many articles here gave me an idea of going for Exact/Phrase Match and it's working because at least I am getting relevant triggers. I'ts just activity is very low because of high CPC and daily budget of $50.

 

That's why I posted this question to see if increasing the daily budget to 150 and running it for 10 days a month OR setting a daily budget of 500 and running it for shorter period of time would get some activity going. I need to get my CTR and QS up to reduce CPC.

 

I appreciate JeremeyL's idea of pulling Search Term Reports but because of the high CPC, trial and error will turn out to be a very costly exercise. Smiley Happy This is the very reason I have gone for exact match. It’s giving me lesser clicks but at least they are relevant.

 

Thanks again guys. I really appreciate you taking time out for your replies.

 

Razz

 

 

Re: Budgeting Strategy

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# 5
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Hi JeremyL, Smiley Happy

 

Improving the performance - wouldn't it bring the CPC down?

 

Thanks.

Marked as Best Answer.
Solution
Accepted by topic author razzc
September 2015

Re: Budgeting Strategy

Top Contributor
# 6
Top Contributor

Hi razzc, this is actually a good example of what I mentioned in my last post; the answer is really there.  While still in a period of testing you're going to need a sufficient daily budget to properly test.  If the CPC is quite high, as yours is, then that unfortunately means a relatively high daily budget.  You really cannot test with a low budget/high CPC because you're missing too big a chunk of the potential clicks to make any accurate assessment of potential.

 

Let's assume your Keyword has a CPC of $20 and a CTR of 10%.  Let's also assume that there are 1000 impressions available per day for this Keyword.  Simple math (ignoring things like the auction and QS, etc.) says that if you want your Ad shown for every impression, you're going to need a daily budget of $2000. (What?  Is that right?  Yes, it is.  1000 impressions at 10% CTR means 100 clicks, 100 clicks at $20 a click is $2000).  Now, you and everyone else reading this thread is now rolling around on the floor laughing because you can't possibly afford $2000 a day, so you decide to spend only $100 a day - that's still a lot of money right?  And it should get you 5 clicks a day so that's OK.  Well, yes, but it's not really going to be a reliable indicator of the performance of a $2000 a day campaign.

 

If all the figures from above are the same, with a $100 a day budget, yes, you can afford 5 clicks.  This means Google can only show your Ad once in every 20 impressions and now the Conversion rate comes along to play.  If every single click converted, this would be fine - you'd get a proportional income, would have a positive ROI and could increase your budget.  Within a couple of weeks you'd be hitting that $2000 a day mark.  But Conversion rates are never 100% and with tough sells they could easily be in low single figure percentages.  So you're already only showing your Ad for 5% of the available impressions and now you've got to realise that each of the clicks you get has only a small chance of actually converting.

 

With a sample size as small as 5% your results really aren't statistically significant and this can cut both ways.  Let's say your $100 a day brings 5 clicks and a single conversion - that's a 20% conversion rate.  So you get excited that AdWords is going to bring you a huge profit, get the bank to lend you a billion dollars and set the business running.  It's only when you start paying that $2000 a day that you see your conversion rate is actually only 3%, why's that?  Nothing's gone wrong, it's just that the 20% figure was based upon a statistically insignificant sample.  Anyone who's run AdWords for any length of time will tell you conversions can have weird patterns - especially when they're normally relatively infrequent and/or high value.  I've got clients who'll have no conversions at all for 2 days then have 3 on the next day alone, I've others who convert 50 times a day but sometimes it's only 40 and other days it's 70.  Even when you're hitting 100% of those available impressions, conversions will vary.  When you're only taking a tiny slice of those impressions the numbers you'll see are pretty meaningless.  It works the other way of course.  You're $100 a day test may show no impressions at all, a 0% conversion rate so you decide to junk your business, but that real 3% may have been all you needed to turn a huge profit...

 

Now, if you're very, very lucky, you could be in a situation where the limited test brings in enough cash to quickly increase the test budget and if the luck holds you may be able to get to the $2000 a day mark quite quickly and see that real 3%.  But life's not usually like that when it comes to money, is it?  The more likely scenario is that you'll get the occasional conversion, maybe just enough to make it seem like it might work so you carry on paying $100 a day for a month, then 2 months, then 3, fiddling here and there, tuning your Account and your website.  Eventually, after many months, you decide AdWords is a waste of time, cancel your Account and go on a worldwide web tour telling everyone Google is evil.

 

So, what should you do?

 

As I said at the beginning of this lecture, you should really treat AdWords as a business proposition and assess, and budget for, a proper test with a defined scope, objectives and limits.   You need to work out a required daily budget to meet a reasonable percentage of daily impressions (I'd say anything above 75% but really the higher the better).  You need to work out how many days it needs to run for to be a good test and you need to know what your conversion rate or cost/conversion needs to be.  You need to allocate the money, run the test and examine the results.

 

Yes, OK, as I said in my last post, most of us are going to go the $50/10 clicks a day route while testing.  But if you want to do it right...

 

Jon

AdWords Top Contributor Google+ Profile | Partner Profile | AdWords Audits

Re: Budgeting Strategy

Follower ✭ ✭ ☆
# 7
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Well lectured Jon and as always, very well put too. Five stars for you! Smiley Happy

 

I am probably going to have to bite the bullet and double the daily budget and hope the CTR will get better thus the CPC.

 

Love your maths.

 

Thanks again. Razz.