Many first time users of AdWords will be presented with that Daily Budget field whilst creating their first account and wonder to themselves: “I really have no clue how much I need to spend…” And how would they? They are entering a market they know little about (from an AdWords perspective), they will most likely have no idea what sort of average CPC they are going to be faced with and they might have a small amount of knowledge with regards to how much traffic they can expect. But let’s face it; selecting a suitable daily budget can be a tricky task for even a regular AdWords user at times. That’s why this article is going to help both new and seasoned advertisers alike when it comes to choosing those starting budgets.
What is the Daily Budget?
It might seem like an elementary question but it’s essential to understand the daily budget fully before making a decision on its value.
After setting a daily budget for a campaign the system will attempt to show your ads as much as possible throughout the day until your budget is exhausted. Now on the Standard Delivery setting the system will try to spread this throughout the day (if your budget isn't sufficient to show ads 100% of the time) whereas the Accelerated Delivery method will show your ads 100% of the time from the start of your schedule until the budget is met (which means your ads might only show for the first half of the day for example).
If you are a regular AdWords user then you will most likely have noticed that sometimes you will spend more or less than the set budget on a given day. This is a feature of the system as it wants to ensure your ad will continue to run a bit longer on popular days to avoid you missing out on business. The daily budget is therefore used as an average over a 30.4 day month meaning that on a single day you can receive up to 20% more costs than your daily budget but on other days your spend will be less to balance out the difference.
Just remember that changing or pausing your budget in the middle of this time period might result in discrepancies as you can imagine!
How to select an appropriate starting budget?
Before we get technical it’s worth noting that each industry is different and advertisers can have different marketing goals. A business with small profit margins that needs to focus on sales will set a different budget to a business that has unlimited funds to spend on a branding campaign for example. I use the following practices for a ‘standard’ sales / lead generation search campaign.
The Basic Approach
Quite simply, your best approach is to start with a smaller budget that is still high enough to gather data but not to the extent where you could spend a lot of money on poor and irrelevant clicks. As each day progresses it’s important to review the performance of the account (especially the Search Term Report), increase the budget gradually as you see fit and eventually if you notice that you have achieved a fairly steady return on investment it’s time to crank the budget up significantly. If you feel that you have eliminated the risks of wasting your budget then it’s worth being aware of the “Limited By Budget” alerts as you will want to expose your ads as frequently as possible to potential customers.
The Advanced Approach
If you want to try to set a more accurate daily budget from the word go then the first step is to work out a rough estimate of what your average CPC is going to be. This can be done with the Keyword Planner or even by creating a dummy ad group in AdWords Editor to review what the first page bid estimates are; just bare in mind that both methods are purely estimates and shouldn’t be considered as accurate guidelines. With an average CPC obtained you can now start applying it to other variables and get an idea of how many clicks you can expect for certain budgets.
Let’s say that you've worked out your average CPC is going to be around $0.50 and Analytics reports that on average for every 20 visitors on your website (via organic traffic) you receive a lead. Ideally your marketing goal is to receive around 5 leads a day so a quick calculation can be made:
(Average number of visitors per conversion) x (Number of desired conversions per day) x Average CPC = Required Daily Budget
20 x 5 x 0.50 = Daily Budget of $50
Realistically though, traffic from AdWords is likely to convert a lot better than organic traffic as your campaign in most cases should be targeted and not too generic meaning that you could expect to have higher conversion rates.
Nothing is Set in Stone
While both these approaches can get you started with a workable daily budget it’s important to remember that neither of them have to stay at that initial value. Perhaps your overall marketing budget isn't large initially, by starting small you can generate sales and then re-invest the profits to increase your daily budget and hopefully in turn generate even more sales allowing the cycle to continue. This is just one scenario of many; it’s up to you to decide what best suits your marketing goals!
It's also worth noting that there are other strategies out there so feel free to leave your own thoughts and ideas in the comments below
I have been managing AdWords accounts for over 8 years now at an international marketing agency level and also as a freelancer. I am very passionate about Google's PPC platform and pretty much anything else that is Google related. My theory in life is to learn something new every day and this community is definitely a good place to do so; I would recommend anyone reading this to stick around as it's an excellent source of information with great people contributing to it.
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