Google Ads Budget: How to Plan for PPC Spending

If you’re new to pay-per-click (PPC) advertising, you’ll probably start with a small test budget and work your way up. However, experimenting with a test version in Google Ads budget won’t help you learn the true concepts behind real budget planning. The hit-and-hope method can spoil your budget in the long-run.

However, if you’re looking to understand budget planning the professional way, we’re here to help you out. Through this article, we’ll cover the following questions and points to help you master your Google Ads budget planning:

• Define your campaign goal and target audience.
• How much should I spend on my PPC Campaign?
• How to start a Google Ads budget?
• How To Think Long-Term For Your Google Ads Budget?
• How do I calculate the expected revenue?
• How do I calculate ROAS (Return on Advertising Spend)?
• How do I calculate EPC?
• Calculating CPA (cost per acquisition)
• Should I use a shared budget in my campaign?
• How to make your budget and bids work for you?

By reviewing these essential areas, you’ll be able to make a professional budget plan to give you a leg-up in your new advertising or marketing endeavor.

Let’s get started.

1. Define Your Campaign Goal and Target Audience

The first important step is to understand why you want to manage your campaign.

What’s your overall objective? Developing a crystal clear picture of your target audience’s behavior, interests, geographical location, and use of devices is essential for beginning your budget.

Since it’s near impossible to calculate a budget without knowing why you’re advertising in the first place, allow these points to come to mind when putting together your plan.

Brand Awareness

Over the next 20 days, you’ll want to show your ad to as many people within your target audience as possible. Make sure you know who these people are and that they know you.

Lead Generation

Make it your plan to gain 200 customers over the next seven days, or 100 users to complete your online form over the next week. Set a goal that helps you achieve leads.

ROI-Focused Customer Acquisition

For instance, try aiming to gain ten customers in one week by paying no more than $350 a customer (CPA).

Generate Revenue

Make it your goal to develop 30 conversions within the next seven days.

2. How Much Should I Spend on My PPC Campaign?

Once you’ve finished your audience targeting, you’re likely looking for answers that direct you towards spending for improved results. Going in blind and spending your entire budget without results is what we want to avoid.

Therefore, figure out:

• The minimum daily amount you’ll need to spend on Google Ads
• Your monthly budget for Google Ads

Your Google Ads budget depends on three components:

1. The cost of your industry’s keyword
2. Website conversion rate
3. The average lifetime value of your customer (LTV)

So, let’s say you have an ad that has a CPC of $0.25, and you’d like to receive 300 daily ad clicks on it.

With these figures you can calculate an estimated daily budget:

.25 x 300 = $75

Here, 25 cents is the maximum amount you’d be charged if 25 cents is your maximum CPC. That being said, the actual amount you could be charged for clicks can range, depending on the individual ad auction’s variables.

All you have to remember is if you set your maximum CPC to 25 cents per click, you’ll never pay over that amount. You may just pay less.

PPC Budget Calculator Formulas

Traffic required to meet your goal:

• Required traffic = customers needed / conversion rate 

By using both your traffic and average CPC estimate, you can then build your budget with this formula:

• Traffic required X average CPC = total budget 

For estimating high and low ranges, use that formula twice:

• Highest traffic required X highest average CPC = highest total budget 
• Lowest traffic required X lowest average CPC = lowest total budget 

Before Finalizing Your Budget, Learn about customer LTV (Lifetime Value)

This value is simply what you expect from each of your customers over their lifetime. This amount is the expected future sum from each customer, which includes recurring revenues, up-sells, additional purchases, customer referrals, as well as any other generated revenue.

Calculate the LTV of your customers by using this formula:

LTV = Annual profit of customer X number of years the customer remains with you

Taking this into consideration, if you realize the LTV of a customer will be $10,000, it will make the most sense to pay $1 for every click. On the other hand, if the LTV of a customer is $10, then you’ll be able to tell that spending $1 on every click is a substantial amount. Calculating your PPC  advertising budget is actually just calculating your customers’ value.

3. How to Start a Google Ads Budget

By using the CPC of your selected amount of search phrases, you can set a minimum budget of what you think it will cost to generate a minimum of 100 clicks on your advertisement. However, the more you can afford to pay for, the more optimized your future ads will be for increased profitability.

Make sure you test at least three ads to find out which one will be the most effective, and why.

Taking this into consideration, if the average CPC of three of your ads is $5, a $1,500 per month investment should be made into your Google Ads Budget. The budget that shows up in your Ads account must be entered as a daily budget. All you need to do to achieve this is to divide your monthly budget by 30.

It’s possible that you won’t make a profit right away. It’s rare when businesses create perfectly optimized ads on their first go.

Don’t let this discourage you.

Instead, look at the first three months of your campaign as an experimental phase that generates useful data to help optimize your ads for the next stage.

4. How To Think Long-Term For Your Google Ads Budget

Once you’ve acquired plenty of data for your conversion rates, click-through rates, typical CPC, and customer value, you can then create advertisements that are almost guaranteed to bring in profit.

Let’s look at it this way:

Let’s say you are already spending huge amount on your campaigns but in return, you have a good conversion rate and you are making reasonable profit then spending more on your campaign deserved to be scaling up.

More you spend on your high return campaign, the higher conversion rate you will always get.

Learn More: How to maximize PPC Budget

5. How Can I Calculate Expected Revenue?

First thing’s first: you need to understand your average order value (AOV) based on your previous data. This value is based on the average dollar amount you’ve spent every time a customer makes an order through mobile apps or a website.

This is how you calculate your company’s AOV:

Total revenue / number of orders

At this point, your expected revenue will be:

Average order value X new customers.

Let’s say that our average order value is $600 and you are expecting new customers 100 in next few weeks.

Your expected revenue calculation would look something like this:

Expected Revenue = Average Order Value x New Customers

Expected Revenue = $600 x 100

Expected Revenue = $60,000

Now let’s assume CPC is $2 – $2.5

And on the highest traffic you can expect 5000 and lowest traffic 2500

5000 X 2.5 = $12500

And on lowest end 2500 X 2 = $5000

In total, you could expect $60,000 from the advertising campaign that could cost you averagely between $5K and $12k.

6. How Can I Calculate My ROAS (Return on Advertising Spend)?

The best way to calculate your ROAS is by following this formula:

(Revenue – Ad Spend) / Ad Spend

You will calculate this twice – once for the low ad spend and again for the high ad spend.

Let’s say your low ad spend is $5000, and your high ad spend $12,500 as we calculated previously.

Then, your calculations will look like:

Low ROAS = ($60,000 – $12,500) / $12,500

= 380%

High ROAS = ($60,000 – $5000) / $5000

= 1100%

Based on this information, your ROAS would lie between 380% and 1100%.

Learn More: Your Guide to Google Ads ROAS Bidding Strategy   

7. How Can I Calculate My Earning Per Click (EPC)?

Your EPC can be calculated by multiplying your conversion rate by your customer value.

Your conversion rate is the percentage of individuals who click on your ad and become paying customers. Your customer value is the amount of money you earn from one new customer, subtracted by the fulfillment costs of that customer.

So, your formula would look like:

Customer Value X Conversion RateLet’s use an example: if an average customer brings in $100 at a 1% conversion rate, your EPC is $1.00.

8. How Can I Calculate My Cost per Acquisition (CPA)?

You can calculate your CPA by following this formula:

(Sales costs + marketing costs) / Number of new customers

For instance, if a company has one salesperson that earns an annual income of $70,000 with annual business costs of $10,000 (transportation, office supplies, etc.), and the company spends another $100,000 every year on marketing, with four new customers every month, the CPA can be calculated as:

($80,000 in sales costs + $100,000 in marketing costs) / 500 new customers per year = $360 per customer

By knowing cost per acquisition of a customer you can understand how much money is being spent on this process and either you are getting so much profit on it or not. Now $360 per customer is big amount but you have to make sure your product must be of high profit so that this cost could be bearable otherwise you have to rethink on your budget and customer acquisition cost.

This can help you plan your campaign budget accordingly by calculating what will be your CPA and profit you will make after conversion on your campaign.

9. Should I Use a Shared Budget in My Campaign?

Google Ads budget planning allows you to either assign a daily budget for each individual campaign or use shared budget to allocate budget across multiple campaigns.

A shared budget is ideal if you don’t have a lot of time to spend setting up and monitoring individual campaign budgets, but would still like to get the most clicks possible for your ads within a set budget.

Make sure you have enough budget which is to be shared amongst different campaign. Nobody will like to divide only $100 monthly budget on multiple campaigns. You must have sufficient budget.

Say you’ve set aside $200 per day, split evenly between two campaigns. On a given day, one campaign could get fewer impressions and clicks than usual, resulting in only $80 spent. With a shared budget, Google Ads could take that leftover $20 and reallocate it to the second campaign to maximize your campaign results overall.

Using shared budgets allows automatic adjustments across campaigns, so you don’t have to constantly monitor and change individual campaign budgets throughout the day.

So if you have good budget and campaigns are performing well, you can go for shared budget and bring ease in routine.

10. How to make your budget and bids work for you?

You should keep in mind that in many ways, PPC budgets and bids are two sides of the same coin.

Both affect ad placements in their separate ways. So, make sure both are optimized for optimum results. Optimization is easier with Google Ads budget as it only takes into account what you can afford to spend on your campaigns.

Bidding, on the other hand, can have many strategy layers involved.

When planning your campaigns, look specifically at how your bids may affect your budget to plan accordingly.

Also, keep in mind:

• The bid you set is an important factor to determine how much of your set budget you receive. A budget of $1,000 will take you a lot further with a $1.50 per click bid as opposed to one that’s $3.50.
• Observe your overall goals and take note of what’s available to spend. This works well as a starting point. While you’re doing keyword research, your average bid per keyword will be visible to help you develop a better idea of what you can expect to be your spending range.

Wrap Up

Mastering your Google Ads budget doesn’t have to be as daunting as it seems. With the right guide, you’ll be able to manage a successful budget plan that helps start your campaign on a solid foundation.

By familiarizing yourself with more professional guides to starting a successful marketing campaign from the pros, you’ll be well on your way to building the first of many profitable campaign launches.