An Introduction to AdWords Budgeting

Over the next few episodes of Inside PPC we’re going to address the topic of AdWords budgeting. We know this can be one of the most frustrating parts of paid advertising and sometimes you wonder where on earth your money goes.

Which is why we want to focus on budgets for a while, because with a little more knowledge about how AdWords works you’ll understand how to control your budget better and get more from your campaigns. This is where most advertisers realise PPC using AdWords isn’t as expensive as it first appears.


How much does AdWords cost?

This is a common question, but sadly there is no simple answer you can give here. Stats say that the average small business using AdWords spends roughly £6,000* per month – which adds up to a £72,000 annual spend. While the average cost per click is anywhere between 65p and £1.30, with giant retailers spending up to £33,000,000 each year on paid search.

Some of these numbers certainly make PPC sound expensive, but they don’t tell the whole story. The AdWords auction system doesn’t just consider the amount of money and a £1 bid can outrank a £5 stake – making it a more level playing field than most advertising techniques.

*figures converted from US Dollars


The role of Ad Rank and Quality Score

First of all, you can think of Ad Rank as the auction process in AdWords, which determines where you position amongst triggered ads. This is calculated mainly by two factors: your maximum bid and the all-important Quality Score:


Ad Rank = CPC Bid x Quality Score


So you can see your maximum bid isn’t the only thing Google’s Ad Rank formula calculates and a top-notch Quality Score is your ticket to beating high bidding competitors. Which begs the obvious question: how do you achieve a high Quality Score?

As we’re, talking budgets today we won’t have time to go into Quality Score any further, but we’ll be back soon with a post dedicated to achieving a higher Quality Score. We just wanted to show you PPC success isn’t all about your maximum bid.


How do I set my AdWords budget?

Naturally, an agency will take you through all the costs involved and help you come to a realistic budget for your campaigns – but here’s the basic rundown.


Daily Budget

First you need to determine the daily “core budget” for each of your campaigns. Let’s say you have an ad with a CPC of £0.25 and you want it to generate 500 clicks per day. This means your daily budget for this campaign needs to be in the region of £125 (0.25 x 500). Just remember that CPC is a maximum bid so you’ll never pay more than this for a click, although you could pay less and you only pay for clicks.

If you’re running several campaigns at the same time, you should think about prioritising them and dedicating your total budget accordingly. You may find ads for your best-selling products are more important than those targeting people at the start of the sales process, for example.


Cost per Click

One of the biggest variables in AdWords budgeting is the cost of the keywords you intend to bid on. Some markets are more competitive than others, while some searches are more valuable and this is all reflected in the cost of keywords.

Insurance, loans and mortgages are the three most expensive keyword categories in AdWords, costing an average of £30 or more per click. As we said earlier though, the average CPC is closer to the £1 region and you also have long tail keywords to keep the cost down and relevance up.


Other factors

Sadly, you can’t multiply your daily budgets by 30 days to get a monthly estimate, because there are always other factors to consider – like agency fees or management software expenses. As always, you can give us a call for more information on how to calculate and accurate budget for your paid advertising campaigns.


Next time on Inside PPC

Next we want to look at how you can control the spend of your budgets more effectively by looking at ad targeting.