January 9th, 2019

How to Calculate Google Advertising Cost for Your Business

Author: Laura Lynch
Laura Lynch
Director of Marketing

What percentage of your marketing budget should you devote to Google Ads?

We’ve all seen Google advertisements. They appear at the top or to the side of search results with a little green box which says “Ad” so you know they paid to be there. For many businesses, Google Ads (formerly AdWords) have been an important part of their advertising strategy from the earliest days of their company. But others are more skeptical, either from bad experience, or no experience at all. After all, if Google Ads hasn’t worked in the past, why throw good money after bad?

It’s a reasonable question. There’s no reason any business should continue with a digital marketing strategy that isn’t working for them. But if you haven’t tried Google Ads in a while, you may find that the times have changed, and a new strategy may serve you better than your old. And if this is your first time, you probably want to know a bit more about the process before you get started.

So, if you want to learn how to calculate Google advertising costs for your business, here’s what you need to know.

#1. Calculate cost-per-click and set a budget.

To calculate Google advertising cost, the first thing you should realize is that you only pay for what converts. If someone sees your ad but doesn’t click on it, then you don’t pay anything.

Setting up an ad campaign is fairly simple. You choose what keywords you want to target, enter the maximum price you are willing to pay to advertise for that keyword, and set a budget cap. After this, when someone searches for your keyword, Google will compare your bid against other bids for that keyword. If your ad wins, then it will display in the search results. When someone clicks on that ad, you pay Google. And if enough people click so that your budget runs out, you stop bidding and Google stops running your ads.

The actual calculations involved can be quite complicated. Some businesses find that they burn through their ad budget quite quickly, because they’re bidding on expensive terms. Others find that they don’t use their budget at all, because their max bid is too low to compete. To understand how to run ads that will win bids without burning through your budget, it’s important to look at the two main factors involved: keywords and quality score.

#2. Choose your target keywords wisely (and pay attention to negative keywords).

Keywords are the most important aspect of your Google Ads strategy. The keywords you choose affect the price you pay and volume of traffic you can expect to draw from that ad. The higher the traffic volume the more expensive your ad will be to bid on.

Many businesses make the mistake of focusing on high-volume—and therefore high-price—keywords. However, these keywords tend to be less focused, which means they will attract buyers who aren’t necessarily interested in making an immediate purchase. So, instead of picking broad, generic terms and paying a high price for them, focus on narrow, targeted terms, and run multiple ad campaigns for them.

Negative keywords are another useful tool. You can set your ad parameters so that when these words or phrases are present in a search your ad doesn’t display. For instance, one of the most common negative keywords is “free.” For obvious reasons, if you’re putting money behind and advertisement which you hope will bring in sales, someone looking for free products is not your ideal customer.

On the other hand, if you’re using a free marketing guide to draw in leads, then you can leave “free” off your negative keyword list. Bear in mind that you will be choosing different keywords and negative keywords for each ad, so you could even use this to your advantage by drawing “free” searches away from one ad and toward another.

Negative keywords are also important if there are certain products or services which your company doesn’t offer. For instance, if you are a restaurant specializing in Thai cuisine, you could run ads with keywords for “Thai restaurant,” “Thai curry,” and “Asian restaurant” but with negative keywords for “Chinese restaurant” and “Thai fast food.”

#3. Understand your quality score.

Most people think of Google Ads as a simple bidding mechanism: you put money toward advertising, your ad shows up in search results, and visitors come to your page. But the reality is a little more complicated than that.

See, Google doesn’t want users to abuse its advertising mechanism. After all, if people could brute force their way to the top of ad results, then it would be cluttered by low-quality ads. Legitimate businesses would be priced out, users would learn not to click on them, and Google wouldn’t get paid.

Instead, Google bases its ad cost on the overall quality of the landing page that your ad links to. It will look to see if the content of your landing page matches your ad keywords, the click-through-rate of your ad campaign, and your account’s overall success in delivering relevant and effective ad content.

A high quality score means Google recognizes your business as a trusted advertiser. As a result, they will offer better deals on ad spend. So, if you want to make more from your advertising budget, be sure to build highly relevant landing pages that will convert customers more effectively.

#4. Focus on your successes, and adjust your ad spend as necessary.

We recommend most small-to-mid-sized businesses start with a $3­–500/mo. ad spend budget for Google Ads. This is a modest budget that can help draw in traffic without bursting the bank.

However, some businesses see more success with Google Ads than others—and that’s OK. If you devote a few months of ad spend to a strategy that doesn’t pan out, it’s still going to be a lot less costly than many other marketing tactics you might have tried. After all, no strategy is a guaranteed success.

The good news is that digital advertising offers more feedback than billboards, print ads, or TV spots. And it’s a flexible medium that allows you to change direction any time you need. Some of our clients have found Google Ads to be so successful that they devote thousands of dollars a month in advertising, and see a healthy return on their investment. Others have decided it’s not a good strategy for them, and have cut it entirely.

At the end of the day, this is the golden rule of digital advertising: Decide which metrics are important for your company’s success, and track how well you meet them, and change your strategy if it’s not working out. The data will have your back.

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