Google Ads cost: how to set a budget for your business

“How much should we spend on Google Ads?” is usually the first question, and it’s the hardest one to answer directly

A more useful question is how much you can afford to pay for one new customer, and how long you can wait to get that money back

Answer those two, and the monthly figure mostly follows; the worksheet below does the arithmetic, and the rest of this article is about what the numbers are telling you

What the money actually buys

Google’s invoice is only one of four lines:

• Media spend goes to Google; on Search you pay when someone clicks, with no flat fee or subscription
• Management is the planning, building and weekly improvement of the campaigns, whether that’s an agency fee, a freelancer or hours from your own team
• Creative and the landing page: ad copy, images or video for some campaign types, and the page people arrive on
• Measurement: conversion tracking, call tracking and some way of seeing which enquiries became customers

When two proposals compare only media budgets, the cheaper-looking one can still cost more per customer once the other three lines are counted

You set media spend as an average daily budget: on a busy day a campaign can spend up to twice that amount, but for most campaigns the month’s charge stays within 30.4 times the daily figure

In practice: a monthly media budget of 1,520 USD is a daily budget of about 50 USD, and a single day that spends 90 USD is normal behaviour, not a reason to pull the plug

Why the same budget buys very different results

Click prices are set in a live auction, so they move with competition, location, season and targeting

Relevance matters as well: a more relevant ad can win the auction at a lower price

The 1 to 10 Quality Score in your account is a diagnostic, not an input to the auction itself, so use it to find weak ads and pages rather than as a target

Campaign types are priced differently too: Search per click, Display often per thousand impressions, YouTube video per view and Local Services Ads per lead

That is why we’d set aside most published “average cost” figures when planning your budget: they mix countries, industries and campaign types, and your own cost can sit far from the average

A range for your own keywords in your own market is worth more than any benchmark

Work out what a customer costs

Start from the customer and work back to the click

Service business: media cost per customer = cost per click ÷ (click-to-lead rate × lead-to-customer rate)

Online shop: media cost per purchase = cost per click ÷ purchase conversion rate

Each rate needs a clear denominator and the same period: click-to-lead is enquiries divided by ad clicks, and lead-to-customer is paying customers divided by those enquiries

Where the inputs come from:

• Cost per click: your own account history, or Keyword Planner, which shows the average cost for ads on searches for a keyword in the market you choose
• Click-to-lead or purchase rate: website analytics for comparable visitors, or results from earlier campaigns
• Lead-to-customer rate: your sales records, CRM or inbox; count the enquiries of the last few months and the ones that paid
• Contribution per customer: revenue from the customer minus the variable costs of serving them, such as product cost, delivery, payment fees and the hours the job takes

The lead-to-customer rate is the easiest one to get wrong, because it lives outside the ad account

A rough count from your own records beats a confident guess, and as the examples below show, it can move the result more than the click price does

The budget worksheet

Fill in your own column; the two example columns are illustrative assumptions, in US dollars, for one month

Line H is a monthly cost that doesn’t grow with each click, so it is added once and spread over the month’s customers

If an agency charges a share of ad spend, put that amount in line H and leave the click price alone, or you count it twice

The daily budget to enter in Google Ads is line G divided by 30.4: about 63 USD for the service example and about 197 USD for the shop

What the two examples are telling you

The service business has room to spare at these rates, and the more interesting question is which assumption could hurt it

If only 15% of enquiries become customers instead of 25%, the media cost per customer jumps from 320 to 533 USD and the all-in cost to 700 USD

The job still pays, but the margin per customer falls by about half

A 25% rise in click price, from 4 to 5 USD, only adds 80 USD per customer

So before arguing about click prices, we’d look at what happens to enquiries once they arrive

If you can’t say roughly how many become customers, that is the first number to find

The shop loses 30 USD on every first order

That can be a deliberate choice, but only if you know what happens next

With the same 45 USD contribution on each repeat order, breaking even takes about two repeat orders for every three new customers

Your past order history will tell you whether that is realistic, and it is worth checking before you launch rather than after

Even when the repeat orders arrive, they arrive later

Hoped-for repeat orders cannot pay this month’s bills, so the shop also needs enough cash to carry the gap

Three kinds of numbers sit in any plan like this: assumptions you put in, a forecast that follows if they hold, and facts that the account and your records show after launch

Replace assumptions with facts line by line as data comes in, starting with the lines that move the result most

Decide what you can afford

Set the ceiling from contribution, not revenue

A 1,500 USD job with 600 USD of materials and labour leaves 900 USD to pay for winning the customer, not 1,500

Then decide how long you can wait for that money to come back

A shop that relies on repeat orders needs cash to carry the gap, and a service with a long sales cycle needs a budget that runs long enough for enquiries to turn into customers

A workable limit has three parts: the highest all-in cost per customer you’ll accept, the monthly spend you can carry while results build up, and the date on which you review both

If the worksheet shows a loss at every realistic rate, more budget won’t fix it

The offer, the price, the page or the follow-up has to change first, and marketing strategies for small businesses helps decide whether another channel deserves the money instead

When the campaign is new

With no history, you don’t know your rates yet, so plan with ranges rather than single numbers:

• Use Keyword Planner forecasts for your keywords and location to estimate the average cost per click, then test a more expensive scenario; top-of-page bid ranges are bidding estimates, not your expected CPC
• Take the conversion rate of your current website traffic as a starting point, and a cautious version of it, for example half
• Count how many of your existing enquiries became customers, whichever channel they came from
• Fill in the worksheet twice, cautious and expected, and commit only to the budget you could live with in the cautious case

Make sure that budget buys enough clicks to learn something: 1,920 USD at 4 USD a click is 480 clicks, which at a 5% rate means about 24 enquiries in the month, and about 12 if the rate is half

Set up conversion tracking before the first click, and agree in advance which number will show that the campaign works; Google Ads clicks but no customers covers what to check if the clicks arrive and the customers don’t

What to ask an agency before you start

The answers to these questions decide what you’ll be able to check later, which matters more than the size of the fee

• How is the fee calculated: a fixed monthly amount, a share of ad spend or a mix, and what does it include?
• Who owns the Google Ads account, the tracking and the data if you part ways?
• Is building or improving the landing page part of the work, and who writes the ads?
• Which number will you judge the campaign by, such as qualified enquiries, sales or cost per customer, and when?
• What happens to the budget and the plan if results come in below the cautious case?
• How long is the minimum term, and how much notice does it take to stop?

If you’d like someone to pressure-test your numbers with you, Implement’s services cover paid media and measurement in one plan