How Much Should Local Businesses Spend on Google AdWords?
When you first start out with AdWords you might think that your costs are based on the same aspects as you know from other advertising channels:
A radio spot costs the same no matter your industry
Banners along the highway cost the same whether you’re a dentist or sell socks
But Google AdWords isn’t one of the ordinary advertising channels. It’s built as an auction marketplace, and the commodity that Google sells are website visitors. How much you should spend on Google AdWords, therefore, it depends a lot less on the channel itself and more on your industry.
The Answer Is: It Depends
Instead of seeing “Google AdWords” as what you’re spending money on, then you need to realize that you’re spending money on a lot of mini-markets inside AdWords – keywords. Each keyword group will come with its set of prices and factors to consider.
When you bid for clicks (website visitors) in Google, you’re not bidding for the same clicks as everybody in the world. You’re only bidding for the clicks that are relevant to you, and your competitors.
When it comes to how much you should spend on Google AdWords, it, therefore, doesn’t matter how valuable a sock store thinks that a potential customer clicking on their ad is. It matters how much you and your competitors believe a potential customer is worth, and those customers will have wildly different values depending on the industry.
This results in wildly different answers when you ask me how much you have to spend on Google AdWords. The answer is: It depends, and what it depends on will be uncovered in this blog post.
Minimum Amount you Should Spend on Google AdWords
Even though there isn’t an official minimum ad spend on Google AdWords, it doesn’t mean that you should automatically start working with $2 or $5 as a daily budget. Over the years, I’ve heard the following argument regularly:
“I just want to test with a small budget and if it works then I will increase my budget.”
Even though the theory behind this makes sense, it doesn’t translate well into real life. If we compare it with traditional advertising, then it compares to saying that you’ll buy a small classified text-based ad in a newspaper. And if you get any results from that tiny ad, then you will buy the big full-page ad.
The logic that the small, inexpensive ad has to produce results to buy the bigger, more expensive and more efficient ad is flawed at its core. The more expensive something is (especially when the pricing is auction-based), the higher value it should have under ideal circumstances.
Note: I’m not saying that you always derive the true value of products/services during auctions, so let’s not get caught up on semantics.
Recommended Monthly Budget You Should Allocate to Google AdWords
My usual recommendation for starting budgets in AdWords ranges from $1,000 to $10,000 per month.
The final number depends on your industry, the cost-per-click that you’ll find in it and how likely you are to succeed. The better equipped you are to build and optimize Google AdWords campaigns, the higher your starting budget should be.
If you’re just starting out with your business for the first time and have never used AdWords before, you should go for a lower budget unless you hire help. If you on the other side have worked with AdWords before and seen success, then you can start off with a higher budget.
As you increase the money you spend on Google AdWords you will receive more clicks, which in return will give you more data to work with. And if there is one thing that you’ll find valuable, then it’s having data.
One Big Investment Over a Quarter or a Minor Investment Over a Year?
A mistake I often see is advertisers using a small monthly budget, but never really succeed. Over a year, they might have spent $12,000 with little to show for it.
If they instead had taken those $12,000 and invested them in a single quarter ($4,000 per month) it would benefit them in two distinct ways:
You will be able to see in a shorter time frame whether an advertising channel will produce workable results or not
You’re more likely to succeed because you will be able to compete on even terms with other advertisers
Some industries are notorious for having keywords with a very high cost per click. Some keywords are upwards of $50-60 – PER CLICK!
This isn’t the average though, but a couple of industries are up there:
The keywords for these industries range from $10 to $30 on average. If you only commit to $1,000 per month for any of these industries, then you will not receive any noticeable results and will most likely categorize Google AdWords as a non-functional marketing channel at best (or a scam at worst).
The recommended budget depends on what the average cost-per-click is in your industry and the geographical area you’re looking to target.
How to Find Out How Much Your Cost Per Click Will Be?
If you’re basing your cost per click, and thereby budget, off the wrong keywords then you will end up being overly optimistic in terms of how little budget you need. The good keywords – the ones that attract new customers – are also more expensive than other keywords.
For example, if you are a cleaning company you shouldn’t use the keyword cleaning, but instead go after keywords that are more specific and have a higher intent to purchase like:
Cleaning company Miami
These keywords will be more expensive because there is a higher competition. They have a higher competition because there is a higher ROI associated with the keywords. A potential customer is much more likely to be looking after an actual cleaning company if they use keywords like cleaning company in Miami vs. keywords like cleaning, maid, etc.
Difference in Cost Per Click Between Keywords With Intent to Buy and Informational Keywords
There is a huge difference in the cost per click that you will find for various keywords.
Let’s go with the example that you’re a local cleaning company. The first list of keywords represent keywords that are typically used by searchers to find more information.
Cleaning jobs = CPC $0.8
Salaries as cleaning lady = CPC $0.3
Cleaning supplies company = CPC $0.2
At the same time, if we review the average CPCs for keywords that are typically used by searchers that are ready to purchase, then the cost per click goes up with more than 1,000%:
Cleaning company = CPC $9.2
Cleaning company Miami = CPC $6.4
Local cleaning company = CPC $8
That’s why it’s so important to base your cost per click and thereby budget on the right keyword list.
Note: If you are a cleaning company and can’t recognize the CPCs that I’m listing here, then remember that there are differences in prices based on your Quality Score, geographical targeting, and your ad position.
List of Average CPCs for More Than +50 Industries
How to Think Of Your AdWords Costs As An Investment vs. Expense
One of the biggest concerns that I hear from new advertisers is that they’re worried about the added costs of using Google AdWords. They worry about how that expense will cut into their existing profits. The words to notice here is how Google AdWords and advertising, in general, is being regarded as an expense that will take revenue away instead of an investment that will bring revenue.
The best way to turn AdWords from an expense to an investment is by using tracking.
Tracking essentially makes the difference between whether you think that Google AdWords is an expense of it’s an investment. Knowing what you get out of your expense makes it an investment. Investments with positive returns you increase, expenses you seek to decrease.
Will AdWords Be A Good Investment?
I love hearing this question because it’s easy to answer. When you’re considering AdWords, then I always say that if you have a good business, then AdWords will be a good investment for you.
Yes, you need to take your website and your competitors, etc. into account. But when all comes to all then it’s much easier to advertise for a good business than to advertise for a bad business.
If you don’t have any revenue today, have tried various advertising models, can’t seem to get word-of-mouth business and are scraping to get by, then I’m sorry to say it, but maybe Google AdWords isn’t where you should start out.
If you, on the other hand, have a good business, you know you do a great job, your customers love you and you know what differentiates you in the local marketplace, then AdWords will be one of the best decisions you have ever made in your business life.
Just know that how your business stack up against your competitors will translate into how well you can compete in Google AdWords. If your competitor has better margins, he can outbid you. If your competitor converts website visitors and leads better, then he can outbid you.
I like to end my blog posts with a couple of key takeaways:
What you’re going to spend on Google AdWords depends on what industry you’re in
The required ad spend fluctuates a lot from industry to industry
When calculating your costs, remember to use the right keywords
At the end of the day, you should spend as much on Google AdWords as makes sense for you. If you’re not getting a positive return you shouldn’t spend money. If you have a positive return, you should spend as much as your cash flow and business can handle.