When starting a new online business, you will soon learn that your highest overhead will likely be your ad spend. Because of this, it makes sense to understand the best way to get the best value for your money when spending on ads.
Just like with many aspects of business, planning it out is the best way forward. In this article, we look at your business objectives, how to stand amongst competitors, and even delve deeper to help you put together your Google Ads Budget Blueprint.
What is the right Google Ads budget to start with for your ecommerce store?
So if you are looking for a definitive budget, you are likely going to be disappointed here. However, we urge you to stay with us because by the end of this article you will be able to come together with a custom budget which suits your business needs.
Every business is different, some start small, some have got a large startup capital, so the main factor to consider to start with is quite simple, ‘what can your business afford?’ Another good question to consider is ‘how long do you wish to run ads for?’
In this article, we will work with a lot of nice round numbers for the simplicity of understanding the topic, so in this case, we will say a $1,000 budget for a month, so please take this figure with a grain of salt and not a recommendation in any way.
We want in this case for the budget to last us a month, we expect sales within this month, but will not count on them when working out our budget as it’s a figure which will fluctuate.
Already we have some very basic components to our budget, total budget, and length of the campaign. This will give us the average spend per day, which is roughly $35. You can set this in your Google Ads platform.
Some days you will go over and some days under on the budget. However, over the 28 days, Google Ads will never spend over your total budget.
$1000 x 28 (days) = $35.7 (p/d)
What are your ecommerce business objectives?
It may be easy to get into the mindset that your business objectives are sales, it sounds like the easy and obvious choice, in most cases you are right. But Google does offer other options to optimize towards.
As an e-commerce business, you will likely optimize for either sales or traffic, however, some may go for calls or leads.
It is quite normal to initially set your goal for maximum traffic and once Google’s machine learning has gathered enough conversion data. You can allow it to lean into that data to maximize the potential for conversions
The more data Google accrues during this period, the better chance of your traffic converting will be. The general minimum required is 30 conversions within a month, however many would argue that much more is needed for solid data
When enough data is acquired and the goal ‘optimize for conversions’ can be set, Google will then bid higher or lower based on the prior information, be it device used, location, time, and keywords.
Google will always suggest that the cost per conversion will be the same using their machine learning, however, this is in no way a guarantee and can in some cases be a good way for Google to blow a hole in your daily budget.
Where do you stand in the market?
Another important factor to consider is where you stand in the market. Do you have competition? How saturated is this market? The answer to this will play a key factor in your costs per click (CPC).
A great place to go to figure this out would be SEMrush, not only does it give you a difficulty percentage on particular keywords, but it may also show you who the major players in that market are and roughly how much the click for that keyword costs.
Many may suggest other intricate paid applications, but for what it does and for having a free account option, SEMrush is a good go-to for this particular task.
In this case, the term ‘women’s hats’ suggests a $0.47 per click bid. So this is where we dig a little deeper into the figures.
We don’t initially want to be ranked number one before we know how well we are converting on sales, but if you convert very well, then sure go for it. In this case, I would bid $0.40 per click as I suspect a low conversion rate of 1% for the first month. That essentially means that out of every 100 visitors I expect a sale.
100 (Clicks) x $0.40 (CPC) = $40 per conversion/action (CPA)
So looking at the above formula, it is easy to see why knowing your cost per conversion asap is a very big deal. We have just sold a hat and it cost us $40 to do so, let’s hope this hat cost a lot more than $40 in this case.
We would generally expect a better conversion rate but it is good practise to work with ‘worse case’ scenario figures when you have no data to begin with. This aspect gets easier as you move on and get to know your business’ performance a little better.
What kind of traffic should you expect from Google Ads
In this scenario, we know that we are bidding $0.40 per click and have covered the fundamentals to know what it may cost us to acquire a sale. So at this CPC and a budget of $35 per day, we are looking at the below formula to find out how much traffic we should expect per day.
$35 (daily budget) / $0.40 (CPC) = 87.5 (clicks per day)
It is important to note that just because you are bidding this figure per click and have set aIt is important to note that just because you are bidding this figure per click and have set a budget for such traffic to come, your traffic depends entirely on whether people look for the product.
If you have come this far, it is assumed that you know how much traffic you should If you have come this far it is assumed that you know how much traffic you should expect on particular keywords. If you want to know a bit more about how to find this out on the Google Ads platform, you can find this in our previous article.
It is also important at this point to consider the ‘strictness’ of your search terms to ensure that your traffic is relevant to your business, this is quite easy to get wrong so look into this if you haven’t already.
Assembling the Google Ads budget blueprint
We now know our total budget, CPC, CPA, and our expected traffic per day and slowly it is all coming together. Do remember that without any conversion data this is all hypotheticals, you will be able to come back and fine-tune this when you have better data to work with.
We are going to build onto this a little more, we will say the women’s hat cost price is $20 and sells for $100. Knowing this, we now know that the total cost per sale will present us the following formula:
$20 (cost) + $40 (CPA) = $60
We also can drill down even further to look at our net profit per sale, this is great to establish whether what we are trying to do is indeed financially viable.
$100 (sale price) – $60 (total cost per sale) = $40 net profit
There are of course costs involved in running your business, transaction fees, taxes, and many other extras not covered in here. However, just by eyeballing the above net profit per sale, it looks like we are in a good position.
Now is a good time to look below at what we have put together so far and write down your own figures.
- Daily Traffic: 87.5
- CPC: $0.40
- Budget: $1,000
- CPA: $40
- Product cost: $20
- Total cost per sale: $60
- Sell Price: $100
- Net Profit: $40
If you are making a wafer-thin net profit per sale, you are going to be setting yourself up for failure as you may not always get the conversion rate you expected. Plan accordingly and make sure all of this isn’t for nothing. If you are dealing with this precise issue, work through the table above. Can you reduce your CPC, increase your price perhaps or find a cheaper supplier?
You are an ecommerce business, so you are at a great advantage that your overheads are nowhere nearly as high as a bricks and mortar business, so work out what is profitable and lean into it.
What about the competition?
It’s very possible that you will encounter competitors on Google Ads, they will drive your CPC up, take clicks away from you, and even potentially take sales from you if you’re not careful.
You can handle competitors in a vast array of ways be it, providing a better product, service, or even more choice. Whilst this is a vast subject, we will touch on it here to help you find out where to look and where you generally rank as this plays a large part in your budget.
On the Google Ads platform, you can look into who your competitors are as well as what percentage their impressions overlap with yours. Other good metrics to look at are ‘Top of page rate’ and ‘Abs.Top of page rate’. They show effectively where your ads generally rank.
Top of page is where you rank amongst other ads and abs top of page is where you rank amongst other ads plus top-ranking organic results. The latter will always be lower of the two figures.
If you are ranking poorly and taking a very slim cut of the overall impressions, you should consider raising your bid. If you cannot raise your bid and remain profitable, then you have run into both a very competitive market and a very common issue that many deal with.
In this case, you will be better off bidding low and hoping for the low hanging fruit with clicks, some may convert into sales and you can then slowly build up on this once you gather enough conversion data.
The problem when first starting off is you have no data and so it is crucial that you approach your budget with an almost pessimistic mindset, whether you convert sales within your first few weeks could be down to a long process of fine-tuning. So to depend on sales keeping your business running would not always work, of course hope for sales but prepare for none.
Every month it is good practice to look back at your conversion rate and readjust your CPC accordingly depending on whether you’re converting well or not.
If you are taking 30+ sales a week you are in a good position that you may be able to consider handing over the reigns for the CPC bidding over to Google. It gets smarter over time, so don’t expect a result overnight and don’t be surprised if it swallows your budget quickly, just ensure it has been fed enough data prior.
Data is king in marketing, so remember when looking at your data to keep an open mind, just because one keyword doesn’t perform well over a week, don’t be so hasty in killing it off. It could have performed very well the month prior.
Finally and most importantly, stick to your budget, don’t increase your spending in week one just because you got a single sale. Take a pragmatic approach to it and set yourself a clear plan to scale if all goes well and a plan B in case it doesn’t.
By failing to prepare, you are preparing to failBenjamin Franklin
Let us know in the comments below if you successfully created your Google Ads budget! And don’t forget, you can always contact us if you got any questions. Just press the “Contact Me” button at the top!