But if there is anything we know, it is that Google Ads can be effective for almost any business. According to WordStream, the average business makes $2 in revenue for every $1 spent on Google Ads. However, understanding Google Ad costs is essential to ensure you are not overspending and bleeding your budget.
Table of Contents
How do Google Ads Work?
Google Ads have a pay-per-click model, which means you only pay when someone clicks on your ad. As an advertiser, you bid on relevant keywords. However, actual Google Ad costs can vary.
When a user searches on Google, and it matches the keywords you bid on, Google runs an auction to determine which ads will appear as sponsored in search results. This auction takes into account the advertiser’s bid amount, quality score which is based on relevance, expected click-through rate (CTR), and landing page experience. This is how Google ensures searchers see the most relevant ads, while advertisers reach their target audience within their budget.
When the ad is displayed, and the user clicks, costing you your bid, hence ‘pay-per-click’. This model offers a precise budget and the ability to control Google Ad costs. Simultaneously, Google Ads also offers extensive targeting options, enabling you to reach specific demographics and locations relevant to your business.
Additionally, you can choose from a variety of formats, including search ads, display, video, and shopping, depending on your campaign goals. Once your campaigns have kicked off, you can monitor and tweak your ads for optimal performance and maximize your return on investment.
Google Ad Costs: How Is It Calculated?
As mentioned, Google Ad costs are determined through an auction system as you bid on relevant keywords for your business. However, simply because an advertiser might have a higher bid, it does not mean they win the top spot. It is a lot more complex.
Let’s break it down.
Google Ads uses a combination of bid amount and quality score to calculate ad rank, which determines the position of your Google Ad.
The actual cost-per-click (CPC) is then calculated using the formula below:
Ad Rank of Ad Below Yours / Your Quality Score + $0.01
For example, if the ad rank of a competitor below you is 8 and your quality score is 4, your CPC would be:
(8 / 4) + $0.01 = $2.01
Based on this example, even if you increase your bid, it may not affect your CPC unless you improve your quality score.
Though avg. CPC across all industries is $2.69 on search and $0.63 on Google’s display network, Google Ad costs can vary.
So, if you are generating leads for a law firm, your avg. CPC would be $6.75 while in e-commerce it is $1.16.
Additionally, your Google Ad costs are also influenced by your budget and bid strategy.
Budgeting for Google Ads: Small and Mid-Sized Businesses
One common question we get asked by small and mid-sized businesses is, how much should we spend on Google Ads?
And we understand, that determining the right budget can be challenging but you can make an informed decision by looking at key factors. How much you spend on Google Ads depends on your industry. For SMBs or startups, $1,000 to 10,000 per month is a great starting point depending on the competitiveness of your keywords.
According to Google, SMBs and startups spend between $9,000 to $10,000 per month which equates to $300 to $330 per day. However, you can optimize for days and hours you run your ads to maximize results, especially for service companies.
It is usually a smart approach to start with a modest budget and scale accordingly.
Here are some quick tips on how to optimize your Google Ads budget:
Set Clear Goals: Before running any Google Ad campaign, understand your goal and set specific objectives. This includes objectives like generating more web traffic, leads, and driving sales. Clear goals help you allocate your budget accordingly throughout campaigns.
Find Relevant Keywords: Keywords relevant to your website are essential for your ads to show, cost less, and give the highest return. You can identify cost-effective keywords that have less competition but high searches. You can simply use Google’s Keyword Planner to find relevant keywords. You can also use long-tail keywords which often have lower CPCs and can attract qualified leads.
Optimize Ad Quality: Improving your ad relevance, expected CTR, and landing page experience can all help ad quality. Google can then determine you to be relevant to searches and you won’t waste time or money with irrelevant clicks.
Monitor Constantly: Google Ads isn’t something you set and forget, you need to constantly monitor results, ad copy, and performance and make necessary changes to improve ROI. Implementing data-driven adjustments is key to a successful campaign.
Common Challenges You Might Face When Running Google Ad Campaigns
Though you can run Google Ads all on your own for your business or startup, it is also important to predict the challenges you will face. To make your journey a bit smoother and save you some time, here are some common challenges you may or may not face.
Navigating the Google Ads Platform
Google Ads can be a sophisticated platform to use and if we’re being honest, a little overwhelming as well. For those who are new to Google Ads, there will be a learning curve and that can be steep. As an advertiser, you will be required to understand keyword research, bidding strategies, ad formats, campaign settings, and creating effective ads, to say the least. According to Clutch, 45% of businesses struggle to understand and manage Google Ads’ complexity.
Budget Management and Cost Control
This part is where you can make the highest return or lose most of your budget. Without proper oversight, you might easily overspend on keywords that aren’t delivering results. According to Wordstream, companies waste 76% of their ad budget due to the lack of management and cost control.
Ad Quality and Relevance
High-quality scores come with high-quality ads, which impacts your placement and CPC. Writing compelling ad copy that’s attractive and not overkill can be a little difficult. Businesses with lower quality scores can pay up to 400% more per click than those with higher quality scores.
Google Ad Reporting and Monitoring
To help scale your Google Ads and reduce Google Ad costs, you need to continuously monitor and measure your campaigns. Based on the findings, you can improve and optimize. This includes analyzing performance data, adjusting bids, testing ad variations, and refining targeting. Based on reports from Hubspot, 63% of companies find managing and optimizing Google Ads difficult.
None of the above is to scare you by any means but to run effective campaigns, you need to learn the tool, and constantly optimize.
Conclusion
Google Ad costs can vary drastically depending on your industry, your ability to run and manage campaigns, and your overall budget. Companies often hire performance marketing managers or outsource to a growth marketing agency but that entirely depends on the decisions you make.
But with all said, Google Ads are a great addition to any marketing strategy if done properly.
At DVC, we specialize in running and optimizing Google Ad accounts for companies and local businesses. With over a decade of experience, we ensure to keep your Google Ad costs minimal and your return profitable. If you have been thinking about running online ads, you can schedule a call to discuss strategies in detail.