← The Paid Search Podcast | A Weekly Podcast About Google Ads and Online Marketing
The Paid Search Podcast | A Weekly Podcast About Google Ads and Online Marketing
Let's Talk About Budgets in Google Ads (Episode 444)
00:34:48
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Hello and welcome to the Paid Search Podcast. My name is Chris and today we're going to talk about budgeting and Google Ads. Gonna talk about how you can make good decisions about the right budget for your campaigns, how to avoid spending too much, is there a limit to the amount that you can spend? And how can you benchmark and scale and know if you should scale up or scale down your campaign. So stick around, have a lot of really interesting things to talk about as well as a question from a listener. So before I jump in, I want to tell you about my sponsor, Optio. Opteo.com PSP is the special URL that you can use to get a 28 day free trial of a software that covers everything in Google Ads. So if you have a need to improve your bidding strategies, to improve your ad copy, to get better search terms, to pick the right keywords, to pause certain keywords to, to get alerts about when your landing pages might have an issue or your ad copy might be disapproved, or certain search terms, negative keywords that need to be added, changes to your target, cpa, your roas, bidding, anything that you keep tabs on that worries you to think maybe I'm doing it wrong. Opteo is there to help you make better decisions in Google Ads. And you can burn through those decisions very quickly because this tool provides you with a easy to understand solution. It is a simple page demonstrating information about your account to make that decision in the moment, you go down the list. First, let's let Optio tell you about your bidding issues here. This, this, this, this, all the way down. When you're done, you have a better optimized campaign. It's phenomenal. You're going to like it. Whether you're new to Google Ads or a veteran, it's designed for everyone. You can try it for free for 28 days at opteo.com PSP use the chat box on their page and tell them you heard about it from Chris on the paid search podcast. All right, thank you guys for tuning in. I have a topic that I think has been probably the biggest question that people have all the time is how much should I spend in Google Ads? What should I spend? Am I spending too much? Should I spend more? Should I spend less? You know, people are always worried about it and we're gonna, we're gonna conquer that question as, as well as I can today. Before I do that, I have a question that comes from Matt in Florida, who sent in the question to my email. Paid search podcastmail.com you can send send an email to the podcast there. If you'd like to engage with me for consulting or management, you can go to chrishaeffer.com find out more about my services there. But without further ado, Matt in Florida says, hi Chris, love your podcast. I recently hired an assistant to help me with managing client PPC accounts. One thing they noticed was that several of the campaigns had thousands of search terms. One had almost 12,000 search terms. She started going through them and removing many of them, saying that a list that large means that your ads are probably showing in a lot of places where they will probably never get meaningful conversions. Chris, first of all, is that true? Second, if it is true, what is the recommendation limit for search terms? Matt in Florida. So Matt, thank you for your question. First of all, I agree with your assistant. I agree. If you have a campaign that shows 12,000 searched, 12,000 different search terms, right, line by line, there's 12,000 lines of search terms. And it's not a massively spending, huge, wide reaching campaign. It's just a small, maybe few thousand dollar a month campaign, something like that. And you're getting thousands, tens of thousands of search terms. I agree this is probably a bad thing. This is probably a symptom of a lot of things that could be causing this issue. The very first thing that I would suspect is probably something like using search partners. I find that campaigns that are using search partners, in other words, they have the search partners checkbox turned on, they see an explosion of search terms. Okay? And this is because the search partner network is extremely lenient and very, very aggressive about taking keywords to the full extent of their reach. They get a lot of off the wall searches that just will blow your mind. I mean, it's really quite scary. It takes the targeting beyond anything that I'm typically comfortable with. So then once the, you know, the search terms start to build up, you know, sometimes I'll even see the search partners spend more than the google.com stuff. So I mean, this is a major issue. So that's one thing. So check to see if you're running search partners. The next thing is you're going to need to see what kind of keywords you have. Now. Now I don't have a recommended number of search terms that you should be seeing. That's not something that I can, a number that I can give you. It's impossible to give any kind of ideal number. But if you were to look at the search terms from just one keyword and you saw over a thousand search terms from just one keyword that feels like it's probably too much. If that's the case. What that's telling you is that Google doesn't have a good idea about what the meaning, what the purpose, what the goal of this keyword is. If you see 20, 30, 50, 200, that might be a lot better, I think. I mean, I love, sometimes I'd love to be back in the days whenever there were three search terms, you know, the singular version, the plural version, and maybe a misspelling, something very tight, something very, very specific. I'd love to have a lot less variation. But that's not necessarily the case nowadays. So a healthier balance is going to be some diversity with your search terms, but not so much that it goes from one wide spectrum to the other end of the spectrum. You're going to want to make sure that your keyword is concise, it has some type of noun and action assigned to it. For example, if you're a dentist, you don't want to run just the word dentist. You know, dentist near me is good dentist. Plus a geographic term is good, or something like dentist for kids. You know, the action, the purpose, and the action behind each of those helps tell Google what it is that you're looking for. So that's the best way to avoid a campaign getting tens of thousands of search terms and never having any true definition, any true purpose. And to the, to the, to the frustration of your assistant who's helping you with the campaigns, she will never be able to stop the flow of these tens of thousands of search terms. So you notice the answer I gave was not to, you know, use negative keywords to stop it. No one's going to be able to remove enough of these tens of thousands of search terms to stop them from happening. They'll just be replaced with another. You cut off 1, 2 more is going to pop up in its place. It's never going to be stopped, so it must be stopped at the source. Check for the search partners, check for broad, meaningless, generic terms that, that continue to spend on a wide array of searches that have very little to do with the initial value of the search in the first place. Okay, well, hopefully that is helpful to you. Thanks for sending in the question. I'm going to start the conversation about budgets, and then my friend Joey Bidner is going to follow up with another discussion on a different spectrum of budgets and goals and benchmarks and stuff like that. So before he does, I want to talk about budgets in Google Ads because everyone's worried about how much Do I spend? What's the right budget? Am I spending too much? Am I spending too little? And I have a few things that will hopefully help you to understand the secret about budgeting in Google Ads. How to budget appropriately, what's, what's wrong for budgeting one way and what's wrong for budgeting another way. I think, I think you'll find this to be helpful. Some might, might help you to picture budgets in a whole new way. All right, so number one, this is the one thing that might shock you about budgets. I strongly believe that there is a max capacity to the spend that you can do on Google Search. Some max spend levels are higher than others. But everyone who's running a campaign that is set up in the way that I think is responsible has a max spend. In other words, there is a ceiling, there is a certain amount that you cannot spend past. Now I think everyone can possibly spend more, but in order to do it effectively, in order to do it responsibly, there is a max amount. The reason for this is, is because imagine your business is at the end of a highway. Now there's only so many people that are going to be driving and going towards your business, okay? And in this scenario, the highway ends at the doorstep of your business. So people aren't just driving past, they're actually coming to your business. Now you can build other roads to divert people from one road onto your highway and bring you, bring them to your business. But there are only so many people that will drive on this road. There are many, many other opportunities for people to do other things and never end up on the path to you. And the thing is you can expect, expand your highway to facilitate as many people at once as possible. Could be a hundred lane, one way road straight to your business, but there might only be enough for 50 of those lanes to be filled. So what would you do? Well, you might find other highways to divert onto yours. Now maybe you're able to fill it up to 75 lanes. There's still another 25 lanes that are not full. And I theorize that there is a point when your diversion of additional highways onto your highway becomes illogical. It, it becomes fruitless for you to divert people onto your path away from others. So let's talk, let's, let's stop talking in stories and let's start giving specific examples. So let's say that you sell, you sell phone cases, okay? And all these different types of smartphone cases and all types of styles and colors, okay? And there's only a set number of people at any time of the day, they're going to be looking for iPhone cases. Okay? Now, there are also some people on these other highways that are looking for accessories, iPhone accessories or cute things to accessorize their phone with. I have a new teenager in my home and she's learning about ways to add more pink to her life, which is just great. So fluffy, cute things are in style. And so accessorizing your stuff is something. But this company that's selling iPhone cases, someone who's looking for accessories for their phone, okay, that could be a great way for them to divert traffic from this highway onto theirs. Because if you're looking for accessories for your iPhone, ah, perfect. I want you to find my highway and come to my business right now. Let's expand further. You say, well, you know, my iPhone case protects people from breaking their phones. So I want to bring people to my website that they're having a problem with a broken screen or a smashed phone. Okay, now we've crossed the line. You understand this highway that we might divert onto, our highway is completely inappropriate. This type of traffic is going to be essentially worthless. Sure, your product might address the broken screen issue, but they still have a broken screen now, or they, they aren't looking for a way to protect their phone. They're searching about ways to fix their phone. You know, I'm, I. The problem has already occurred. The problem has passed me by. I'm not interested in the solution anymore on stopping it. I need the solution for fixing what has already occurred. So this is an example of bringing a highway in, diverting a highway in into yours, and making your traffic now less effective. So you've, you're, you're able to spend more on google. You're able to ramp up the amount that you spend, the number of clicks that you get. But truthfully, you've done it in a very inefficient way. You've diverted traffic that has very little relevancy to what it is that you're selling. What it is that you're trying to, you know, make money from here, and you've tried to expand beyond your max capacity spend. So this max spend theory is based on the fact that there's only so many people that are truly interested in what you're selling, and trying to push that capacity further is, I think, irresponsible. I think that is a bad thing. So a strongly built Google Ads campaign will have plenty of space for the traffic that needs to come to your website, Plenty of budget for that elite traffic that's obviously looking for you. Then there will be other sources of traffic, people that want to accessorize their iPhone, for example, that is being diverted on to your traffic. So now you have more traffic. But a responsible Google Ads campaign will not reach beyond that responsible limit. It won't go to the point that is unrelated, non relevant, uninterested, non converting wasted traffic. Okay, so that is how you get to the point that there is a ceiling limit on your Google Ads campaign. Okay, now you say, well, Chris, it seems like I continue to spend. I continue to spend. It seems like no matter what, it's such, you know, it's. We've been spending more and more and more and more every year. There doesn't seem to be a ceiling for my industry. Well, let me give you some reasons about why you might not ever see the ceiling to your search campaign, why your ceiling might be so high. And it could be some of the mistakes that you've made that continues to push that ceiling up and makes your max spend something that can never possibly be reached. So number one, you have to understand that non search campaigns on Google do not have a max capacity spend. There is no way for non search campaigns to be maxed out. What I mean is performance, max display campaigns, YouTube campaigns, these types of campaigns that do not rely on the initiative of the searcher to pull the ad, but instead the ad pushes to them. Okay, so if you're engaging in anything that does not rely on the pull of the customer but instead pushes to the customer, you may be expanding your ceiling beyond capacity. Other things that could be doing it is you're using broad, unproductive, non relevant terms. As I gave the example for the iPhone. You're bringing people, you're selling iPhone cases, but you're bringing people in that already have their iPhones cracked. They don't need your stupid case, they need to fix their broken iPhone. These broad, non relevant, non specific terms will endlessly push traffic to your website. Just like the question that I answered from Matt earlier in the podcast where you get tens of thousands of search terms. It's the same situation here. You'll never be able to reach capacity. You'll never have full saturation of your market because your market keeps growing and expanding. It has an infinite boundary and you'll never be able to see the end of it. Another reason why you may never find the end of the rainbow is because you're not tracking conversions. If you don't have a proper goal in your campaign, if you don't know how many people are calling you, or more importantly, how many people are not calling you. You'll keep chasing the rainbow, you'll keep chasing dreams. You'll keep chasing something that you'll never be able to determine if it's happening or not. So let's say you have 500 keywords and you're spending and spending and spending, but you're not tracking conversions. How would you know if five of those keywords are delivering sales and leads and all the value for you, but the other 495 are doing nothing? How would you ever know that all you really need is this tiny little thin highway of traffic and you'll get the value that you need. You don't. So unless you're tracking sales, tracking phone calls, tracking leads, you could continue to see an endless ever expanding highway, endless, ever expanding ceiling on your, on your, on your budget and it'll never see an end. Okay, and one more last thing before I hand it over to Joey. I want to tell you the off topic search topics in your, in your Google Ads campaigns could be doing it as well. And I'm talking to you specifically that are running campaign campaign specifically for competitors. If you're targeting competitors specifically, that's, that's something that could possibly never see a, a, a point of saturating the market. Right. You're diluting your search campaign with traffic that is off topic, that is not relevant to what you're looking for. Alright? Competitors, people looking for your competitor's business name, your competitor's product name. Sure, that's kind of relevant, but not really. Right. And that's just one example. There's lots of other examples that I see of people that are looking to get traffic to their website and they find these off map, off the charts kind of idea and they start bringing traffic to their website from that. Enough of that. And you'll end up diluting the traffic that matters to you. And you'll wonder why you can't ever seem to get on top of what really matters. Why don't I ever see my ads? Why do my ads never show up? Why don't I ever see, you know, my ads for my most important keywords? Because they're buried. They're buried all among the junk of traffic that doesn't matter. All right, so I have Joey here and he's going to give you a different perspective on a little bit more positive spin on benchmarking and how to effectively make better decisions about your campaign. Before I jump over to Joey, Please check out optio.com PSP for a free 28 day trial. And with that, Joey, take it away.
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Hey, what's up, Chris? It is good to be back. I'm calling from Germany right now where I'm traveling for the holidays and I wanted to tune in and talk a little bit about the concept of benchmarking and why it's important from the perspective of being able to effectively, you know, monitor your profitability as things fluctuate, but more importantly, how to use it to evaluate when is the right time to scale or spend more in an account. And this question came up the other day when I was doing a consulting call. I was talking with somebody looking through their account and we're looking at their numbers and they asked me, okay, Joey, like based off of what you see here, is it a good time for me to scale, I'd like to spend more. So when looking at their cost per conversion, I wanted to compare that to their break even cost per conversion, which should be their benchmark. And I asked them, okay, what's your break even? And they didn't know what their breakeven was. It's always just been a perpetual goal of, oh, trying to get it as low as possible. But if you don't know what your floor is, what your break even is, you can't really tell how much you can afford for it to drop. And this is important because one thing is almost certain. When you spend more in a campaign or in an account, you, your cost per conversion is gonna go up or your return on ad spend is gonna go down. That's just kind of a fact of life. As you spend more, you go after more cold traffic and it becomes a bit more expensive to get those first time clicks, you know. But the goal is to generate more revenue with that added spend. But you need to be able to monitor where you're, where your floor is, where your break even is. Because as long as you're still above that break even, it's okay if your return on ad spend drops. And I feel there's always this perpetual thought that all return on ad spend always needs to go up or stay the same, or my cost per conversion always needs to go down or remain constant. And it's just an unrealistic expectation if your goal to, you know, if you're trying to scale, your goal is generating more revenue. And sometimes it's about as generating as much revenue as you can while staying above your line of profitability. So just to really hammer this home, I'll explain a scenario to you, right? Like let's say we're Going to use the context of E commerce return on ad spend. Let's say you spend $2,000 a month and you make $10,000 a month. That is a 5X and let's say your, your break even. Which by the way we are going to go into the basic math later on how to calculate your break evens. I want to just put that out there, but for the sake of, of really speaking to its, its point, we'll save that for after. Let's say your break even is, is 2.5, right? 2.5 is your break even and you're getting a five. That's great. Right? You have room for it to drop. So let's say you're spending 2,000 making 10,000. Now you're going to spend 4,000 and make 15,000. Right now that would be generating a 3.75 return on ad spend. Some people might say, oh, I went down from a 5 to a 3.75. That's bad. No, I do not see that as bad. You just generated $5,000 more in revenue for an extra $2,000 and your break even is 2.5. So you are still above your break even and you generated $5,000 more dollars this month alone. So again it's about generating as much revenue as possible while staying above that break even. So now to get into the math. So first we'll start with the simple one which is E commerce and that's your return on ad spend target. So it's very simple equation. Now this can get more complex. We can get more deep into it if you guys want to talk about it in a bit more thorough context. But the real basics of it, and sometimes I like to stick with the basics, are one divided by your profit margin. So if your Profit margin is 40%, it's 1 divided by 0.4. That, that equals 2.5. So your in app Google Ads return on ad spend break even is 2.5. If it were, let's say your break even was. Sorry, let's say your profit margin was, was 60%. One divided by 0.6 is 1.6. So that means you have a much, much more room to be above that 1.6. Like a 1.6 return on ad spend means you got more latitude for that number to drop for you to still be profitable. So I like to use that simple math just for break even for E commerce. Now there are some other equations that go into calculating your cost to acquire a new customer. I won't talk about that right now because it requires some third Party platforms. But, you know, if you want to hear more about it, maybe drop a comment in the, drop a line in the comment section on YouTube and, and we can see if there's interest for it. But in terms of lead generation, calculating your, your cost per conversion, this actually is a bit of a shout out to the former paid search podcast host Jason. I'm going to be, you know, just repeating some math that he spoke about, like, years ago in an episode, and it still holds true today. It's a very simple equation of your customer lifetime value divided by your close rate. So customer lifetime value is over the course of, I mean, you can choose how much time you want to look at depends on your customer life cycle. But it's important that you don't just look at the profit that you'd make off of one purchase. If you've got repeat purchases, if you have referrals, if people refer you, you need to include this in the equation. So if you've got repeat purchases, for example, you could look in your CRM and see, okay, at what rate do people repeat by? Let's say it's 1.6 is your repeat rate. You divide your, you multiply your, your average purchase value or your average customer value times the repeat rate anyways gives you the customer lifetime value. And then you divide that by your close rate. And close rate is how many calls or emails does it take before you get one paying customer? Right? So let's say it's 1 in 10, okay? If your customer lifetime value, or hypothetically were $400 and your repeat rate was 1 in 10, you take 400, you divide it by 10, that gives you a cost per conversion break even of $40. That's your line. You want to stay below. As soon as you're above that, you are technically not profitable. And those are the two, the two basic equations that I use on the majority of my accounts. And I use those again to not just see if I'm profitable day to day, but to really understand how much wiggle room I have to scale. You know, if my cost per conversion threshold is $40 and I'm getting a cost per conversion of $10, the light bulb that goes off in my head is, I could be spending a lot more in this campaign. And again, when you do that, expect your cost per conversion to go up. But if you got a $10 cost per conversion, a threshold of 40, you could double, triple your budget. Again, don't just like throw it in all at once. You got to progressively put it in. That's something for another episode. But you know you can afford a $30 cost per conversion, $35 cost per conversion if that means you're going to double, triple the amount of conversions. That's how you scale a business with Google Ads, right? So this all comes back to that principle of you can't have two goals at once, right? If your goal is revenue or getting more leads, your cost per conversion or your return on ad spend is simply your floor and your ceiling. It's not okay. I always want to get as many leads as possible for as cheap as possible. It's just not how it works, right? It's just not how it works. It's not realistic. So I hope this is helpful and if you have any questions, feel free to hop in the comment section in YouTube or in Spotify. You can leave comments and reviews and I'll be happy, especially in YouTube because we can have a bit of a live interaction. I'll be happy to answer any questions. And if you want to talk a bit more about cost to acquire a new customer or any of that stuff, feel free to drop me a line there. Alright Chris, back to you.
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Okay, thank you Joey. Great stuff. And that is it for the show. If you would like to reach out to me, you can go to Chris Schaefer.com you can also reach out to Joey@JoeyBidner.com or you can just stay subscribed right here where you're at. And you will catch all the episodes every week. Starting a whole new year of episodes. I'll be right here every Monday. Catch you guys next week.