The Paid Search Podcast | Episode 444: Let’s Talk About Budgets in Google Ads

Released on January 6, 2025

Host: Chris Schaeffer, Certified Google Ads Specialist
Guest: Joey Bidner, Online Marketing Expert

Introduction

In Episode 444 of The Paid Search Podcast, hosted by Google Ads expert Chris Schaeffer, the focus centers on one of the most pressing concerns for advertisers: budgeting in Google Ads. Chris delves into making informed budget decisions, avoiding overspending, understanding spending limits, and effectively benchmarking and scaling campaigns. The episode also features a listener question and a guest segment with Joey Bidner, providing a comprehensive exploration of Google Ads budgeting strategies.

Listener Question: Managing Excessive Search Terms

Timestamp [05:30]

Chris opens the discussion by addressing a listener question from Matt in Florida:

Matt: “I recently hired an assistant to help manage client PPC accounts. One campaign had almost 12,000 search terms. Is that true to be a problem, and what’s the recommended limit for search terms?”

Chris concurs with Matt’s concerns, stating:

Chris ([06:15]): “If you're getting thousands of search terms in a small or moderately budgeted campaign, it’s likely a bad thing. This can be a symptom of issues like using search partners, which can lead to an explosion of irrelevant search terms.”

Key Insights:

• Search Partners Impact: Enabling search partners can drastically increase the number of search terms, often attracting irrelevant traffic that dilutes campaign effectiveness.
• Keyword Relevance: A high number of search terms, especially stemming from broad or generic keywords, indicates that Google may not effectively understand the intent behind the keywords, leading to inefficient ad spend.
• Negative Keywords: Relying solely on negative keywords to manage excessive search terms is ineffective, as new irrelevant terms continuously replace those removed.

Budgeting in Google Ads: Understanding the Ceiling

Timestamp [10:45]

Chris introduces his Max Spend Theory, likening Google Ads budgets to a highway with limited lanes:

Chris ([11:00]): “There is a max capacity to the spend that you can do on Google Search. It’s like a highway leading to your business—only so many cars (customers) can travel on it effectively.”

Key Concepts:

• Max Capacity: Every Google Ads campaign has a spending ceiling beyond which additional spend leads to inefficient traffic.
• Traffic Quality vs. Quantity: Attempting to push beyond this ceiling often results in attracting irrelevant or non-converting traffic, which wastes budget.
• Campaign Optimization: A well-structured campaign focuses on high-relevance traffic, ensuring that every dollar spent contributes to meaningful conversions.

Reasons Your Google Ads Budget Might Not Hit a Ceiling

Timestamp [17:20]

Chris outlines scenarios where advertisers might not see a spending ceiling:

Chris ([18:00]): “Non-search campaigns, like display or YouTube ads, don’t have a max capacity spend because they push ads to users rather than waiting for search intent.”

Factors Preventing a Spending Ceiling:

1. Non-Search Campaigns: Display, YouTube, and other non-search campaigns continuously push ads, making it difficult to cap spend effectively.
2. Broad and Irrelevant Keywords: Using overly generic keywords attracts a vast array of search terms, extending the potential reach indefinitely.
3. Lack of Conversion Tracking: Without tracking conversions, advertisers can’t identify which traffic is valuable, leading to unchecked spending on ineffective keywords.
4. Targeting Competitors: Bidding on competitor terms can flood campaigns with irrelevant traffic, preventing the establishment of a clear spending limit.

Guest Segment: Joey Bidner on Benchmarking and Scaling

Timestamp [24:47]

Joey Bidner joins the podcast from Germany to shed light on benchmarking and scaling strategies:

Joey: “Understanding your break-even cost per conversion is crucial. Without knowing this, you can’t determine if increasing your budget is profitable.”

Calculating Break-Even:

• E-commerce Example:
  • Formula: 1 ÷ Profit Margin
  • Example: With a 40% profit margin, break-even ROAS is 2.5.

Joey ([26:00]): “If your ROAS is above 2.5, you’re profitable. For instance, spending $2,000 to make $10,000 is a 5X ROAS, which is excellent and provides room to scale.”

• Lead Generation Example:
  • Formula: Customer Lifetime Value ÷ Close Rate
  • Example: If the lifetime value is $400 and the close rate is 10%, break-even cost per conversion is $40.

Joey ([30:30]): “If your cost per conversion is $10, you can consider increasing your budget significantly while still remaining profitable, even if your ROAS drops to $30.”

Scaling Strategies:

• Gradual Budget Increases: Instead of large jumps, incrementally increase the budget to monitor performance and ensure continued profitability.
• Balancing ROAS and Revenue: Accept that ROAS may decrease with increased spend, but focus on overall revenue growth as long as it stays above the break-even threshold.
• Comprehensive Tracking: Implement robust conversion tracking to accurately measure the impact of budget changes on profitability.

Conclusion

Timestamp [34:21]

Chris wraps up the episode by emphasizing the importance of understanding budget limits and making strategic decisions based on clear benchmarks:

Chris ([34:30]): “A strongly built Google Ads campaign will have room for high-quality traffic without overextending into irrelevant searches. Knowing your break-even points and scaling responsibly ensures sustained growth.”

Final Takeaways:

• Max Spend Theory: Recognize the inherent spending ceiling in search campaigns to prevent budget wastage on irrelevant traffic.
• Effective Benchmarking: Utilize break-even calculations to guide budget adjustments and scaling decisions.
• Conversion Tracking: Implement comprehensive tracking to maintain visibility into campaign performance and profitability.

By integrating these strategies, advertisers can optimize their Google Ads budgets, ensuring that every dollar spent drives meaningful and profitable results.

Resources Mentioned:

• Optio: A tool recommended by Chris for optimizing Google Ads campaigns. opteo.com/PSP

Connect with the Hosts:

• Chris Schaeffer: chrishaeffer.com
• Joey Bidner: Joey@JoeyBidner.com

For more insights and weekly episodes, subscribe to The Paid Search Podcast and visit www.paidsearchpodcast.com.