So you’re thinking about setting up an AdWords account but you’re not sure how much it’s all going to cost.
You’ve heard that some retailers are spending tens of millions of pounds a year on AdWords.
The average cost per click in the UK is less than £1.
Before we find out more about calculating your AdWords costs, there’s a few things you’ll want to remember:
- There’s no minimum amount you can spend
- You can set your average daily budget which the account will stick to
- There’s no commitment – you can start and stop when you want, effective immediately
If you’re worried about budget, this will be good news. 👍
But we’re here to give you a better idea of how much a campaign might cost you.
How much will AdWords cost?
To understand more about how much AdWords will cost you, we’re going to look into how AdWords works.
The auction and bidding system
Advertisers in AdWords specify the keywords they want to bid to appear for.
Using different ‘match types’, you have the opportunity to bid on an exact phrase or to choose multiple variations of your target phrases. 🤓
If someone makes a search, let’s say for ‘logistics services’, if more than one advertiser is bidding on that phrase, an auction starts.
Your most relevant keyword, ad and your maximum bid amount will be entered into the bidding process and judged against the other participants.
There are two main components which determine how much you’ll pay – determining your position and calculating your cost.
Determining your position
Google uses two factors to determine the position you feature in, CPC Bid (Cost Per Click Bid) and Quality Score.
It uses the following formula to determine your position: CPC Bid x Quality Score
What is CPC Bid?
Your Cost Per Click Bid is the maximum bid you’ve set for your keyword.
What is Quality Score?
Quality Score is Google’s judgement of the quality you’ll be providing to the searcher. They use a range of different metrics to determine your Quality Score. General metrics like click through rate as well as specific factors like the relevance of your ad and landing page are used.
The advertiser with the highest total when your CPC Bid and Quality Score are multiplied will appear top and the rest ranked in order.
Calculating your cost
Now we know which position you’ll be in, Google can calculate how much it’ll cost.
You’ll never have to pay more than you have to. 😍
Your max bid is treated as ‘how much you’d be willing to pay’ as opposed to how much you will pay.
To work out how much you need to pay, Google will take the position of the person below you, divide it by your quality score and add 0.01.
This means two things.
You’ll never pay more than you have to. If the bidder below you had exactly the same quality score, you’d only have to pay 1p more than them to appear above.
The second, which is incredibly important if you’re concerned with your budget, is that a higher quality score will reduce the amount you have to pay.
Find out more about how AdWords works.
Controlling your AdWords budget
You can control your AdWords budget in multiple ways.
Mainly, you’ll use your daily budget to set the maximum amount you’re willing to spend each day. If you have an idea of a monthly maximum, divide this by days in the month and set that as your daily budget.
It’s worth noting that Google can spend up to 20% more than your daily budget specifies on a given day – this is to make up for slow days where you might not max your budget.
If you spot this happening, don’t panic – you will never be billed more than your daily budget multiplied by the number of days in the month. 😅
Your Max CPC Bid will allow you to set a maximum bid on a specific keyword. This is a way for you to control how much you spend bidding for clicks on specific products or services.
If you sell a range of products with different values, you’ll likely want to set a different maximum cost per click.
If a product has a higher profit margin, you’ll have more to spend on advertising – so why not up your bids?
As well as controlling your budget, you can make your account my efficient. Check your account with 10 Ways You’re Still Wasting Money in AdWords.
Now you know how AdWords uses your budget and how to control it, we’re going to look at how you can estimate how much it might cost you.
How much other companies are spending on AdWords
As we’ve already covered, you’ll only have to pay as much as you need to appear above your competitors.
This makes your costs highly dependable on what your competitors are willing to pay.
Researching your phrases
One of the most reliable ways to find out how much it’ll cost to bid and appear for a specific keyword is to use Google AdWord’s Keyword Planner.
With an active campaign, you can access forecasts of what you can expect to get for your money, as well as metrics on how many people are searching for your phrases.
To access the tool, log into your Google AdWords account and hover over the tools icon.
Choose ‘Keyword Planner’ from the ‘Planning’ section.
You can either search for new keywords or get metrics for specific keywords you already have in mind.
Adding ‘logistics services’ into new keywords you’ll be presented with the average monthly searches for each keyword and a suggestion of a low range bid and high range bid.
You can also look for just specific phrases, here we’re going to look at ‘logistics services’ so we’ll choose the second box and insert our keyword.
You’ll be presented with an idea of what you can expect to achieve.
You can also choose ‘Historical Metrics’ to find out how many searches are made on average every month.
Using this information you should be able to build an idea of how much you’re facing to appear for each keyword.
Average Cost Per Click
You will have an idea of the average Cost Per Click by seeing the low and high range bid suggestions in the Keyword Planner.
However, WordStream found the average Cost Per Click for a range of different industries.
Though this is very general data, it can give you an idea of how much you might be looking to spend in comparison with other industries.
Their data found that the industries with some of the highest CPCs were legal ($6.75) and consumer services ($6.40). 😮
The cheapest were e-commerce ($1.16), advocacy ($1.43) and travel and hospitality ($1.53).
In between, we see a range of different average costs with technology ($3.80) and finance and insurance ($3.44) sitting at the higher end and employment services ($2.04) and real estate ($2.37) at the lower.
As a general rule, the more value to what’s being sold, the higher the cost per click people will be willing to pay. It’s all about profit.
How much should you spend: calculating your ROI
Now you’ll have an idea of how much it could cost you, you need to find out how much it should.
All businesses exist to make a profit. Without a profit, your business won’t be in business much longer.
You need to be keeping on top of your ROI.
What are your overheads, how much profit are you making on each products or set of products?
Whether you choose to run your PPC Campaign though a specialist agency or in-house, you’ll need this information to set your targets.
You can calculate your ideal maximum CPC with your average profit and your average conversion rate.
Let’s say each conversion makes you £100 profit on average.
And for every 50 visitors, you get one conversion (2% conversion rate).
Your max CPC to break even would be £2.
The more information you have the better when completing these calculations. For example, if you know the average lifetime value of a customer, you might find that your max CPC could increase – brining you the opportunity to make more sales.
You need to monitor and track the best spot for you. You don’t want to just break even!
Monitor your performance and continue to work to improve your account.
We work with businesses to build their profits through successful PPC accounts. At PPC Geeks, we’re concerned with your bottom line and don’t focus on vanity metrics.
Find out more about how we can help you and your business grow today.