How Much Should A Small Business Spend On Google Ads? [UPDATED 9/12/22]

Small business owners seem to have a “hate hate” relationship with Google Ads. Many have tried, and while a few have succeeded, many (if not most) have failed. You don’t know how the platform works, you’re afraid of wasting your money (if you haven’t wasted it already), and you’re strapped for time.

I once had a client come to us, visibly frustrated on our first call saying “my Google Ads have never worked, this is just a last ditch effort”. He was selling essentially a water flosser for your teeth, also known as an “oral irrigator”.

You might see where I’m going here… when we audited the account, all we found was that despite him having keywords like “oral irrigation” and other related terms in his account, what he was really showing for once we dug into the search terms were all highly inappropriate. Let’s call them “not HR friendly” terms. He burned tens of thousands of dollars — for months, almost his entire account’s spend was on these terms.

Even I, for the sake of experiment, let Google’s own team manage Digital Position’s Google Ads account just to see what happens. After all, Google should be the best at managing their own platform, right?

Wrong. Google did a terrible job (click the link to read the story on it), burning my money on irrelevant things for no return on my investment. The same thing applies today, Google does a terrible job of helping businesses figure out the platform.

Google Ads do work when managed properly, but they can waste thousands quickly when mismanaged.

So, provided you’ve got the right partner (we hope you choose us 😉), how much does Google Ads for a small business tend to run? I’ll help guide you through the evaluation process and some “back of the napkin” math to help you find out what it will cost for your business. First, we need to determine if this is right for you.

What You Need to Know Before Spending

Small vs. Large Budgets

The first thing we need to know going in is the larger the budget, the more granular we can be. For example, let’s think through what it looks like to drive a national strategy on a budget of $5,000 per month. Divide that spend by 50 states ($100). Now divide that by desktop/tablet/phone ($33). Now divide that by women & men ($16.50). We can’t make proper, statistically significant decisions on $16.50 of spend. This doesn’t even include ZIP code, income levels, custom audiences, and so much more.

Make sense? This is why small businesses need to be really strategic.

Companies with much larger budgets are going to eat your lunch if you try to spread your budget too thin. This is why we recommend testing larger budgets for shorter periods of time (i.e. – $4,000/month for 3 months is MUCH better than $1,000/month for 12 months). Here’s why:

1. You save 3 months of time to evaluate the viability of the channel for you.
2. We’d get more statistically significant data in the door to make better decisions more quickly (see the “PPC is Reactionary” section below).
3. The adjustment period is much shorter.
4. More purchasing power allows us to get you in better converting, prime positions for your core keywords.

PPC is Reactionary & The Adjustment Period

PPC in a nutshell is test, learn, iterate, repeat. Nobody knows exactly which queries at which times going to which pages are going to be your best money drivers. We can take educated guesses based on experience, but PPC takes time.

It was pretty obvious to me that when I bid on “best PPC agencies” in our Digital Position Google Ads account that if I let that run wild I’d start bringing in traffic for terms like “best ppc agency jobs”. Thus, I have the foresight to negative out “jobs”.

But what about “best ppc agency primelis”? That’s some other agency somewhere that I would have never known about otherwise.

As you start spending, a good agency reacts very quickly to what they’re seeing and cuts wasted spend. That’s why, when you ramp up a new account, you typically see this:

Notice how in the first month, results were mediocre. Then in month 2, results skyrocket? That’s because any expert needs to spend money to determine what works best for you. Which audiences, keywords, geolocations, copy, etc. convert best? That takes time to nail down the perfect recipe. By 6 months in, we were driving triple-digit growth for this client YoY.

Other than being reckless, this is the very heart of why small businesses fail at PPC. They fail too quickly without giving time to adjust accounts. They see a poor first month and fire their PPC manager. This platform requires a “both feet in”, patient mentality. But when you ARE patient, you can be rewarded heavily. Set a reasonable budget and work with your PPC manager to set realistic expectations in the first month, second month, and beyond. We recommend a 2-3 month testing period.

Choosing the Right Keywords & Targeting

Are Your Keywords Viable For You Right Now?

The first thing I do when we get any lead is search what I consider to be their core terms. For example, below I searched “home space heater”:

If you’re a small business selling home space heaters and you’re going up against Home Depot, the NY Times, and Amazon — yikes. If this is the case then I start looking at longer tail keywords, or keywords with less searches that maybe these big businesses have overlooked.

Think about your business critically:

• Is there demand for my product or service or is this something completely new?
  • Paid Search is a ‘demand harvesting’ channel, meaning we’re capturing demand that already exists. If you need demand generation, it would be best to start with a channel like Paid Social.
• What are people searching for that are looking for my product or service?
  • Put yourself in the mind of your customer, what would you search for in Google if you were looking for YOUR product or service?
• Is my product or service something that big retailers already have coverage for or do the searches fit a unique niche?
  • For example, if you sell merino wool socks, you don’t want to start by bidding on “men’s socks” because you’ll be competing with everyone and their mother. But “high end warm merino wool socks” might be a better place to start as a small business.
• Do I have a high enough average order value to justify Google Ads spend?
  • It’s tough if you’re selling a product under $15-$20. If it costs let’s say $1.50 per click, that means you’ll need to convert 1/10 customers that visits your website immediately. That’s a tough ask when the average customer visits a website 2-3x before purchasing.

Start Focused, Then Broaden Out

To fight in that same ring as your competitors, you need to be much more strategic and consolidate budget wherever you can. For example, if you’re a high-end jump rope company and you can’t convert customers on the keyword “high end jump ropes”, there’s a problem. You get the point — normally there’s a couple key terms that absolutely define what you’re selling. Start there.

If that keyword or tight theme of keywords is still too much spend, pick your best performing geographic areas, times of the day, days of the week, genders, etc. Start as focused as possible and broaden out once you prove success. This allows you to prove the concept in Google Ads being a fit for you before you burn too much money.

I Get It. Tell Me How Much I Should Be Spending!

To determine this we have to do a little math. For new clients, we always ask two questions:

1. What is one new customer worth to you on average in revenue?
2. How much profit do you make from that one new customer on average?

To use an example:

• One new customer is worth $400 (including 1 year of lifetime value)
• The business makes $100 profit on that customer (before marketing spend)

This means that we would need to return a 4:1 ROAS (4 dollars of revenue for every 1 dollar spent) in order for you to break even on your marketing spend. To put another way, you’re able to spend up to $100 acquiring a customer (cost per acquisition, or CPA).

We recommend that you spend roughly 2x the CPA on each keyword ($200 in my example) you’re bidding on to determine if this is a pass or a fail.

For example, if you have 10 keywords you’re going to focus efforts on, you would need a $2,000 budget to determine success or fail on those keywords.

A typical small local business budget is typically somewhere in the $2,500 – $7,500 per month range. Once we’ve proven the concept, we look to aggressively scale your business so long as you can keep up with the demand.

The caveat here is the competition in the market. If a single click costs $10 because of high competition, that means we’re only going to get 10 clicks for every $100 of spend. That also means we need to convert 1 out of every 10 clicks or have a 10% conversion rate. With industry average conversion rates more around 2-4%, your website better be damn good to make this strategy work at all.

If you’re looking for the experts, we can help you do this math and determine if PPC is the right strategy for you (if it’s not, we’ll straight up tell you). Go ahead and shoot us a proposal request and we’ll get in touch with you immediately. Even if you’re unsure about hiring an agency, we can do an audit and provide some tips free of charge!

Danger: Don’t Spend if it’s a Last Ditch Effort

Good businesses do better on Google Ads. Bad businesses don’t. If your small business is turning to Google Ads as a means to get itself back in the upswing of things, it might not the best move. In that instance, hiring a Fractional CMO might be the smarter play to analyze your business on a more fundamental level and tell you what you need to do to get ready for a PPC initiative. The time to spend in Google Ads advertising is when your business is in good standing all around. You aren’t struggling to make ends meet, your website is solid, you have strong support from customers, etc.

Overall, you’re in control of your budget. If you want to spend $5 a day instead of $1,000 a month, that’s your call. But keep in mind the benefits of spending more up front in order to get more in return. You’re not spending money just to spend it, you’re spending it to create growth.

If you’re unsure what you should spend on Google Ads, let us give you a quick evaluation and some small business marketing advice.