How Much Should A Small Business Spend On Google Adwords? [UPDATED 3/20/20]

small-business-adwords-spend

Ah, the money tree that is Google AdWords. Many (most) small businesses have a fear of Google Ads, which makes sense because Google themselves has done a terrible job of helping businesses figure out the platform.

Google Ads do work though. This isn’t my bias speaking, this is fact. We manage millions of dollars and have scaled businesses tremendously of all sizes through the use of Google Ads. Check out some of our PPC case studies if you’d like to see the data.

That said, we won’t try to hide the fact that you can waste a ton of money if you try to do this yourself and don’t know what you’re doing, or if you partner with a bad agency. For every good agency that truly cares about your performance and has the right expertise, there are 5 that will take your money and set up an atrocious account.

So, provided you’ve got the right partner (we hope you choose us 😉), how much does Google AdWords for a small business tend to run? I’ve come up with some rough ideas of what to look at in order to calculate what you might need to spend to see solid results. First, need to cover some bases about starting fresh:

The Adjustment Period

Forgo the frugal budget theory. If you put $10 into the Google machine, expect to run out of cash fast. The only thing you get at the end is a waste of $10 that could have been put to better use. Better to use a more realistic budget, for one thing.

You can’t dip your toes into AdWords marketing. It’ll just lead you to waste money in smaller amounts, which will add up quickly for a small business. There is what we call an “adjustment period” of typically 1 month in any Adwords accounts. See this screenshot below of the beginning of one of our new accounts:

Notice how in the first month, results were mediocre. Then in month 2, the results skyrocket? That’s because any expert needs to spend money to determine what works best for you, this is a reactive marketing channel. Which keywords convert the best? Which landing pages convert the best? Which geo locations convert the best? Times of day, devices, income levels, etc.? You may think you can anticipate some of these, but you simply can not know until you’ve spent the money and determined what works and what doesn’t. Once you make these adjustments and eliminate wasted spend, the sky is (usually) the limit.

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’re usually rewarded heavily. Set a reasonable budget and work with your PPC manager to set realistic expectations in month 1, 2, and beyond. We recommend a 2 month testing period.

Small Monthly Budgets or Large Quarterly Budgets?

Let’s say you’re willing to set a monthly budget of $500 for Google AdWords marketing. If you run things this way for a year, you’ll spend a total of $6,000. But did that small monthly budget really pay off as much as it could have? Was it worth spending the year on?

Instead, what if you took that annual $6,000 you would be spending over 12 months and spent it in 4? Don’t freak out about the idea before considering how it could seriously help your advertising strategy attempts.

For all intents and purposes, you’d be spending the same amount, just in a smaller chunk of time. Instead of a $500 monthly advertising budget to work with, you’d bump it up to $1,500 per month. How would that be in your best interest?

For one, you’d save 8 months’ worth of time. Rather than wasting a year on a pay-per-click strategy that didn’t work, you’d only be spending a quarter of that time coming to the same conclusion. After four months, you can bail on this advertising channel if you want, and move your attempts elsewhere. Spending more money quicker also allows the PPC manager to make adjustments more quickly, reducing that “adjustment period”. If you drag it out, your “adjustment period” may last 6 months instead of 1.

The second benefit is that we’ve got more data to work off of and more purchasing power compete with. By spending the same amount over a quarter of the year, your monthly budget more than doubles. That puts you in a better position to successfully compete on the terms your competition is targeting. It varies by industry, but some of these keywords could have been way out of the question for small business PPC with a $500 monthly budget to bid on. Some keywords could cost up to $10 a click or more. Just for one measly click that may not even lead to a conversion. Suddenly 20 clicks a month would have run your budget into the ground.

If you have it in you to take the risk and invest the money, consider the quarterly vs. yearly budget to really get a look at how successful AdWords could be for you. Worst case scenario, you find out it’s not working right now, but at least you saved time and spent no more than you would have. Best case scenario, it works wonderfully and you get to increase your budget for the next quarter.

Cost-Per-Click and Targeted Keywords

At the end of the day, as a business owner you want to know what you’re getting for what you’re spending. That’s all that matters. We’d rather pay $10 per click for a keyword that’s bringing in thousands of revenue, versus a keyword that costs $0.10 per click but never drives any profitable revenue. We’re going to go where the profit is – we maximize your bank account, not ancillary metrics that are meaningless to you.

Your keyword choice is important if you want to control the best place to put your money. Don’t target the keyword “pets” if you’re advertising for a pet store. Be more specific, and you’ll get more relevant traffic. There are thousands of reasons why someone would search “pets.” They could be looking for suggestions for a new one, how to take care of one, etc. They may not be interested in buying dog food from you. Aim for keywords like “pet store Connecticut” or “pet supplies Connecticut.” These already have the searcher’s intent in mind. That way you won’t pay for clicks that aren’t at all relevant to your business.

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

To determine this we have to do a little back of the napkin math. As a small business, we always ask two questions:

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

To use an example:

  • 1 new customer is worth $400
  • 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) 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 this range – $1,000 – $3,000/mo. Once we’ve proven the concept, we look to aggressively scale your business so long as you can keep up with the demand.

We offer small business packages for $400/mo where we drive all of this strategy through full end to end management of keywords, bidding, extensions, audiences, ad copy, etc.

If you’re looking for the experts, we won’t let you down. Go ahead and shoot us a Get 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 AdWords. Bad businesses don’t. If your small business is turning to AdWords as a means to get itself back in the upswing of things, it might not the best move. Your competition will outbid you, you’ll waste what money you have left to invest, and you’ll probably blame AdWords for being a hack. The time to spend in Google AdWords advertising is when your business is in good standing all around. You aren’t struggling to make ends meet, 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 AdWords, let us give you a quick evaluation and some small business marketing advice.

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Roger Parent

Article by Roger Parent

Roger Parent is the Founder & CEO of Digital Position. He's been a developer, designer, and online marketer for over 10 years spanning a variety of markets. He's also a very "passionate" (overly competitive) volleyball player.

2 replies added

  1. Avatar
    Allison Willeford June 4, 2018 Reply

    Hi Roger,

    I just read through your helpful article as I’m beginning my journey to market my new VERY small business. I keep reading and reading about how to advertise and can’t determine where to begin and where it makes sense to invest my money. What services do you offer to small businesses? I saw that you mention you offer google adword budgeting advice – that would be much appreciated. Thanks! Allison

    • Roger Parent
      Roger Parent June 5, 2018 Reply

      Hey Allison –

      Congratulations on starting a small business! Online marketing can certainly be a punishing market for beginners – but if done correctly, can also be a very rewarding one! I’ll shoot you an e-mail to learn a bit about your business and to see if we’re a good fit. Either way, I’ll give you some tips to help get you started!

      – Roger

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