The first question clients ask when they come to us looking to start an AdWords campaign is how much they should be spending their budget. The answer is almost always: it depends.

There are many different factors that go into a determining a budget and pre-emptive steps to take into consideration.

If you are a small business looking to utilize a small budget, it helps to narrow your campaign to be as targeted as possible. Although a more targeted campaign will limit how many people will see your ads, it can provide the most sales potential at a low cost. Regardless of what line of work you are in, AdWords can do great things for your brand. According to Google Economic Impact, businesses average $2 in revenue for every $1 spent on AdWords.

Let’s dive in and talk about how you can create a perfect budget for your AdWords campaign.

Focus on ROI over Cost

First and foremost, getting the ball rolling for an AdWords campaign has a lot to do with perspective.

If your goal is to be a dominant force within your market, cost management cannot be your primary focus. Even though costs are very important, you should always be thinking ahead to how you can make sure your ROI is being maximized.

Errors in judgement occur all too often when online advertising is thought of purely in terms of cost. When looking at it from that perspective, AdWords is a very expensive venture. The campaign needs to be viewed as an investment for the long term.

More often than not, it will require the commitment of assets up front. While there will always be a certain degree of risk involved, there is also potential for a return resulting in a greater amount than what was invested or a recurring cash flow that makes up for the risk.

The beauty of AdWords is that you will typically see your returns very quickly. Your investment is being made on a short time horizon so you can tune and maximize your profitability.

Research Your Industry’s Keywords

Each industry has a certain set of keywords and phrases. Based on the market, some can have different levels of competition causing the price of ads to vary. For example, there is fierce competition for insurance, legal, and drug rehabilitation industries and they must pay top-dollar to be placed on the searches.

In the planning stage, start by looking into words and phrases relevant to your product or service. Use Google’s Keyword Planner (or one of its alternatives) to learn how many searches each keyword attracts across the web.

From here, you can compare how these words or phrases are searched over a specific time frame as well as cost estimates. Now, you can get an impression for which keywords are going to suit your campaign and create a budget accordingly.

Ideally, you want to find terms with high-traffic and low competition that conveys commercial intent.

Generally speaking, words that come with a sense of urgency or familiarity have a better chance at converting than those that don’t. For example, the phrase “midnight cab to San Francisco” is urgent will most likely result in a conversion even though it will be less searched than terms like “cab services.”

Determine the KPIs that Matter Most and Track Them

A Key Performance Indicator (KPI) is a value that enables businesses to properly gauge performance. Each business has different sets of values pertaining to KPIs.

For instance, you can figure out how many conversions (tracked through AdWords) it takes to create a bona fide client. From there, you can determine your Cost Per Acquisition (CPA).

To get the most out of your budget, here are four very important KPIs to keep tabs on:

1. Click Through Rate (CTR) – CTR is determined with total clicks divided by impressions. This metric keeps track of how effectively your ad draws in users. To improve CTR, try testing different factors such as ad copy or graphic selection. It never hurts to gain inspiration by looking at your competitors to see how they are using ads.

2. Search Queries – The Search Terms Report allows you to get an impression of how well your ads do once they are clicked on. It also shows the exact word or phrases that caused the user to click. You will often see that a lot of clicks and even conversions are coming from terms that are not on your search list. When you find these, don’t hesitate to add them.

On the other side, you might see that some terms are getting clicks, but no conversions. When this is the case, chances are, they are not relevant to your product or service. Add these words to the negative keyword list so they will no longer trigger your ad.

3. Quality Score – The quality score of a keyword is how Google determines whether your ad is worthy of an impression on a search query and how much a click will cost, as well as its positioning. There are several factors that Google takes into account when grading you:

– Expected CTR

– Ad relevance

– Landing page experience

On Google AdWords, you can see your keyword quality score on the Keyword Tab from the dashboard:

4. Conversion Rate – This tells you how many people took action on your website. Conversion rate is something you should always be working to improve. This goes beyond effective AdWords. Always be testing your landing pages, content, and call-to-actions to help seal the deal. On average, Google AdWords advertisers are seeing a conversion rate of 2.70% on the searches and 0.89% on display.

Measuring these KPIs with a trial run is a great way to begin your AdWords campaign. Starting out small and testing these metrics is what you need to do to know how to craft your ideal get.

Over to You

Determining your AdWords budget does not happen overnight. As a rule of thumb, small businesses with limited budgets should test their strategies for a few months before going all in.

AdWords is a phenomenal way to get a feel for Google’s advertising landscape. You can start small by yourself and grow impressions steadily- check out Smart Insights’ recommendations and toolkit on how to structure your account. Or, you can engage an agency’s services for AdWords management and end up increasing your return on investments at a scale. Just remember to give it time. With the right guidance and observation, you will undoubtedly see positive returns on your investment.