How to Calculate Your Google Ads Budget

Highlights:

  • Calculate your Google Ads budget by determining your target audience, marketing goals, estimated traffic costs, conversion rates, and lead-to-customer rates.
  • When calculating your Google Ads budget, start by defining your target audience and marketing goals to determine who you want to reach and what you want to achieve.
  • Google’s Keyword Tool can help calculate your Google Ads budget by providing estimated traffic costs based on keywords you want to target in your campaigns.
  • Put it all together by entering estimated costs, conversion rates, and lead-to-customer rates into a budget chart to calculate the ideal monthly Google Ads budget for your goals.

Do you know how to calculate your Google Ads budget and how much to spend each month? Let’s look at the factors to consider when setting a budget.

Getting Started: Calculate Your Google Ads Budget

Who Is Your Audience?

Understanding your target demographic can help you estimate ad costs since some audiences might be more expensive to reach than others. Define your audience by considering the following:

  • What age range do they fall into?
  • Where do they live?
  • What is their average income or level of education?
  • Would they more likely convert to your offer on a mobile device or desktop?

The more you know about your target audience, the better you can reach them.

What Is Your Goal?

Before determining a budget, you need to know what you aim to achieve. Are you looking to increase website traffic, sales, sign-ups, or brand awareness? Take it one step further and establish a measurable metric for this goal, also known as a key performance indicator (KPI). For this exercise, we will assume our goal is 10 new customers per month using a basic Google Search Ad campaign.

What Will Your Traffic Cost?

Using Google’s Keyword Tool, establish what your cost per click (CPC) will be for the keyword(s) you want to target in your campaign. If the CPC for your target keyword is $5 and your monthly budget is $1,000, then you can expect about 200 clicks or visits to your landing page from your ad for the month. Keep in mind this is the best-case scenario, assuming we have zero competition.

The formula is monthly budget/CPC = visits to your landing page.

What Is Your Conversion Rate?

If you have historical data, you can usually find your conversion rate within your Google Analytics or Google Ads account, or you can calculate this yourself. For example, if you are tracking form submissions and you receive 10 submissions (conversions) from 200 clicks on your ad within a month, your conversion rate for that month was 5%.

The formula is conversions/clicks = conversion rate (expressed as a percentage)

Without historical ad performance data to reference, there are some general industry standard conversion rates you can use to help guide your budgeting strategy. 1

  • Biotech = 1.8%
  • Medical devices = 1.5%
  • B2B services = 2.7%
  • B2B tech = 2.3%
  • B2C = 2.1%
Figure 1. Average conversion rate by industry. How to Calculate Your Google Ads Budget
Figure 1. Average conversion rate by industry. 2

What Is Your Lead-to-Customer Conversion Rate?

How good is your sales team at closing the deal? Advertising brings in new opportunities, but your sales team must be effective at turning those qualified leads into customers. If you have 10 form submissions and 5 of them became customers, your lead-to-customer conversion rate is 50%.

The formula is # of leads that resulted in sales / total # of leads = lead-to-customer conversion rate (expressed as a percentage).

Put It All Together

By entering all our numbers into a simple chart, we can see that with a $ 1,000-per-month Google advertising budget, we can hope to gain around 10 new leads and 5 new customers in a month. This is assuming we have perfect ad copy and fully optimized campaigns with no competition.

Cost per click (CPC)$5
Monthly budget$1,000
Clicks200
Conversion rate5%
Total website leads10
Lead to customer conversion rate50%
Total new customers5

Calculate Your Google Ads Budget: The Bottom Line

To achieve our original goal of 10 new customers per month, our advertising budget for Google Ads should be at least $2,000 per month.

Download our Google Ads Budget – Quick Reference Guide



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