The usual starting point for setting up a Pay-Per-Click (PPC) campaign is to establish your Google Ads Budget. In fact, the most asked question we get is “How much will this cost?” followed closely by “What is the Return on Investment (ROI) of a Google Ads campaign?”. Both are good questions. However, the answer isn’t straightforward. Here’s what I mean.
A Few Terms
For this to all make sense, let me define a few key terms.
- CPC – Acronym for Cost Per Click. This is the amount Google will charge your ad account when a user clicks your ad.
- CTR – Acronym for Click Thru Rate. This is a percentage. It is calculated by dividing the number of clicks on an ad by the number of times the ad was shown.
- Landing Page – The web page that the user will see after they click your ad. This page explains the offer behind the ad and gives the user directions or a choice.
- Quality Score – This is a Google assigned value for your ad. This is based on a formula looking at your ad’s relevance to the search topic, an estimate of CTR, and the landing page experience. This includes page design, mobile-friendly layout, and SEO.
Now, the definitions are out of the way. Let’s continue to look at the pricing.
Auctions Abound
The Google Ads platform is a continually running auction.
Relevant ads are shown when someone types a search query into Google. The ranking, or order, of the ad choices is based on an auction. Here’s how the ranking works.
For the ordering of ads, Google calculates your Ad Rank. When your ad is determined to be available for display, the simplified formula is:
Ad Rank = Maximum CPC Bid x Quality Score
You can see how this idea helps to level the field. It’s not always about who is willing to pay the most. In fact, the Quality Score is just as important as the CPC bid. This is to protect users from seeing ads promising one thing and seeing a landing page on a different or misleading topic. Additionally, this allows a newcomer to have a fighting chance in a competitive market.
Now that ranking has been established, we can move on to the actual cost of the campaign and set the budget for your Google ads.
And The Winner Is…
The final piece of the puzzle is determining the actual ad click cost. Of note, there is more than one bidding strategy on the Google Ad Platform, However, for this post we will be focusing on the most common strategy and pricing model, the CPC Model.
When the ad is clicked on, Google will charge your ad account. The amount charged is determined by this formula:
Sale Price = Ad Rank of Ad Below Yours / Your Quality Score + $.01
Again, you can see how Quality Score affects your entire Google Ads campaign. To help, Google does provide a handy tool to help you discover related words and expected costs.
So About That Google Ad Budget
Now that you have the tools to forecast, and the knowledge of how the playing field works, you can start to set your budget. If you take your average CPC and multiply by the number of clicks you are looking for you can get a daily budget. Remember start conservative, but be realistic.
In addition, be sure to routinely check the health of your landing pages. Google makes these tools available to you so you can advertise as effectively as possible. So please, use them. Spend wisely and let the world know about your awesome brand.
