How to calculate the budget for advertising on Google?

Contextual advertising in Google Ads remains one of the most effective online promotion tools in 2024. However, for many advertisers in Ukraine, the issue of forming an optimal budget for Google advertising is quite acute.

How to determine how much to spend on an advertising campaign? What determines the cost per click in your industry? How to get the most targeted clicks and conversions within a limited budget?

In this article, we will analyze in detail the key factors and pricing mechanisms in Google Ads that are relevant for 2024. You will learn

• What parameters affect the cost per click and how they can be adjusted
• What payment models can be used for advertising and what are their features
• How to choose the optimal bidding strategy based on your goals
• How to predict the campaign budget and the number of clicks using special tools
• Practical ways to reduce the cost per click and increase budget efficiency
• How to calculate an approximate budget for different niches and promotion goals using real examples

Let's dive into the topic and start with the key factors that determine how much Google Ads advertising will cost for your business.

The main factors that affect the cost of advertising on Google

The cost per click (CPC) in Google Ads is not a fixed value. It depends on a number of parameters that can be divided into external and internal.

External factors include:

Competition in the topic and region of display. The more advertisers compete for the same keywords, the higher the CPC. For example, in 2024, the most highly competitive niches in Ukraine are:

• Finance (loans, insurance) - average CPC $2-5
• Legal services - $2-4
• Plastic surgery - $1.5-3
• Automotive topics - $1.5-2.5
• Real estate - $1-2

Source: internal statistics of the Internet marketing agency WebPromo for 2023-24. At the same time, for many local businesses (beauty salons, dentists, food delivery), competition and prices are significantly lower - $0.3-1 per click.

Seasonality and fluctuations in demand. In certain topics, the cost of advertising can vary significantly throughout the year. For example, demand for school supplies peaks in August-September, and for travel agency services in April-June. Accordingly, during peak months, the cost per click can be 1.5-2 times higher than the average for the year.

Internal factors that depend on the quality of your advertising campaign.

Ad relevance and click-through rate (CTR). Google Ads rewards advertisers whose ads are more relevant to users' search queries and generate more clicks. The higher the Quality Score of your ads, the lower the cost per click and the higher the display position. For example, both you and your competitor have a bid of $1 per click. But your CTR is 7%, and your competitor's is 3%. In this case, Google will consider your ad to be more useful to users and display it higher, even though you pay the same CPC.

Quality and speed of the landing page. Google evaluates how quickly the page loads after clicking on the ad and whether its content is relevant to the user's query. Landing pages with slow loading speeds and irrelevant queries will negatively affect your ad's position and increase the cost per click. For example, the average loading time of your landing page is 5 seconds, and that of your competitor is 2 seconds. All other things being equal, the competitor's ad will be displayed higher, even if you are willing to pay more per click.

Selected bidding strategy (manual, automatic, Smart Bidding). Your approach to bid management will determine the final campaign budget and its effectiveness in achieving your goals.

To achieve the optimal ratio of the number of clicks/conversions to their cost, you need to constantly analyze and adjust these factors in your ad campaign. Below, we will analyze each of them in more detail.

Google Ads payment model

Google Ads uses an auction pricing model. This means that advertisers bid on certain keywords, and Google uses a complex algorithm to determine whose ad to show to the user and in what position.

The final position of an ad is influenced by 2 key factors:

• The maximum bid the advertiser is willing to pay
• Quality Score is an indicator of ad quality

Depending on your goals and business model, you can choose one of 3 ad payment models:

1. Pay per click (CPC). You pay only when a user clicks on your ad and goes to your website. This is the most common model for most businesses that work on sales and leads. Example: you are ready to pay up to $1 per click for the phrase "buy iPhone 13". If the user sees the ad but doesn't click, you won't be charged.
2. Pay per impression (CPM). You pay for 1000 ad impressions, regardless of the number of clicks. This model is suitable for advertising to increase brand awareness or reach an audience. Example: you set a bid of $10 per 1000 impressions. If your ad is shown 5000 times, you will pay $50, even if no one clicked on it.
3. Pay per conversion (CPA). You pay only when a user performs a targeted action on the website after clicking on an ad (purchase, application, call, etc.). It works if you have sufficient conversion statistics. Example: you are ready to pay $20 for 1 order from your website. If there were 1000 impressions, 30 clicks, and 1 order, your costs will be $20. But if there were no conversions and 100 clicks, you pay nothing.

Let's compare these 3 payment models in the table:

As you can see, each model has its pros and cons. For the majority of Ukrainian advertisers, the best option is pay-per-click (CPC), as it gives good control over the budget and does not require complex settings in the account.

Types of keyword phrase match and their impact on CPC

Another important factor that affects the audience reach, the number of clicks, and their cost is the type of keyword phrase match in Google Ads.

You can set 4 types of keyword phrase match for your ads:

1. Broad match. Ads can be shown for search queries that contain your keywords in any order, as well as for similar phrases and synonyms. For example, if you add the phrase "buy running shoes" to your campaign with broad match, your ad can also be shown for the queries "order running shoes", "buy running shoes", etc. ➕ Wide audience reach, high number of impressions and clicks ➖ High risk of non-targeted traffic, higher cost per conversion
2. Modified broad match. The ad is shown when the query contains all the specified words (or their close variants) in any order. The words that must be present are marked with a "+" sign. For example: if you add the phrase "+buy +sneakers", your ad will be shown for the queries "buy running shoes", "nike sneakers buy", etc. But it will not show up for the query "order shoes" because there is no word "buy". ➕ Wide coverage, but more targeted traffic than in the first option ➖ You need to clearly define the required words
3. Phrase match. An ad is shown when a query contains the entire keyword phrase (or its close variants) and may contain additional words before or after it. The phrase is indicated by quotation marks " ". For example: for the phrase "buy sneakers", the queries "buy nike sneakers in Kyiv", "buy sneakers cheap", etc. are suitable. But not "buy nike sneakers" because the word order is not correct. ➕ More precise match than broad match ➖ Narrower reach, potentially fewer impressions and clicks
4. Exact match. The ad is shown only if the query matches the keyword phrase (or its close variations) exactly. The phrase is indicated by square brackets []. Example: for the phrase [buy sneakers], the ad will be shown only for the query "buy sneakers" and its variations (buy sneakers). All other queries are not affected. ➕ Maximum relevance of impressions and clicks ➖ Very narrow coverage, little traffic

Let's compare all 4 types of relevance in the table:

Symbols: 😞 - low, 😐 - medium, 🙂 - above average, 😀 - high

In practice, it is recommended to use a combination of several types of relevance to get maximum coverage and targeted traffic.

Start with broad match to build a base click volume at a low cost. Then add more precise matching options to your campaign, track the effectiveness of each, and optimize as you accumulate more data.

Bidding strategies in Google Ads

The final budget of your advertising campaign and its effectiveness in achieving your business goals will depend on the strategy you choose.

Google Ads offers 2 basic approaches to bid management:

• Manual bid setting. You can set the maximum cost per click (CPC) at the level of ad groups or individual keywords. This allows you to control costs precisely, but requires constant optimization and bid adjustments.

For example, you can set a bid of $1 at the level of a group of auto parts ads. But for some key phrases within the group, you will have to lower the bid to $0.5 to stay within the daily budget due to high competition.

• Automatic strategies based on goals (Smart Bidding). You set the desired result (targeted action on the website, conversion, ROAS), and Google Ads adjusts the bids to achieve it based on machine learning algorithms.

Let's analyze the main automatic strategies and their features:

The choice between manual and automatic bid management depends on your goals, budget, and availability of statistics.

Manual management is suitable for small campaigns with a limited budget, as well as at the initial stage when there is not enough data to train algorithms. Automated strategies are better suited for large campaigns with a high volume of traffic and conversion history.

Budget forecast with Keyword Planner

To predict what your future campaign budget might be and how much traffic you might receive, use Google Ads Keyword Planner, a free tool that helps you to estimate your budget.

It allows you to get valuable data even before you launch your campaign:

• Predicted range of impressions and clicks
• Recommended bids for keyword phrases of different match types
• Approximate daily budget based on current bids in your niche

To get an accurate forecast, follow these 4 steps:

1. Collect the semantic core. Add all the key phrases you want to show your ads for to the scheduler, specifying the type of match for each. The more relevant phrases you have, the more accurate the forecast will be.
2. Specify targeting. Choose the geography of your ads (countries, regions, cities) and ad languages.
3. Set the time range. Specify the period for which you want to get a forecast - the last 7 days, month, quarter, or year. The longer the period, the more averaged the data will be.
4. Analyze the results. Study the predicted indicators - ranges of clicks, impressions, costs, CTR, average ad positions. If necessary, adjust the list of phrases and bids.

Based on the results, you will know the approximate monthly budget of the campaign and will be able to optimize it even before the ad is launched.

Example for an online electronics store:

• List of key phrases: [buy iphone 13], [buy iPhone 12 pro max], "order iPhone", etc.
• Targeting: Ukraine, all regions
• Range: last 30 days

Keyword Planner forecast:

The range depends on the quality of the ads, the effectiveness of the landing page, and the campaign settings

That is, at the current rates of competitors in the niche, the average monthly budget of such a campaign with coverage throughout Ukraine will be $1275-1980. It will allow you to receive from 850 to 1100 clicks at $1.5-1.8 per click to the store's website.

Of course, this is a generalized forecast. Actual performance may vary during the campaign launch. Therefore, after receiving the initial statistics (in 1-2 weeks), be sure to review the campaign structure and adjust the bids.

Optimize the efficiency of your advertising budget

Even small changes to your ad campaign settings can significantly reduce your CPC and increase your return on investment. Here are some proven ways to optimize:

Improve the quality of ads and landing pages. Ads should be as relevant to keywords as possible and contain a clear call to action. And the landing page should fully comply with the promise in the ad and be user-friendly.

An example: replacing the generic text "A large selection of products at the best prices" with the more specific "Buy iPhone 13 at a super price - only in June!" can increase the ad's CTR from 3% to 7% and reduce the cost per click by 30%.

Use negative keywords to filter out untargeted traffic. Analyze the search queries for which your ads are shown. If there are obviously irrelevant ones, add them to the list of negative keywords at the campaign or ad group level.

For example: for a store selling Nike branded sneakers, negative keywords can be "fake", "replica", "cheap", "sale". This will cut off impressions for queries such as "buy cheap replica Nike sneakers" and save your budget.

Targeting the target audience. Use all available targeting options to show ads only to potential customers:

• Geography (country, region, city, radius from a point)
• Demographics (gender, age, income, marital status)
• Interests and online behavior (interest in your topic)
• Remarketing (showing ads to users who have already visited your website)

Example: for a food delivery service, it is logical to limit the display of ads to a radius of 5-10 km from the restaurant. And it makes sense for a women's clothing store to show ads only to women aged 18-45 with an average income.

Experiment with match types and ad extensions. Test different types of keyword matching (exact, phrase, broad) and analyze the effectiveness of each of them by CTR, average position, CPC, and conversion metrics.

Also, use all available ad extensions whenever possible:

• Clarifications (for additional information about benefits)
• Structured descriptions (to indicate the characteristics of the product)
• Quick links (to go to important sections of the site directly from the ad)

Example: Adding "Free shipping", "2-year warranty", and "Payment in installments" to an ad increases CTR by 10-15% on average and reduces CPC as it increases the overall ad rating.

Regular optimization of campaigns based on statistics and A/B tests. User and competitor behavior is changing, so it's important to constantly monitor campaign performance and make adjustments.

• Check your statistics weekly and look for "failed" campaign elements (ads, keywords) with a high CPC and low CTR. Disable or modify them.
• Test several ad variants within a group (with different titles, text, extensions) and keep the one that shows the best results after 100-200 clicks.
• Collect additional negative keywords from the Search Queries report
• Study metrics not only in Google Ads, but also in Google Analytics - perhaps your ad traffic has a high bounce rate, low viewability, and low conversion.