Before we can answer this question you first need to set your campaign objective. Here are the 4 most common campaign objectives:
- Appear on page #1 of Google for your target keywords
- Generate traffic to your website
- Generate leads
- Generate sales at a profit
All of these objectives are important. Yet, one of them supersedes the others. Can you guess which one?
Hopefully you chose #4 – “Generate sales at a profit”. Here’s why…
There’s a common misconception about Google Advertising, and it goes something like this…
“If my ad appears on page #1 (or even top 3) on Google, then I’ll generate lots of traffic and leads… and make a lot of sales and profit.”
Now, this is wrong for a number of reasons:
- You can appear on page #1 of Google and not actually generate any traffic.
- You can generate lots of traffic, but not convert the traffic in to leads and sales.
- You can generate sales, but pay more in clicks than you make in profit.
If you’re new to Google Advertising then this might be a hard concept to grasp. If so then I recommend [The Ultimate Guide to Google Sales and Profit].
“Profit” is the only important objective for your online advertising. Everything else is secondary.
With profit in mind I’m now going to split the original question in two:
What is the minimum you can spend to test if Google Advertising is profitable for your business?
Google Advertising is Pay-Per-Click. Your ad appears on Google and a per click fee is charged when a prospect clicks through to your website.
Paying Per-Click is a major benefit of Google Advertising. It means that you can start with a small budget, and then increase spend as you start to see a return on your investment.
As a general rule, you should start with a monthly budget of at least 1-3 times your average profit margin for medium to high ticket sales, and a minimum of $500 for low ticket sales.
Remember, a profitable advertising campaign is an. Once your Google advertising is running at a profit, it will continue to produce results month after month.
However, not all campaigns are a home run from month one. As a starting point, aim for a profit after fulfilment of 1-3 times ad spend. This means, if you start with a $500 budget, then it’s reasonable to aim for a profit after ad cost and fulfilment of $500 – $1,500.
[Johnson Box – The Ultimate Guide to Google Sales and Profit]
How much should you spend on your Google Advertising?
Let’s assume that your minimum spend campaign (described above) generates a profit. Should you increase your ad budget, and if so by how much?
If your goal is to make more money, then the answer is “yes”.
The whole point of Google advertising is to make a profit. Now that your campaign is making a profit then you should absolutely leverage it to make as many sales and profit as you can.
Here’s some tips on how to do it…
Increase your budget by an amount that you’re willing to risk. This is any amount that won’t hurt the business if the budget increase isn’t successful. Let’s say 25 to 50% increase.
Next, you track results to closely see what happens. If the new budget generates more sales at an acceptable margin of profit, great. You can increase the budget again and see if it continues to generate more returns.
If the answer is “no” then you might decide to scale back spend to a budget that continues to produce a profit.
The key take away is… if you can spend a dollar and get more than a dollar back, then continue doing that until it no longer gives the acceptable margin for profit.
