Calculating an Adwords Budget

First off, I heart Google Adwords – big time.  After all, it’s this cash cow that pays for the Google party.  However, while working with a new client recently, we found their super-handy tools a bit lacking when it came to a simple and common question: “How much should I budget for Adwords?”  So we did a little mathematical experiment with some surprising results. 

The client had already run an Adwords campaign, but the former Adwords manager refused to hand over the reports.  I have no idea why, but he was willing to send over their keyword list.

We were putting a proposal together when someone on the team said we should probably estimate how much they should budget for their new Pay-Per-Click campaign.  I sent an email to ask how much they’ve spent before and while we waited we asked Google (using their Traffic Estimator and Keyword Tool).

Take that Adwords estimate with a Google-sized grain of salt.

So, sight-unseen Google’s tools estimated they should spend between $176.78 and $216.06 per month at a maximum cost per click bid of $8.  Sounds awesome, right?!

We ran our numbers and came up with about $2,068 per month.

About the time we were finishing our arithmetic, the client responded to the email: $2K to $2.5K per month is what they’ve been spending.  That means Google was off — way off.

You see, Google estimates this stuff at a minimum (a very optimistic minimum) by taking Monthly Impressions TIMES Click-through Rate TIMES Estimated Cost-Per-Click.

In our experience their “Monthly Impressions” metric is a little off and about 1 in 20 clicks from a search result are on an ad.  So we use: Local Monthly Searches DIVIDED by 20 TIMES Click-through Rate TIMES Estimated Cost-Per-Click.  Our calculation tends to yield a conservative maximum.

Well, there you have it.  Adwords is great, but when you’re estimating your next Adwords budget, take that couple-hundred dollars a month number with a Google-size grain of salt.