I wanted to make sure that I added “to see results” into the title of this post because that’s very important when it comes to spending on Google Ads.
A lot of agencies will just tell you to spend thousands on the platform, but not actually have any measurable results to show for it. You’ll just get a report showing some clicks and web traffic.
We want to focus on getting results, and having new jobs coming your way from your Google Ads investment. Just getting clicks isn’t going to cut it. You need to be generating leads. Ideally, high quality inbound phone call leads.
I didn’t want this post to sound like a lot of the hypey marketing content out there that touts digital marketing as this cost effective, magic, money printing solution for your business.
For example, when a lot of people talk about Facebook Ads, they talk about how you can start for only $5 a day. Then they proceed to paint a picture of endless returns with very little investment.
I also don’t want to come off as aggressive, or crotchety, because that’s not the intention 🙂
I want to give you something as realistic and practical as I can, and want to avoid all of that fluffy stuff above. If you’re looking to invest in marketing, then you should approach it like that. With an investing mindset.
That doesn’t mean that you have to invest tens of thousands of dollars per month into it, but you do need to be prepared to invest some money to get it working. There’s tons of competition on pretty much every marketing platform imaginable, so it’s going to be incredibly tough to come in and compete with a couple hundred dollars.
Keep in mind that some of your competitors in your marketplace have no problem spending $5,000/month or more on Google Ads just within your local market. When they’re spending that much, they’re going to push a lot of the smaller players out.
It doesn’t mean that you have to be spending that much, but you need to at least put yourself in a position to compete in order to get results for your own business.
The GOOD news about a digital platform like Google Ads though, is that anybody can get involved and start advertising. So, that means there’s opportunity for everybody. Let’s get started.
The Importance Of Budget and Data
Google Ads is a platform that is very driven by data. The more data you have about what works (i.e. the areas of your campaign that generate phone call leads for you) and what doesn’t (the areas of your campaign that waste your money), the quicker you’ll be able to make changes to your campaigns to get them generating leads consistently at a profit.
I know that the word “data” can be very broad, so let me expand on what I mean by that. When you’re investing in Google Ads, you essentially put money into the system, and then people start seeing and clicking on your ads. Google tracks all of this activity, and will show you which keywords, and ads are producing the best results for you.
With that information, you can then see right away which keywords and ads are producing phone calls, and which aren’t. As you gather more and more of this data, you’re able to remove all of the parts of your campaign that don’t generate results. Then, you can take your budget and allocate it towards the parts of the campaign that do produce results.
How this ties into ad spend is very important. If you want to generate results faster, you will need to get more data. In order to get more data, you’re going to need to invest more money.
So, keep that in mind as you’re reading through this. If you want to get a campaign working faster, it’s best to invest more money than not enough.
The last thing you want to do is be a fencing or a roofing contractor, and end up spending like $200/month on your ads. It’s going to take forever to get enough data to actually make any improvements on your account. You’ll be advertising for 5 months before you can actually get enough information to make those meaningful changes that produce results.
That said, I don’t advocate for just blindly throwing money towards Google Ads, and I would never just quote someone $10,000/month just because. You want to be smart about it, but you also don’t want to skimp when it comes to Google Ads.
If your budget is smaller, I would look towards something like Facebook Ads to start.
With all that in mind, there isn’t a clear cut minimum target for every single industry because there are a lot of factors involved. The industry you’re in, the competition of your local marketplace, and the specific services you’re trying to market all play a factor in cost.
As a general rule of thumb though, a bare minimum that I would recommend for ad spend on Google Ads is $500 to $1,000/month. This should give you enough runway so that you can get enough data to make changes. At the same time, it’s an entry point that a lot of businesses could start at.
If you’re in more expensive and competitive industries like roofing, then a $1,000/month minimum would be a good starting point. If you’re in roofing in a larger metro area like Dallas, then you’re probably going to be looking at something like $2,000/month at a minimum.
There are a few things that you want to consider when you’re trying to figure out how much you should be spending on Google Ads
- What is your lifetime customer value? Ideally, you want to look at this on a service by service basis. You’ll need this when you’re trying to figure out how much you can spend per lead.
- What is your close rate on new leads that enter your sales process? This doesn’t include referrals. Only look at close rates on leads that come from “cold” sources – Generally ones that come from advertising and marketing.
- How much should I be bidding to stay competitive? What are the different services I want to advertise? And, how much is the average cost per click in my marketplace for each of those services I want to advertise?
What is your lifetime customer value?
This is going to give you a baseline to go off of, and allow you to figure out how much you can pay to acquire a customer.
You want to first go through your different services and figure out how much the lifetime value of a customer is.
If it’s a one time thing like a fence installation, then figure out the average revenue generated from a fence installation. The more precise you can get here, the better. If you can split this data up into even more specific numbers like the average revenue from a wood fence, vinyl fence, aluminum fence, chain link fence, etc that would be ideal.
If the customer comes back on a regular basis to do business with you, figure out how many times they come back and for how long. The total number you come up with is the lifetime value of your customer.
You don’t need to have this number nailed down to a specific dollar amount, but at least having an idea of where the number is will help you a ton in figuring out how much to spend on your Google Ads campaign.
Combined with this information, you’re going to need to know the next point…
What is the close rate of your sales process?
The most important thing about figuring out your close rate, is figuring out what your close rate is on “cold” leads.
A cold lead is anyone who comes from any marketing or advertising. These are people who don’t know you, don’t have a relationship with you, and didn’t come from a referral.
If you’re currently paying for leads from a lead provider like Homeadvisor or Angieslist, then these can be considered cold leads.
A big mistake that I see a lot of people make when trying to calculate their close rate, is they factor in their close rate on referrals as well.
Referrals will always close at a higher rate than any leads that come from marketing or advertising. This is because they have already been warmed up when someone they know recommended you.
Cold leads, on the other hand, have to be handled much differently and will almost always close at a lower rate than referrals.
Also, cold leads will close at different rates depending on the platform that you get them from. Facebook leads, for example, will close at a lower rate but be less expensive. Google Ads leads on the other hand will tend to be more expensive, but will close at a much higher rate. This is all due to the intent of the lead, and where they are in the buying process.
For the sake of this example (and for simple math), let’s go ahead and use 20% as our close rate. 20% is usually a solid benchmark to shoot for when it comes to close rates on leads from Google Ads. This is closing 1 in every 5 inbound phone call leads that comes in.
Keep these past couple of numbers in mind as we cover one last important point…
How much should I be bidding to stay competitive?
… and then on top of that we’ll add on more questions to make it the most complicated question in the world… What are the different services I want to advertise? And, how much is the average cost per click in my marketplace for each of those services I want to advertise?
Okay, it’s not that complicated, but everything there is very important.
How much you have to pay for an individual click is going to help you determine what your overall Google Ads budget should be.
The cost per click is going to be different based on a few things… What industry you’re in, the market you’re trying to advertise in and how competitive it is, and what services you’re trying to advertise and how competitive they are.
Let’s go over industry first.
Every industry has different averages for cost per click based on the competition within that industry. Essentially cost per click is determined by how much people are willing to pay to get in front of customers in any given marketplace.
If you own a fence company for example, you would probably be looking at a cost per click somewhere around $7. Alternatively, if you’re a roofing company, your cost per clicks is probably going to be closer to something like $20 per click.
The reason for this is that roofing is so much more competitive. There is a lot more revenue to be made by installing a new roof, so businesses are willing to bid much more to get in front of those people.
There are certain industries where a single cost per click can be $50 or more. I’ve worked in the IT niche before, and a single click was anywhere from $30 to $50. In some legal niches, a single click can be upwards of $100.
Market and Competition
Not only does your industry play a factor in how much you have to pay for Google Ads, but the competitiveness of your local market plays a role as well.
This one is pretty straightforward, but if there are a ton of other businesses in your vertical advertising in your local market, that competition is going to drive costs up.
As a general rule of thumb, large city and metro areas are generally more expensive. More rural areas with a smaller population are usually much less expensive.
This ties in with the above couple of points, but different services are going to have different costs per click on Google Ads.
There are certain services that businesses are willing to bid more on because of the revenue they generate.
As a quick example, roofing keywords can cost around $20 or more per click. Keywords related to siding can be lower around $10 per click. The more revenue a business can stand to gain from a particular service, the more people are willing to bid on it.
How To Figure This Information Out
If you want to do the digging yourself, you can use the Google Ads keyword planner tool to figure this out.
In order to get the most accurate data, you need to have a Google Ads account set up and be spending on Google Ads. You can still use it without spending money, but they will give you more accurate data if you’re spending money with them.
The keyword planner is a great tool to help you plan out your budget because you can put in specific keywords you want to bid on and see how much they cost on average. This is also a great tool to figure out what you should be bidding on in the first place. I’ll cover how to do that in another post.
Bringing It All Together
Okay, so we’ve got all of that information above sorted out. In the example below, I’m going to give a couple of examples using simple math to give you an idea of how to figure out your budget.
From the examples below, you should be able to look at your own business and figure out a target investment amount from there.
Let’s say you’re a fence contractor looking to get more residential and commercial jobs.
After doing some research with the Google Keyword Planner, you find that people are spending around $7 per click for relevant fencing keywords.
If you spend around $1,000/month on Google Ads, the numbers should look something like this…
- $1,000/month investment
- Around 140 clicks
This is where having a good Google Ads campaign comes in. If you’re working with a Google Ads professional, then it should be converting anywhere from 10% to 30% of those clicks into phone calls or form fill leads. Based on that, we can keep digging into the numbers…
- 10% of clicks turn into phone calls – 14 phone calls per month – $72 cost per lead
- 20% of clicks turn into phone calls – 28 phone calls per month – $35 cost per lead
- 30% of clicks turn into phone calls – 42 phone calls per month – $23 cost per lead
Getting a campaign to convert on the higher end at 30% is pretty tough, so let’s be conservative and look at the 10% and 20% conversion rate numbers.
From there, let’s look at your close rate on cold leads. If you don’t have this number, using 20% is a fairly safe bet when it comes to inbound phone call leads from Google. If you want to be even more conservative, then you can use a 10% close rate.
- If we convert 10% of clicks, and get 14 phone calls per month
- 10% of those phone calls convert – 1 to 2 new jobs/month
- Roughly $500 to $1,000 to acquire a new customer
- 20% of those phone calls convert – 2 to 3 new jobs/month
- Roughly $334 to $500 to acquire a new customer
- If we convert 20% of clicks, and get 28 phone calls per month
- 10% of those phone calls convert – 2 to 3 new jobs/month
- Roughly $334 to $500 to acquire a new customer
- 20% of those phone calls convert – 5 to 6 new jobs/month
- Roughly $170 to $200 to acquire a new customer
I’m purposely being very conservative with the numbers here. In some cases inbound phone call leads from Google can convert at a much higher rate. I’ve seen people closing as many as 40% to 50% of inbound phone calls from Google.
Now, this is where your lifetime customer value comes in. Again, for the sake of this example, I’m going to keep the numbers conservative and simple.
Let’s say that your average job size is around $5,000 for a residential fence installation.
On the low end of your campaign performance, you’re going to be looking at around $5,000 to $10,000 in new jobs.
If your campaign is working well, and you’re converting more of those leads, that number can go upwards of $25,000 to $30,000 in new jobs.
By working backwards with some of these numbers, you should start to get an idea of what you could and should be investing in your Google Ads.
Based on this example above, I would say that a fencing company would be best to start at around $1,000/month if they want to see return a bit quicker. This would also keep them competitive in their marketplace.
They could start around $500/month, but it would take a bit longer for them to start seeing results. Like I mentioned earlier in this post, this is all about how fast you’re looking to get data and make improvements on the account. At this rate it would take longer compared to $1,000/month, but it would still be doable.
I’m not going to go through all of the numbers and calculations from above for this example, but just want to cover some basic numbers here.
Since bidding on keywords in the roofing niche is much more competitive, you’re going to have to invest more to get results.
If an individual click for a roofing keyword in your market is $20, then at that $1,000 investment, you would only be seeing 50 clicks per month.
In theory, if your campaign is working extremely well off the bat, you would be able to bring in more jobs from it.
That said, usually campaigns on Google don’t perform at really high levels right off the bat. Over the course of a few months, you’ll be able to get it working properly, but when you’re working with only 50 clicks per month, you won’t be able to make many changes quickly with that little data.
Realistically though, with a cost per click around $20, you’re going to want to be starting at around $2,000/month at least.
I’m hoping that by looking at this, you can see how tracking your numbers and working backwards can not only help you figure out your budget, but also figure out how much you can pay to acquire a new customer while staying profitable.
There’s definitely some complexities in figuring out how much you should be spending, and I hope this post helped you figure some of that out.
At the end of the day, you want to look at the cost per click, and then give yourself some runway to get a campaign working. It takes time, but once your campaign is dialled in, you’ll be able to turn a profit on a monthly basis.
Every niche and local market is different, so make sure that you do a bit of homework on your area, and good luck!
If you’re currently running Google Ads, and not seeing the results you want to be seeing, let me know!
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