It’s a reasonable question, and one we hear all the time, especially from newcomers to paid search. After all, those new to PPC are probably most interested in how much they’ll be expected to shell out to advertise on Google, and whether they can even afford it!
Unfortunately, there’s no easy, one-size-fits-all answer. The most common (and infuriating) answer is, “It depends.”
The cost of AdWords depends on several variables. In this post, I’ll explain how these variables will impact your ad spend, and demystify the concepts you’ll need to understand in order to set a realistic budget for your ad campaigns.
Here’s a high-level, TL;DR preview of what you’ll learn in more detail in this guide:
- Google AdWords is based on an auction system that rewards businesses who have high-quality ad campaigns with lower costs and better ad placement.
- You can exercise tight control over how your AdWords budget is spent using tactics like ad scheduling, geotargeting, and device targeting.
- The average cost per click in Google AdWords is between $1 and $2 on the search network. The average CPC on the Display Network is under $1.
- The most expensive keywords in AdWords and Bing Ads cost $50 or more per click. These are generally highly competitive keywords in industries that have high customer lifetime values, like law and insurance.
- Giant retailers can spend up to $50 million per year on paid search in AdWords.
- The average small business using AdWords spends between $9,000 and $10,000 per month on their Google paid search campaigns. That’s $100,000 to $120,000 per year.
Now, let’s examine these points about AdWords costs more closely.
How Does AdWords Work?
Before we dive into the figures and start talking cost, it’s vital that you know how the AdWords platform actually works.
One of the biggest misconceptions about AdWords is that whomever has the most money to spend has the most influence. While a bigger ad budget never hurts, AdWords is actually a more level playing field than many new advertisers realize.
Google AdWords functions in essentially the same way as an auction. Let’s take a look at how this process works.
The Ad Auction
The ad auction begins when a user enters a search query, after which Google determines whether the query contains keywords that advertisers are currently bidding on.
If advertisers have bid on some of the keywords in the user’s search query, the ad auction begins. The purpose of the auction is to determine Ad Rank, or where each ad will be positioned. The auction determines the inclusion and placement of ads according to the Ad Rank formula based on two main factors – maximum bid and Quality Score:
So, back to how AdWords works. Once your Quality Score and Ad Rank have been calculated, Google uses this data to determine how much you’ll pay each time someone clicks on one of your ads. This formula looks like this:
Notice how Advertiser I can pay less for a higher position due to their better Quality Score?
This is essentially how AdWords works in a nutshell. There are variables that aren’t covered here, such as alternative bidding methods and ad formats, so if you want to learn more about how AdWords works, check out the full infographic here.
Now we’ve brushed up on the fundamentals, let’s dive into the numbers.
How Does My Google AdWords Budget Get Spent?
A common scenario that many newcomers to paid search find themselves in is when their advertising budget gets spent much more quickly than they anticipated.
Understandably, this can be quite a shock. Advertisers might assume their ad budget will last them for a month, only to discover that they’ve blown through their budget in a matter of days. This can lead to yet more misconceptions about paid search, namely that it’s prohibitively expensive. However, this isn’t necessarily the case, and is more often than not the result of a misunderstanding of how budgeting works.
PPC Budgeting Basics
You can think of ad budgets in the same way you would about any other budget. You start with a core figure that will represent the majority of your ad budget, and allow for a little leeway in case things change or something goes wrong. One way to start budgeting a PPC account is on a per-campaign basis.
Each campaign has its own unique settings tab in AdWords. This allows you to control specific parameters of each campaign independently of other campaigns in your account.
Each campaign should have its own daily budget. If you’re running several campaigns simultaneously, you should think about which campaigns have priority. For example, a campaign advertising your best-selling product may be more important to your business than another campaign promoting content to prospective customers at the top of the funnel. In situations like this, you might want to allocate a larger daily budget to the product campaign.
If you’re planning a monthly PPC budget, all you need to do is calculate the breakdown of daily budgets for each campaign, and allocate your funds depending on the priority of each campaign.
How Daily Budgets Get Spent
Let’s say you have an ad with a CPC of $0.25, and that you’d like to receive 300 ad clicks per day. Using these figures, you can calculate an estimated daily budget:
.25 x 300 = $75
In this example, 25 cents is the most that you’d be charged if 25 cents is your maximum CPC. However, the actual amount you could be charged per click can change, depending on the variables of each individual ad auction.
Just remember that, if you set your maximum CPC at 25 cents, you’ll never pay more than that for a click – but you might end up paying less.
Sounds simple enough, right? Well, there are several factors you should consider that can impact your PPC budget, the first of which is dayparting.
Also known as ad scheduling, dayparting is the practice of specifying when you want your ads to appear to prospective customers. Although your ads will still have to go through the ad auction process, you can tell Google when you want your ads to be displayed.
This is especially useful for local businesses that want to drive customers to a physical location through their ads. If you run a bakery that closes at 7 p.m., for example, you may not want your ads to be shown outside your normal business hours. Alternatively, you can specify that your ads run continually throughout the day, but allocate a greater portion of your daily budget for hours during which you want increased visibility.
To learn more about dayparting and ad scheduling, check out this guide.
Geotargeting allows you to prioritize the display of your ads to searches coming from specific areas. These areas can be as large as a state or province, or as small as a three-block radius from your store.
Geotargeting can be an excellent way to capitalize on growing mobile traffic trends and on-the-go shopping habits of today’s consumers, and it might factor into how you allocate your daily ad budget. For example, you may want your ads to appear alongside relevant searches in a particular state, but you could also allocate more budget to searches conducted in a specific city or even neighborhood.
Long gone are the days when prospects searched exclusively from desktop browsers. Today, consumers are searching the Web across numerous devices (often at the same time), which means you need to pay attention to where your most valuable leads are coming from. This is where device targeting comes into play.
How Much Does A Typical Click Cost In AdWords?
Once you know what PPC is and how paid search works, it makes sense that your next question might be, “How much does a typical click cost?” As I mentioned earlier, though, this is not an easy question to answer.
In some ways, you can think of PPC advertising roughly along the same lines as traditional print advertising; you’d expect to spend more on a glossy full-page ad in a national magazine than you would for a classified ad in a local newspaper. In digital marketing, the distinction isn’t in the format of the ad, however, but rather the commercial intent of and competition for the keywords you’re bidding on. Some keywords are significantly more expensive to bid on than others, depending on how competitive the market is, and it’s important to realize this before launching a PPC campaign.
In the US, if you average across all different types of businesses and keywords, the average CPC in AdWords is between $1 and $2. That’s on the search network. On the display network, clicks tend to be cheaper, and the average is under $1.
However, in super-competitive markets, clicks can get much pricier. Let’s take a look at some of the most expensive keywords in AdWords and Bing to give you an idea of how much a click can cost if you’ve got deep pockets.
The Most Expensive Keywords In Google AdWords
Listed below are the most expensive keyword categories in Google AdWords, and the average cost-per-click of each. It’s worth noting that these are keyword categories, not actual keywords themselves – in some cases, the CPCs of keywords within each category may be higher than the averages stated:
- Insurance – $54.91
- Loans – $44.28
- Mortgage – $47.12
- Attorney – $47.07
- Credit – $36.06
- Lawyer – $42.51
- Donate – $42.02
- Degree – $40.61
- Hosting – $31.91
- Claim – $45.51
- Conference call – $42.05
- Trading – $33.19
- Software – $35.29
- Recovery – $42.03
- Transfer – $29.86
- Gas/Electricity – $54.62
- Classes – $35.04
- Rehab – $33.59
- Treatment – $37.18
- Cord blood – $27.80
You can check out the full infographic and learn about the methodology behind the data.
Written by Dan Shewan