Here’s the data on why Google Ads are almost an unavoidable investment for SMEs…
As of June 2021, 92% of the search engine market belongs to Google. Yep, that’s right, they basically own the space. This means that if a small business wants their brand or product to be present to people looking for products or services like theirs, they’ll need to use Google either organically, OR via paid ads (PPC). Paying your way with paid ads is quite simply the quickest way to be present on search results!
Almost 50% of people go to the top three paid ads in search results. This means you’re more likely to get people to your website by being present in the top 3 ad results, than depending on people to find you organically.
One-third of people click on a paid search ad because it directly answers their search query. And, people that click on these same ads have been found to be far more likely to make a purchase. That’s great for sales, right? Right.
Why is that? Well, it could be that around 63% of users can’t tell the difference between a paid ad and an organic listing. We kind of know ads are towards the top of search results don’t we? But people searching are usually only looking for what they want, so if the ad promises what they want, they’ll simply click through. In fact, 50% of people arriving at a retailer’s site from paid ads are more likely to buy than those who came from an organic link.
Finally, across the board, Google tends to deliver between 2-8:1 Return On Investment (ROI) — so if you give a $1, you’ll get between $2-$8 back in your pockets. That’s pretty good for SMEs.
However, consistency is important for small businesses, both for the sake of brand and for the sake of typical digital advertising platform requirements. We’ve all heard the saying, you need to spend money to make money. For Pay Per Click advertising models, including the Google Ads platform, the algorithms utilised typically need at least 7-days to optimise the delivery of your ad since your last significant campaign adjustment. Many advertisers advocate 90-days as the prefered time period to demonstrate campaign performance.
Your Google Ads’ learning period will vary based on…
- The state of your Google Ads account
Do you have historical conversion data your new campaign can leverage? Is it a brand new account? Digital marketing platforms run off data, so if you have none, it will take time to build it.
- The state of your industry sector
Some industries experience seasonality or are more competitive than others. A higher cost per click will only balance out if you have a justifiable average order value or customer lifetime value. If you’ve a new product like an app, you may be yet to establish market demand.
- Your website’s relevance and performance
A website that is not set up to drive the desired conversion outcomes will experience poorer ad performance. Conversion Optimisation specialists can help you out, often using a tool like Unbounce to mask a low performing website and see what will work better for the business.
- A longer ‘conversion’ period
If there’s a lag between the time a user investigates your product or services, and the time they actually make an enquiry or purchase, this long lead time will in turn mean it takes longer for the Google Ads algorithm to gather data, extending your account’s learning phase. As a general rule, the higher the price, the more time it usually takes for an individual to proceed with the sale. And, the lower the demand or urgency, the slower the purchase process will be.
What Conversion Rate can you expect from Google Ads?
In 2022, the average Conversion Rate in Google Ads across all industries is 4.40% on the search network (Source). This benchmark has gone up by 17% over the last 5 or so years. Businesses are more dependent on the Google Search network than ever before, with the average cost per conversion sitting at about $56. If your small business has a customer lifetime value above this, which most would hope to, then yes, Google ads are certainly worth it for small businesses.
How much should I spend on Google Ads as a small business?
The more you spend, the faster Google is able to optimise the delivery of your ad. This is because its algorithm is able to learn who your ad best serves, at what time, over time. The lower the budget, in theory, the slower that learning period due to the lower number of impressions your ad will earn. This means that businesses able to experiment with 3k plus a month tend to see faster campaign results than those that sit under this spend.
To calculate how much to spend on Google Ads in order to get the results you need, you’ll want to use a formula similar to this one:
Desired leads (or online sales)/month X average Google Ads cost per conversion = spend/month
If you use Google’s average cost per conversion, and you were wanting around 100 leads a month, that would be…
100 x $56 = $5600/month
Note, again, some leeway on the initial spend as Google, and your ad specialist takes time to optimise the content and delivery of your ads.
To plot this in a more accurate manner, you’ll want to calculate your expected cost per conversion using your own or industry-specific data:
- Identify your website’s Conversion Rate. Use your website’s established analytics or ask your digital marketing specialist. If you don’t have either of the two, use a close estimate based on industry data.
Conversion Rate in marketing terms is basically people taking your desired action, in this case through your website, whether it be a purchase, enquiry or download. For example, average ecommerce conversion rates sit at 5.2%, real estate 2.6%. To get one real estate lead, you’d calculate 2.6% of the paid traffic you drive to site will actually make an enquiry about a property. Of these, a percentage will convert to a sale.
- Calculate your Average Cost Per Click (CPC) based on the collection of keywords you are wanting to target.
Your Google Ads or digital marketing specialist can normally advise on this, as keyword targeting can be quite a task within itself. Keyword research and associated costs can be undertaken within the Google Ads platform or via a tool such as SEMrush.
Your number of enquiries/sales desired per month divided by the number version of your Conversion Rate equals the number of people you will need to drive to your website in order to achieve your desired sales/month.
So if I wanted 25 additional enquiries per month via my real estate website the formula would be:
25 / .026 = 961
0.026 is the same as 2.6%. 5.2% would be 0.052, 15.7% would be 0.157 and so on.
If my average cost per click is $2.20, in theory, I would need to spend $2114 to get my 25 Adwords driven enquiries/month.
961*2.20 = $2114
Remember, this data is based on an ad account that has established performance data to build off, so you’ll need some budget leeway to account for the algorithm’s learning phase.
Does it matter if I take a break, turning Google Ads ‘on’, then ‘off’ again?
It’s recommended to dial down your spending, rather than turning your ads off altogether. Some Google ads specialists and agencies have found that small accounts that ‘take a break’, essentially ‘reset’ Google’s ad delivery ‘learnings’ and impact your ad rank. Of course, this is not ideal for SMEs, who will then cop unwarranted down periods with decreased ad performance.
What is the minimum spend for Google Ads?
It’s a strange paradox that SMEs would rarely think spending $100 on a campaign would generate sizable returns, yet in the online world, they’ll often ‘give it a go’ on bare minimum budgets like these. The thinking is, ‘I’ll test it with a low budget, and if it works, I’ll increase my spend.” Now, there’s nothing wrong with that thinking, BUT, if your budget is lower than what’s reasonable for Google to optimise the delivery of your ad, it’s like throwing money at the wind and hoping it doubles on the way back.
Rather than making a budget decision on wishful thinking, base it on at least some generalised data.
Aim for at least 5 clicks per day to feed the algorithm. If you don’t have account specific data, use industry benchmarks. For example, for car insurance, the average Cost Per Click can be around $25, so your ad budget per day would be $125.
Make sure you can maintain this budget over a consistent period to really test Google Ads as a channel for your business.