Deciding your Google Ads budget: a guide for small to medium business owners

One of the most common questions small to medium business owners ask is: "How much should I spend on Google Ads?" It's a fair question, and the answer requires careful consideration of several factors.

Seven Steps to Setting Your Google Ads Budget

1. Define Your Goals

Before allocating any budget, clarify what you're trying to achieve:
- Sales and revenue
- Lead generation
- Website traffic
- Brand awareness

Each goal requires a different approach and potentially different budget levels. Be specific about what success looks like for your business.

2. Assess Your Financial Capacity

Evaluate what your business can sustainably invest while maintaining profitability and stability. Google Ads should be an investment that generates returns, not a financial strain.

Consider:
- Your overall marketing budget
- Cash flow requirements
- How long you can sustain spend before seeing returns

3. Start With a Test Budget

Begin modestly to gather performance data and validate strategies before committing substantial resources. There's no point spending big until you know what works.

A test budget allows you to:
- Understand your cost-per-click in your industry
- Test different keywords and ad copy
- Identify which campaigns show promise
- Learn without significant financial risk

4. Research Industry Competition

Different sectors have varying cost-per-click rates. Understanding your competitive landscape helps set realistic expectations.

Some industries (legal, insurance, finance) have very high CPCs, while others are more affordable. Know what you're getting into before you commit.

5. Calculate Your Maximum CPA

Determine your maximum cost per acquisition by analysing:
- Your conversion rates
- Customer lifetime value
- Profit margins

If a customer is worth $500 to your business and you need a 3x return, your maximum CPA is roughly $165. Work backwards from the value a customer brings.

6. Monitor and Optimise

Track metrics including:
- Click-through rates (CTR)
- Conversion rates
- Cost per conversion
- Return on ad spend (ROAS)

Use this data to continuously refine your campaigns. The businesses that win with Google Ads are those that obsess over optimisation.

7. Test and Scale

Gradually increase budgets for successful campaigns that demonstrate positive returns. At the same time, continue testing new strategies, keywords, and ad variations.

Don't put all your budget into one campaign. Maintain a testing budget to discover new opportunities.

Key Takeaway

Budget allocation should be an ongoing process, allowing for adjustments and optimisations based on real-time data. Start conservatively, measure everything, and scale what works.

The right budget isn't a fixed number—it's the amount that generates profitable returns for your specific business.