Google Adwords allows you to control your advertising costs. There is no such kind of minimum amount set by Google that you have to spend this certain amount to run your campaign. Rather than, you have complete authority to set your own budget and choose how you will spend your money.
The cost of Adwords Account depends on several factors. I will explain those variable factors which can help you understand to set your daily average budget. And you can understand the concept of setting a realistic budget for your ad campaigns.
How does it work?
Before we walk through the process of figuring out the cost of Adwords, we need to know how this platform really works.
It is a big misconception about Adwords is that who can spend more money on it, their ads will be most influenced but this is not like that at all. It totally works on your experience and the way you optimize your campaign.
Whenever someone searches on Google, Adwords run an auction to determine the ads that show on the search results page and their rank on the page. In order to place your ads in this auction, first, you have to choose how you would like to bid. For this, you need to make a strategy based on your targets or goals, like whether you want clicks, impressions, or conversion.
Now how to choose bidding strategy?
Most people starting Adwords with the use of the basic CPC bidding strategy, which means they accrue costs based on the number of clicks they get on their ads.
If you use the CPC bidding strategy, the amount you’re charged per click depends in part on the maximum cost-per-click bid you set in your account, also called “Max CPC” bid. This represents the highest amount that you’re willing to pay for a click on your ad (unless you’re setting bid adjustments, or using Enhanced CPC). In fact, the most you’ll pay is what’s minimally required to hold your ad position and any ad formats shown with your ad (including any applicable service fees that may apply to Display Network campaigns). So you’ll often pay less than your maximum bid. The actual amount you pay is called your actual CPC.
An Ad Auction
It works on the basis of user search query, after which Google considers whether the query contains any 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, once the quality score and Ad Rank have calculated, Google uses this data to find out how much you will have to pay each time when someone clicks on your Ad. This formula looks like this:
6 Calculations you must need to know in order to run Adwords campaign
These are the basic formulas that will help you understand how Adwords costs are calculated and measured:
- CPC: Cost-per Click
Calculation: Total Spend / Total Number Of Clicks
CPC is the foundation calculation for most Adwords campaigns. It is a great tool for understanding the basic costs of a campaign at a basic level. Most business owners have an idea of how much they are willing to pay for a lead and this simple calculation gives them a figure to work with.
CPC doesn’t offer a great deal of insight on its own, but it does provide a very important building block for further understanding the costs involved in developing an Adwords campaign.
- CPM: Cost- Per Thousand Impressions
Calculation: (Total Spend / Total Number Of Impressions) x 1000
CPM stands for ‘cost per mile’ but is more commonly known as ‘cost-per-thousand impressions’. This metric allows us to understand how much it costs to get an advert in front of the eyes of the people the campaign is targeted at.
CPM is useful to people operating both CPM and CPC campaigns. It gives a good insight into how many people are actually lying eyes on your advert.
Brand impressions are, of course, an invaluable tool in developing a strong, durable marketing campaign.
- CTR: Click-through Rate
Calculation: Total Clicks / Total Impressions
A simple but hugely important calculation, ‘click-through rate’ allows us to understand how many people are clicking on an advert in relation to how many times it is being shown.
Click-Through Rate is important as it gives a useful insight into how well an advert is resonating with your target audience. Google relies heavily on this metric when interpreting Adrank (a metric used to assess the overall quality of an advert).
- CPA: Cost Per Acquisition
Calculation: Total Spend / Total Conversions
Cost Per Acquisition is a metric that all marketers should find insatiably useful. It examines the relationship between total advertising spend and the number of conversions the account achieves. Using CPA it is possible to set a figure on how much you are willing to spend on each sale, lead or action.
‘Cost Per Acquisition’, also known as ‘Cost Per Conversion’, is incredibly effective in evaluating the success of your bidding strategy. Use CPA to keep your advertising budget firmly in check.
- CR: Conversion Rate:
Calculation: (Total Conversion / Total Clicks) X 100
Conversion rate helps us understand how often an ad click results in the desired action.
In Adwords, this is achieved by placing a piece of dynamic code on the relevant landing page. Adwords is then able to track how many times a click results in a conversion using the formula above.
6. ROI: Return on Investment
Calculation: (Revenue – Cost) / Investment Cost X 100 (for %)
Return On Investment (ROI) is the holy grail of all the marketing metrics. ROI allows us to understand how much benefit a business is getting from a specific ad campaign. It looks at the fundamental building blocks of a basic sale, taking into account total revenue and incurred costs. It then offers a percentile figure representing how well a campaign is performing.