One of the great advantages for Google Ads is that you can set your own budget and pay only for actual interactions with prospective customers. With traditional print or broadcast advertising, you will pay the asking price or you may be able to negotiate a price but you cannot set your own price. You pay as agreed and then you hope that some customers result from the ad.The price is the same whether people read your ad and call you…or use the ad to line their cat’s litter box. Because of this advantage, setting your Google Ads budget is key to great results.

And yet we know that a lot of businesspeople set their budget based on what they feel like they can afford, or a percentage of their sales, or another fairly random number. “I’m willing to lose 5 bucks a day,” you might think, “so I’ll go with $150 a month.” There’s a better way.

## Cost per click

While there are a variety of ways to determine your ROI for ads, one of the most straightforward is cost per click. Google will calculate this for you and show it to you on your dashboard. In the example below, we see that today’s clicks cost an average of $1.86. That means that the 11 clicks through to look at the website each cost about $1.86, and the total spend for today is $20.45.

What do we do with this information? Here are some of the things we can understand from this little chart:

- If we set our budget at $25.00 per day, we are just about to run out of money to pay for ads. Our ads will stop showing when that happens. Given our current cost per click, we can get about two more clicks before we come to the end of our budgeted amount. We’re getting about 13 clicks per day.
- If we know that we get one sale for every 10 visitors and $25.00 a day gets us 13 visits, then we can expect one sale per day. If our average sale is $5.00, we’re spending a lot for that sale. If the average sales is $500.00, we should be spending more.

To sum up, we can look at the cost per click and discover what it costs us to bring someone to our website. If we know how many visitors it takes to get a conversion at our website, we can predict what it will cost to get one sale. We can compare that with our profit per sale to see the ROI, or we can build that number into our cost of gaining a customer.

## Cost per conversion

If we are tracking conversions — phone calls, filling out a form, or buying a product, for example — we can make the same kinds of calculations with greater accuracy. Our Google Ads overview will show the cost per conversion. If we see that a conversion costs us $19.54 on average and we have a budget of $25.00 per day, we can expect one conversion per day.

Using either cost per conversion or cost per click, we can decide how many sales we want and set our budget to bring in that many sales.

We might also want to consider the lifetime value of a new customer. If our product has a price point of $50.00 but our typical customer buys it three times a month, we are in a different position from a company with a price point of $500.00 for an item that is usually purchased only once.

## Improvement

We’re keeping this simple. Sure, we can see that an ad with a great ROI that reliably brings in one conversion every day is worth paying for. We can see that we could just figure out how many conversions we want each day, multiply our cost per conversion by that amount, and feel confident.

What if it’s not quite like that?

Here are some things you can do to improve your results:

- Reduce your cost per click by improving your ads, or improving the landing page you link to.
- Reduce your cost per conversion by improving the conversion rate of your page or your ad, to get more conversions with the same number of clicks.
- Improve your click-through rate to get more clicks and conversions if you aren’t spending your budget. (Google will also show you your click-through rate, as shown below.)

Once you’re happy with your ads’ performance, do the math and set your budget to bring you the results you want.

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