Budget Strategy Basics
You can set your marketing budgets for online campaigns the same way you would for any other form of media. But sometimes it pays to use a different approach that’s tailored to the unique strengths of online advertising. In this section, I’ll identify some of the key advantages of online campaigns, and explain how some campaigns are able to run without budget limitations as long as ROI is positive. Then I’ll define the three stages of campaign growth, and show you how to improve your campaign performance when limited by budget.
Online campaigns: easy to measure and control
Have you ever heard this saying about traditional advertising?
Half the money I spend on advertising is wasted; the trouble is I don’t know which half.
— John Wanamaker
Happily, this is often not a problem with online advertising, because success is much easier to measure. You can isolate which parts of a campaign are profitable and which aren’t, and then refine or remove the parts that aren’t working.
Also, online campaigns offer a much shorter time between initial investment and measurable return. For example, you might be able to establish profitability with a new e-commerce site within the first day of an online campaign, and revise your budget the next day.
Scaling Budget by Performance
With this combination of measurability and control, many businesses may opt for a flexible marketing budget that scales upward with good performance. Think about a campaign that returns $2 in profit for each $1 in advertising spend. If the business can handle more customers, it makes sense to increase budget to a point where it captures all of the profitable traffic available.
Suggestion
Even for campaigns that are scalable by performance, AdWords recommends setting your AdWords daily budget at a level low enough to limit your spending if something unexpected happens, like a sudden shift in traffic quality of one of your keywords due to a news event.
Example
If you’re running a profitable campaign with an average cost of $750/day, you don’t need a daily budget limit of $10,000/day. A daily budget limit between $1,000-1,500/day allows for flexible traffic growth while helping protect you from dramatic increases in spend.
A campaign that scales by performance can work for many advertising goals, including:
- Selling goods or services directly via an e-commerce site
- Generating leads for a sales team
- Driving signups for a monthly subscription service
If you can estimate the value of a conversion for your business, a scalable budget is worth exploring.
Campaigns that scale with performance usually meet the following conditions:
- You can estimate your conversion value (e.g., you make an average of $50 profit per sale)
- You understand how much time is needed before profits will be available to reinvest (e.g., you know that sales leads convert to deals in 3-5 weeks)
- Your costs of servicing new customers remain stable or decrease as you grow (e.g., the more customers you gain, the lower the costs of supporting each new customer)
Here are some conditions that can make it more difficult for a campaign to scale with performance:
- You have high fixed costs that make it difficult to estimate the profit value of a conversion (e.g. significant manufacturing costs)
- You have supply or customer service limitations (e.g., you can’t serve additional customers if you grow)
- You have cash flow limitations (e.g., you have a $100 CPA for new signups worth $500 over 5 years)
- You have sales tracking limitations (e.g., most of your sales are difficult to track because they’re offline)
Growing a Profitable Campaign
To achieve success with AdWords, it’s important to understand when a campaign is profitable and how to help it grow. ROI-driven campaigns generally follow three stages of growth: testing, growth, and maturity.
Stage 1: Testing
New campaigns start out in the testing stage. You’ll gather performance data to understand which CPC bid, keyword, and ad combinations are working well for you. In this stage, your primary goal is to establish profitability by comparing costs to revenues.
Once you achieve profitability, it’s time to grow.
Stage 2: Growth
In the growth stage, your goal is to reach more customers while remaining profitable. You may be able to achieve this by increasing your AdWords campaign budget while leaving your CPC bids, keywords, and ad text the same. If parts of your campaign are no longer profitable after you increase your budget, try adjusting your CPC bids, keywords, or ads to regain profitability before you continue to grow.
By gradually increasing your AdWords campaign budget over time, you’ll reach a point where it no longer limits your exposure. For an estimate of this amount, check your recommended budget in the “Budget” section of the Settings tab of any campaign.
Stage 3: Maturity
If your costs don’t reach your AdWords daily budget and you’re profitable, you’ve successfully scaled up to the traffic available. Congratulations!
Here are some characteristics of this stage:
- Your AdWords budget is high enough to show at all times so you don’t miss an eligible impression.
- Your daily costs, profits, and sales rise and fall with regular fluctuations in search volume.
Tip
Even if your ads are able to show for every impression, you can still optimize CPC bids, keywords, and ad text to achieve even greater profit. See the AdWords Bidding Tutorial for more detail.