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Sunday, December 21, 2008

AdWords Budget Settings and the Impact on Conversions

AdWords budget settings are one of the most important yet often overlooked settings in an AdWords account. A lot of people write the budget settings off as nothing more than a simple mechanism you can use to make sure you don't spend more than you have available. True, you can use the budget settings in AdWords in that way but I think it's important to understand the implications of those settings. I'll use an account I recently reviewed for an associate of mine (let's call him Jim) as an example of what I mean.

Jim runs a small business and sells a few of his smaller "shipping friendly" products on his website. He's been using AdWords for about a year and half. Jim's self taught and has never been any formal AdWords training or hired any outside help. That said, his AdWords account has steadily grown in terms of importance to his business over the past 12 months as it's continued to bring more and more customers within his target ROI. Jim called me because he felt like he had hit a wall..."no matter how many keywords I add I can't seem to push past X number of sales per month and I know there are more customers out there." Jim asked if I would take a look at his account and see if I could offer any advice that might help. I agreed and he gave me access to his account.

I was shocked, and the folks reading this post that manage campaigns for a living will understand why. Almost all of the accounts I've looked at for friends, associates and small/large businesses over the years have been disasters. No organization or logical campaign/ad group naming, match types all over the place, no negative keywords with broad match, 1 landing page for 5,000 keywords, no ad testing, geo targeting the entire planet, content running with search, etc, etc. If you manage campaigns for a living you know the drill. I was shocked because almost none of that applied to Jim's account.

Jim's spent time - a lot of time - studying AdWords and best practices. He spends as much time as possible reading various resources for ppc practitioners and the time he's spent learning really shows in his account. It's well organized and follows a lot of what are considered best practices. A separate set of eyes never hurts though, and I was able to put together some suggestions for him that should help his accounts performance. Before he implemented any of my suggestions though I asked him to do one thing....

Raise his daily budget from $160 to $5,000 and change ad delivery from standard to accelerated.

Jim, like a lot of small business owners, decided what he was willing to spend each month and did the simple math to arrive at a daily budget. His campaigns were capped at $160 a day and ad delivery was set to "". His account was always hitting the spend cap by the end of the day and it was obvious there was a lot of additional search volume out there he was missing out on. We had some conversations around "what ifs" associated with the budget increase and Jim realized one of those what ifs would be great for his business - what if he could spend $5,000 a day at the same ROI that he was spending $160?

I told him I didn't think his current account would spend $5,000 a day but I was sure it would spend a heck of a lot more than $160. His account setup was solid so I was also confident in the fact that he would see the same/similar conversion rates and ROI at those increased spending levels. He said he would put the budget change in place and we scheduled a follow up two weeks later.

Fast forward two weeks - Jim was ecstatic. He was not spending $5,000 a day but since the change his account was averaging $600 day and his conversion rates and ROI were at the same levels they were when he was spending $160 a day. He use to average about 10 sales a day but since the change was averaging closer to 35 sales a day and one day had even broke 45. He did not change anything else in the account, just the budget settings.

My philosophy on account management has always been to build accounts out to the point where I'm setting spending caps to stay within client budgets. This allows for quick growth when the client is ready. If I'm capping spend at $500 a day and a client wants to increase their budget there's no mad dash to build out keyword lists and expand the account, I just up the budget and let the system do the rest.

The AdWords budget settings are important...don't let artificially low settings limit your accounts potential.

Here are a few other AdWords budget related posts & pages that are worth a read:

AdWords Monthly Budget Now in Expanded Beta, Pros and Cons

AdWords Daily Budget is Actually Monthly Budget: False Advertising Claim Proceeds

AdWords Help Center - Budget

How You Control Costs - AdWords Learning Center


10 Comments:

At 12:59 PM, Blogger easynet_search_marketing said...

Excellent post, very well written, love your blog! And Google should give you stocks... :-)
Itai @ easynet search marketing

 
At 9:36 AM, Blogger CustardMite said...

Hi Jeremy,

I have often thought about the different budget settings, and have never come up with a single reason to use the standard distribution - and yet it's the default on Adwords!

Even if your friend had wanted to spend no more than $160 per day, he would still want to use Accelerated Delivery - if the money ran out at lunchtime, that's great! Just cut the bids, and get more clicks (and conversions) for the same spend!

Keep cutting the bids until your budget does last all day, and you'll (probably) maximise your profit, for that level of spend.

A number of times, we've taken over accounts from other agencies, and just by correcting this setting and adjusting the bids, we've delivered dramatic improvements in the performance of the account, regardless of how well-constructed the account is...

 
At 9:46 AM, Blogger Jeremy Mayes said...

Hello CM,

We're in the same boat...I've never been in a situation where using standard delivery is the best option.

I don't get why Google makes it the default either and even when using the Editor won't "copy" the accelerated option. Recently I exported quite a few accounts (accounts in foreign currency...needed to switch to US currency and that requires a new account)using the Editor and imported them into brand new accounts. Every campaign in every account switched back to standard distribution.

It is amazing how this seemingly unimportant feature can make a big impact on an account performs.

Has anyone been in situation where standard delivery was the best option for an account and if so why? Just curious.

 
At 10:07 PM, Blogger tdwhalen said...

Hi Jeremy,

You say:

My philosophy on account management has always been to build accounts out to the point where I'm setting spending caps to stay within client budgets. This allows for quick growth when the client is ready. If I'm capping spend at $500 a day and a client wants to increase their budget there's no mad dash to build out keyword lists and expand the account, I just up the budget and let the system do the rest.

I actually think that if you find yourself in this scenario, where you can simply increase budget and everything increases in line with your new budget while margin/CPA stays the same, you have been using bids that are too high.

The budget feature should not be used as the primary tool to set or cap budgets - bids should be used to do this. Otherwise, you are leaving money on the table, since you are paying too much for clicks based on your budget settings.

CM has it exactly right when he says:

Keep cutting the bids until your budget does last all day, and you'll (probably) maximise your profit, for that level of spend.

Totally agree that it's almost always a good idea to use accelerated ad delivery - no reason not to, really.

 
At 8:35 AM, Blogger Jeremy Mayes said...

Hello tdwhalen,

Thanks for the comment. I'd like to elaborate a bit on the portion of my post that you quoted.

Let's say a client has a monthly budget that works out to $500/day and a cost per conversion goal of $18. What I try and do, as quickly as possible, is to get that account to a point where it's spending the full $500 within the conversion target, and could, if budget caps were increased, easily spend more than $500 within that same cost per conversion goal. During this entire process I continue optimizing the account to further reduce the $18 conversions.

Not lets say that after a few months you're spending the daily budget (with room to spare) and through account optimization have reduced the cost per conversion to $12. The client comes to you with additional budget, they can now spend $1,000 a day. At this point you can simply up the daily budget setting and secure the additional conversions within the allowable cost per conversion target. Account optimization will continue with an ongoing focus on reducing the cost per conversion.

I've often used the car analogy when talking with clients about this - we're building a car (account) that can go 100MPH (spend $100/day) but we'll only go 30MPH (spend $30/day) until you're ready to go faster. When you're ready to go faster we'll just give it some gas, no major changes required.

All that said, this is only applicable to clients that have fixed budgets. For clients that have "as much as you can spend within these parameters" budgets you can just hold it floored from day 1.

 
At 9:40 AM, Blogger Jordan McClements said...

This is a really great post.

I just have one question, is it really necessary to up the budget to $5000?

Would $1000 (or maybe even $2000) not do just as well?

I read 'Mastering Search Engine Advertising' by Richard Stokes, and he also recommended setting the max daily budget massively over what you would normally expect to spend with your current bids, and I understand the concept..

But what would be the difference (in coverage, clicks, CTR, Conversions) in the above example between a daily max of $5000 and $2000?

 
At 12:48 PM, Blogger Jeremy Mayes said...

Hello Jordan,

I suggested $5,000 so that the advertiser would know what their current campaign was capable of. Now that it's set at $5,000 if he's only spending $2,000 a day he knows it's not a budget issue, that's just likely what the campaign is capable of producing as it's currently built out. I find it very helpful to know where the "ceiling" is in the accounts I've worked on - makes planning and forecasting a heck of a lot easier.

 
At 9:55 AM, Blogger Jordan McClements said...

OK. Thanks!

 
At 3:26 AM, Anonymous Dave Carruthers said...

Jordan

This is a great post and very informative I would agree Ads should always be on accelerated however it is important to look at the time you conversions happen and maybe use Ad Scheduling as you dont want to burn all your cash by midday when most of your conversions come after 6.

Also the only problem when just increasing budget is sometimes there is more traffic out there but it is more generic traffic. For example you bid on blue widgets Cost Per Conversion 4.50 and large blue widgets Cost Per Conversion 1.25 google may tell you that you are missing out on 66% of clicks but these clicks are typically for the higher cost per conversion keyword thus increasing overall cost per conversion.

What would you do in this situation, peel out the broader terms into individual ad groups?

 
At 8:05 AM, Anonymous umair said...

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