This is a very reasonable question, and one you should always ask when dealing with a new advertising channel or platform – “how much will it cost me?”
Unfortunately, there’s no simple answer when it comes to Google AdWords. But, the fact that there’s no one-size-fits-all answer is actually one of the biggest benefits of AdWords overall. You can think of AdWords as a truly customizable ad platform: You have extreme control over how much you spend and when you spend it, and you can increase or reduce your ad spend in real time as you see fit.
Let’s take a closer look at how AdWords works, and why it’s a fantastic advertising option for most businesses.
What is Google AdWords?
AdWords is Google’s pay-per-click (PPC) advertising platform.
You can use it to create advertisements, choose specific keywords to bid on, and determine how much you’re willing to pay per click on your advertisement. When users search for a keyword you’ve selected, if your bid is higher than what other advertisers bid on that keyword, your advertisement will appear at the top of the search results with a small tag next to it indicating that it’s a paid result.
The best part of AdWords is that you only pay when a user actually clicks on your ad. It doesn’t matter how many times it’s displayed or how many people see it – you only pay when someone clicks and visits your website.
You can also set daily and monthly budgets on a campaign-by-campaign basis. So, after you find a winning keyword to bid on and a winning ad to run, you can let your campaign run knowing that you won’t go over a certain budget.
How does AdWords work?
Let’s take a deeper look at exactly how Google’s AdWords platform works.
AdWords utilizes an auction model to determine both ad placement and cost. An ad auction begins when a user searches for something in Google. If the search query matches up with keywords that advertisers are actively bidding on, eligible ads go to auction.
Within the auction, ad placement and cost per click are determined by an advertisement’s Ad Rank. Your ad’s ad rank is based on two things – your maximum bid for that specific keyword, and your ad’s quality score.
We won’t get into Quality Score (QS) here – you can find more information on this page – but as a brief overview, your ad’s QS is determined by a combination of its relevance to the keyword that triggered it, its click through rate (how many users click on it vs. how many times it’s been shown), and the quality of whatever page users land on after clicking your ad.
The Ad Rank formula, then, is a simple one: (your maximum CPC bid) x (your ad’s QS). So, if your maximum bid for a certain keyword is $4, and your ad has a QS of 8, your Ad Rank is 32. Within a single auction, whoever ends up with the highest Ad Rank wins the top advertising spot.
Google also uses Ad Rank to calculate how much you actually end up paying per click. The formula they use to calculate your actual CPC is: (Ad Rank of the ad below yours) / (Your QS) + $0.01.
Here’s a quick example to illustrate what I mean:
The most important takeaway here is that you can actually end up spending less while maintaining a higher ad position if your ad has a stellar QS.
So how much does an AdWords campaign actually cost?
Now that we’ve dug into exactly how AdWords works, you can see why the answer is really, “it depends.”
There are certain variables you have direct control over, like your maximum CPC bid and the quality of your ads, but there are also factors you can’t really control, like your competitors’ max CPC bids and the quality of their ads.
That’s all within the Ad Auction, though. Before you even get to that point, you have to consider how competitive your niche is and how competitive individual keywords within your niche are. This is where you can get creative in order to keep your costs down.
Let’s say you work in insurance and you’re bidding on the keyword “car insurance.” This is a broad, highly competitive term that gets searched millions of times per month, so your CPC bid is probably going to be very high.
If you want to keep your AdWords campaign as cheap as possible, you could do some keyword research and come up with less competitive, less expensive keywords to bid on. You could bid on specific, long tail keywords like “van insurance for seniors,” or something along those lines.
These keywords will have lower search volume and may net you less clicks overall, but they’ll often be magnitudes cheaper than broad, competitive keywords like “car insurance.”
Other AdWords benefits
Even if you have a good idea of what it might cost to run an AdWords campaign within a specific niche, you have to take into account several other aspects of AdWords when deciding whether or not to give it a shot.
AdWords blows most other advertising channels clear out of the water when it comes to budget control. There is absolutely no minimum investment required to run an AdWords campaign.
You could launch a test campaign on a $5/day budget if you really wanted to. Your results will obviously depend, again, on how competitive the niche and keywords you select are, but the point is that you can then increase your budget as necessary. This leads right into the next advantage of AdWords…
Everything you do with AdWords happens in real time. That means you can scale up as soon as you’ve identified a successful campaign, or you can scale down as soon as you see a campaign underperforming. You’re not locked into any sort of contract, required monthly spend, or anything like that.
The potential to scale really is unlimited with AdWords. If you have a certain campaign that’s bringing you great results with a spend of $500/month, you can instantly increase that $500 to $5,000 or beyond!
You have access to every last bit of data related to your campaign performance with AdWords. You can see exactly how many times your ad was served, how many people clicked on it, how many people converted after clicking on it, what time of day the ad is most successful, information about what sorts of users click on your ad, and more.
The amount of data available through your AdWords dashboard is truly staggering.
This stands in stark contrast to the ambiguity of other advertising channels. Most forms of traditional advertising – TV, radio, newspaper – come with extremely limited analytics. You don’t actually know how successful your campaigns are, because you don’t know how many people see your ads, or take action because them.
While there isn’t a definitive answer to the question “how much does it cost to advertise with Google AdWords,” you can see that it’s for good reason. How much you spend with AdWords is entirely up to you, either directly via budget control and data-driven scaling decisions, or indirectly through ad performance and how competitive your industry is.
It all boils down to the fact that AdWords is a fantastic advertising method for almost any business out there. Worst case scenario, you might lose some of your budget on an unsuccessful test campaign.
But when you realize what you stand to gain from a successful AdWords campaign, you’ll be asking yourself why you didn’t give it a shot sooner!
Have any questions or comments about using AdWords? Let me know in the comments below!