How much a small business should spend on Google AdWords

Start with three numbers: what a new customer is worth to you, what share of leads you close, and what a click costs in your market.

Say a customer is worth $600 in gross profit over the first year, you close one in four leads, and one in twenty clicks becomes a lead. Then a lead is worth up to $150, a click is worth up to $7.50, and if clicks in your market cost $3, you have room. If clicks cost $12, you will need a better landing page or a different set of keywords before you spend seriously.

Then set a monthly figure that gives you at least 300 to 500 clicks over the first 90 days. That is the smallest sample that tells you anything about conversion rates. Below that, one good week or one bad one swings the result.

Use the Keyword Tool and the Traffic Estimator inside your account for your exact terms; these are the ranges we see for US small businesses right now.

Two things keep your real cost below the headline. Quality Score, Google's 1 to 10 rating of how relevant your keyword, ad and landing page are to each other, directly discounts what you pay. A 7 or better typically pays 20 to 30 percent less per click than a 4 for the same position. And geographic targeting lets you buy only the clicks within your service area.

Month one: learn. Launch with a tight keyword list, 30 to 80 terms, exact and phrase match only. Budget at the lower end of your range. Install conversion tracking on your thank-you page and set up call tracking or at least a dedicated phone number in the ads. Check the Search Query report weekly and add negative keywords every time.

Month two: cut. Pause keywords with 100 or more clicks and no conversions. Pause ad groups with a click-through rate under 1 percent on the search network. Write a second ad in every ad group and let them run against each other.

Month three: scale what works. Move budget to the campaigns producing leads at or under your target cost. Expand the winning keywords with closely related terms. Test raising bids on the best terms to see whether position 2 or 3 produces more leads for the money than position 1, which it often does.

At the end of 90 days you know your cost per lead. If it is under your target, increase the budget 20 to 30 percent a month while watching that cost per lead holds. If it is over, fix the landing page before spending another dollar.

Most wasted spend in small business accounts comes from structure, not bids.

1. One campaign per theme or location, never one campaign for everything. Budgets and geographic targets live at the campaign level, so "Furnace Repair - Denver" and "AC Installation - Denver" should be separate campaigns if you want to control what each one spends.
2. Search and Display in separate campaigns. Uncheck the Display Network in every search campaign. Mixing them makes the numbers meaningless.
3. Small, tight ad groups. Five to fifteen keywords that share a meaning, with two or three ads written to match them. The keyword should appear in the headline. This is what drives Quality Score.
4. Match types with intent. Exact match for your best terms, phrase match to catch variations, broad match only with a long negative list and a budget you can afford to lose. The new modified broad match, which Google is rolling out this spring, is a safer middle ground once it reaches your account.
5. A negative keyword list from day one. Free, jobs, salary, DIY, how to, reviews, used, cheap unless you are cheap. Add to it weekly from the Search Query report.
6. Ad scheduling. If nobody answers the phone after 6 p.m., stop paying for clicks after 6 p.m. or send them to a form.
7. One landing page per ad group where you can. Sending a click for "emergency plumber" to your home page is the most common and most expensive mistake there is. A page that matches the search converts two to three times better.
8. Campaign settings. Set the location to your actual service area, not the state. Set ad rotation to Rotate while you are testing, then to Optimize. Use standard delivery so the budget lasts the day.

Use AdWords Editor, the free desktop tool, to build the account. It is far faster than the web interface for bulk changes.

Install AdWords conversion tracking and link the account to Google Analytics. Track form submissions as conversions and, if phone calls matter, use a call-tracking number that appears only to AdWords visitors. Review weekly: spend, clicks, conversions, cost per conversion, Search Query report. Review monthly: which campaigns deserve more budget and which should be paused. Report the number that matters to the business, which is cost per lead or cost per sale, not clicks and not position.

• Letting Google's default settings run: Display Network on, broad match everything, the whole country targeted.
• No conversion tracking, so decisions are made on click-through rate.
• A $300 monthly budget spread across 400 keywords.
• Bidding for position 1 on principle.
• Giving up after three weeks because the first keyword list did not work.
• Agencies that own the account and will not share it. Your account, your login, your history.

We treat AdWords as one lever in a connected growth plan rather than a channel that stands alone. We start by discovering the economics: margin, close rate, capacity and what a lead is really worth. We plan the budget, the campaign structure and the landing pages together, since paid search only pays when the page does its job. We build the account in AdWords Editor with tracking in place from the first click, then improve it weekly against cost per lead and monthly against revenue, alongside the website, local search and email work that make each click worth more.

For a services company that had been spending steadily on AdWords with no idea what it returned, we rebuilt the account around tight local campaigns, added conversion and call tracking, and built matching landing pages. Within a quarter the same monthly spend was producing substantially more tracked leads at a cost the business could plan around. You can read about that engagement at our performance work.