How to calculate the budget for contextual advertising: instructions

Contextual advertising in Google AdWords is one of the most popular and effective ways to attract the target audience to the site. However, in order to get the maximum result from an advertising campaign, it is necessary to properly allocate the advertising budget.

Today we will talk about how to calculate the budget for contextual advertising and why you need to do it. Let's take a look at some common budget planning mistakes and how to avoid them. And also talk about certain disadvantages of basic planning tools that you should be aware of.

Why plan a budget for contextual advertising in Google AdWords?

One of the main reasons why you need to forecast your PPC budget is the importance of controlling and managing your own advertising costs. You can set limits on the amount that you are willing to spend on advertising so as not to exceed your financial capabilities and not go into the red.

However, there are other reasons why calculating the budget of an advertising campaign is important. Advertising spending planning allows you to:

Planning allows you to more accurately control the costs of an advertising campaign, optimize results, be more flexible in your investments and, in general, better understand how much and for what you pay, what you get in the end.

The main factors affecting the cost of contextual advertising

Many beginners are wondering what average budget for contextual advertising is needed. But the difficulty lies in the fact that the very concept of "average" is not particularly applicable here due to a very large number of factors that in one way or another affect the total cost of contextual advertising. Here are just a few of them:

1. Purpose of the advertising campaign. Depending on what you want to achieve from advertising: increase sales, increase brand awareness, attract new customers, etc., you can choose different payment models: for clicks (CPC), for impressions (CPM), for conversions ( CPA), etc.
2. Keywords. These are the words or phrases for which your ad will appear in Google search results. The more demand for keywords, the higher the cost per click. Negative keywords, modifiers, long tails, and other optimization techniques can be used to reduce costs and refine parameters.
3. Ad quality. This is a metric that Google evaluates based on ad relevance to the keyword, destination page, and user query. The higher the quality of the ad, the lower its cost per click and the higher its position in the search results.
4. Competition. The more competition and the more popular the topic, the higher the cost per click and the more difficult it is to take a leading position in the search results. Therefore, in highly competitive niches, advertising by default costs significantly more. However, the cost can be significantly reduced if you work mainly with low-frequency and mid-frequency requests.
5. Geography and time of display. These options allow you to set your ad to show only in certain regions and at certain times of the day. This helps reduce your ad budget by showing your ad only to users who are most interested in your offer.

And this, as you understand, is far from all the factors that directly affect the cost of contextual advertising. But they are the most important and have the greatest impact. Taking them into account, you will be able to more accurately calculate and allocate the budget for promotion in Google AdWords.

Three methods for calculating the budget in Google AdWords

The Google Ads budget is the cost of contextual advertising, that is, the funds that you are willing to invest in promotion. As we have already found out, the size of the budget depends on your goals, competition and a number of other parameters. But how to calculate it correctly? That's what we'll talk about next!

Determine the Google Ads budget by spending level

This method is suitable for those who want to control their spending and not exceed a certain limit. To do this, you need to set the maximum amount that you are willing to spend per day or per month on advertising. For example, if you want to spend no more than 1000 UAH per month, then your daily budget will be 1000 / 30 = 33.33 UAH. This means that Google Ads will not show your ad if you spend that amount in a day.

The main advantage of this method is that you can completely eliminate the risk of going over budget, because you will definitely not spend more than you thought. This can be especially useful for small businesses, which, in principle, do not yet have large budgets and are not ready to invest impressive amounts in advertising and promotion.

We build a budget for contextual advertising by keywords

This method is suitable for those who want to optimize their ads and get more clicks and conversions. You need to determine the list of keywords for which you want to show your ads, evaluate their cost and competitiveness. To do this, you can use Google Ads tools such as Keyword Planner or Auction Scores. They will help you find out how much one click on your keyword costs, how often users search for it, and what kind of competition it is. Based on this data, you can calculate your budget using the formula:

For example, if you want to get 100 clicks per day for the keyword “buy a laptop”, which costs 5 UAH per click, then your budget will be 5 × 100 = 500 UAH per day.

This is very convenient, because you can easily and quickly perform the corresponding calculations for all the keywords and phrases that you plan to rank for, and manage the available amount more efficiently.

What indicators should be taken into account when evaluating the budget?

Obviously, the main parameters that you should be interested in are the cost of clicks and the number of impressions. However, there are other important indicators that, to one degree or another, are able to assess the effectiveness of your budget and advertising. They are called key performance indicators (KPIs) and consist of several elements:

1. CTR (click-through rate) - the percentage of clicks on your ad from the total number of impressions. This parameter reflects the attractiveness of your ad to users.
2. CPC (cost per click) is the average cost of one click on an ad. Determines the effectiveness of your budget and rates.
3. CPA (cost per action) is the average cost of one user action on your site (for example, an order, request or subscription). This indicator reflects the effectiveness of the advertising campaign and the conversion rate of the site.
4. ROAS (return on ad spend) is the ratio of advertising revenue to ad spend. Shows the overall profitability of your advertising campaign.

You can track these metrics in the Google Ads interface or Google Analytics. We have repeatedly considered and analyzed these concepts in our previous publications, so we will not dwell on them in more detail and duplicate already published information. Just know that such parameters are important when calculating and shaping your advertising budget.

We calculate the budget of an advertising campaign by the cost of a conversion

This method is suitable for those who want to maximize their ad revenue and know how much one conversion costs for their business. To do this, you need to set a target cost per conversion (CPA), which you are willing to pay for one user action on your site. For example, if you sell laptops for 10,000 UAH and want to earn 10% profit from each sale, then your target cost per conversion will be 10,000 × 0.1 = 1000 UAH. This means that you are ready to spend no more than 1000 hryvnia to attract one buyer.

You can then calculate your budget using the formula:

For example, if you want to get 5 conversions per day at a cost of 1000 UAH for each, then your budget will be 1000 × 5 = 5000 UAH.

To reach your target cost per conversion, you can use Google Ads automatic bid management strategies such as target CPA or maximum ROAS. They will help you optimize your bids and budget based on your ad performance and goal.

Three common mistakes when planning a budget in contextual advertising

One of the key goals of an advertising campaign in the context is to get warm traffic, which is subsequently converted into leads and orders. Logically, the planning chain looks like this:

1. Determine how much traffic and leads you need.
2. Calculating which keyword bids will give you the opportunity to get coverage to achieve your goal.
3. Budgeting.

However, all this looks just in theory. In practice, it is quite difficult to calculate the budget of contextual advertising. There are a few common mistakes you are at risk of making.

1. Wrong starting point

Many advertisers, when planning the cost of contextual advertising, initially start from the available budget, because it is convenient. You just need to determine the budget for advertising and start promoting. If applications are coming, we continue. Otherwise, we stop.

But this is not the best strategy for several reasons:

1. The amount of the budget in isolation from the goals of the campaign, in principle, says nothing. For a local business, this can be quite a small amount. But for a large company, the numbers will be much more impressive.
2. There are practically no guidelines for this approach. What will the allocated funds go to: leads, clicks, reach? What result can be considered good in principle, and what is not?

Therefore, not only the budget of contextual advertising is important, but also the tasks set! Determine the number of leads you need to reach your goal, the amount of traffic to generate leads, and the budget to drive traffic. That's the only way everything will work!

2. Difficulties in allocating the budget for keywords

There is a rather simple logic here: advertising for high-frequency queries is expensive, and for low-frequency queries it is an order of magnitude cheaper. You should not work only with high-frequency keywords and phrases, otherwise the budget for contextual advertising will disappear very quickly.

The best solution in this case is to limit the maximum bid, which will allow you to appear in the SERP above your competitors, but at the same time will not lead to overspending on advertising budget.

3. Disadvantages of standard tools for budget planning

You can perform the necessary calculations, for example, using the Google Ads Keyword Planner. This is a very handy tool in some cases, but it is still far from ideal. For example, here it is impossible to adjust keyword bids to traffic and/or budget in one click.

Yes, there are third-party services that can help you calculate the budget of an advertising campaign more accurately and adjust it. But in most cases they are paid and require some time to deal with the functionality. Therefore, this option is also not suitable for everyone.

Results

So, we have examined why the calculation of the contextual advertising budget is very important, and also talked about how to determine the budget more efficiently and accurately. By following our recommendations, you can achieve better results with less investment.

Finally, we want to give you some more useful tips:

1. Don't be afraid to experiment with different keywords and bidding strategies.
2. Remember to regularly analyze the results of your contextual campaign and make changes if necessary.
3. Remember the importance of content. Quality content is the key to the success of any contextual campaign.

And remember! Contextual advertising is a powerful and effective tool that, with the right approach, helps to achieve very good results in the shortest possible time. And if you are not sure that you can use it to its full potential on your own, we recommend that you contact Elit-Web. Our experts are always at your service!