How to set a Google Ads budget for a small business.

The short answer

Set your Google Ads budget from three numbers: what a click costs for your services in your area, how many clicks become a lead, and how many leads become paying customers. Multiply the leads you want each month by what each lead costs, and that is your monthly budget. Then check it against what a customer is worth to you.

For most small local businesses the sensible start is the smallest budget that buys enough clicks each month to learn something, spent on a narrow set of searches, and raised only when tracked leads show it is paying for itself.

Start with what a customer is worth

Before you think about clicks, work out how much you can afford to pay for a new customer and still make money. You need two numbers:

• Profit per job. What a typical job brings in, minus materials, labor and anything else it costs you to deliver. Use gross profit, not the invoice total.
• Close rate. Out of every ten genuine inquiries, how many become paying jobs?

Divide the profit per job by the number of leads it takes to win one, and you have your break-even cost per lead.

Say, as a made-up example, a typical job leaves six hundred dollars after costs, and you win one job out of every three leads. You can pay up to two hundred dollars for a lead and break even on the first job. If customers come back or refer friends, a lead is worth more than that, but start with the first job so the math stays honest.

This number is your ceiling. Every other figure in this guide gets compared against it.

Find out what a click costs in your market

Click prices vary a lot by trade and by town, so a national average tells you little about your own account. Google’s free Keyword Planner, inside a Google Ads account, gives you a local estimate:

1. Enter the phrases a customer would type, like the service plus your town.
2. Set the location to the area you actually serve.
3. Read the two bid columns. Google’s Keyword Planner help describes the top of page bid (low range) as roughly the 20th percentile of what advertisers have historically paid for a top-of-page spot, and the high range as roughly the 80th percentile.

Plan around the middle of that range. Budgeting at the low end tends to leave you outbid in the auctions that matter, and budgeting at the high end before you have any data can spend fast on searches that never become customers.

Estimate how many clicks become leads

Your conversion rate is the share of clicks that turn into a call, a form or a booking. It depends more on your landing page and your offer than on Google:

• A fast page that matches the search, shows real photos and puts a tap-to-call button near the top converts better than a slow home page.
• A specific offer, like same-week service or a free estimate, converts better than a general description of the business.
• Tracking matters. If calls and forms are not counted, you cannot know your conversion rate at all. That is what conversion tracking setup fixes.

If you have no history, pick a cautious estimate for planning and replace it with your real number after the first month of tracked data.

The Google Ads budget formula, worked through

With those numbers in hand, the budget is simple arithmetic. Here is an example with round, made-up numbers; put your own in their place.

Say a click costs four dollars, one in every ten clicks becomes a call or a form (a 10 percent conversion rate), and you want twenty leads a month.

1. Cost per lead = cost per click divided by conversion rate. Four dollars divided by 0.10 is forty dollars per lead.
2. Monthly budget = leads wanted times cost per lead. Twenty leads times forty dollars is eight hundred dollars a month. That is ad spend, paid to Google; if someone manages the account, their fee is a separate cost on top.
3. Daily budget = monthly budget divided by 30.4, the average number of days in a month. Eight hundred divided by 30.4 is about twenty-six dollars a day.
4. Check it against break-even. Forty dollars a lead is well under the two hundred dollar ceiling from the first section, so the campaign has room to pay for itself if the real numbers come close to the estimate.

If the cost per lead lands above your break-even, more budget will not help. Something else has to change first: the keywords, the page or the offer.

How Google spends a daily budget

In Google Ads you set an average daily budget, and Google treats it as an average over the month rather than a hard daily cap. According to Google’s help page on average daily budgets, for most campaigns:

• On any single day, Google can spend up to two times your average daily budget, usually on days with more search traffic.
• Over a month, you will not be charged more than 30.4 times your average daily budget.

So a day that costs double is not a billing mistake, and the monthly total is what to plan around. That is why the formula above starts with a monthly figure and divides by 30.4 to get the daily setting.

Is a small budget enough?

It can be, if it is spent narrowly. What a small budget cannot do is cover every service, every town and every hour of the day at once. Spread thin, it buys a few clicks on each of many searches, and a few clicks tell you nothing.

To make a small budget work:

• Start with your most profitable service, not your whole menu.
• Target the area you can actually serve well, not the whole state.
• Run ads during the hours someone can answer the phone.
• Add negative keywords for searches that will never buy, like jobs, free or DIY.
• Give it enough clicks each month to see a pattern before judging it.

If your trade qualifies, Google’s Local Services Ads charge per lead rather than per click, which some service businesses find easier to budget. The trade-offs are in Local Services Ads vs Google Ads.

Keep the ad budget and the management fee apart

If someone manages your account, you are paying two separate things: the ad spend that goes to Google, and the management fee that goes to the person doing the work. Ask for both numbers in writing, separately.

Management is usually priced one of two ways. A percentage of ad spend rewards the manager for spending more of your money. A flat fee for the work, set by the size of the account, keeps the manager’s incentive closer to yours: fewer wasted clicks. My own Google Ads management is a flat fee scoped to the account in writing, for that reason.

Either way, the ad budget itself should come from the math above, not from whatever number makes the management fee worthwhile.

When to raise or cut your Google Ads budget

Change the budget on evidence, not on a feeling about a slow week.

Raise it when tracked leads have come in steadily below your break-even cost per lead for a few weeks, and the campaign is spending its full budget most days. That is a sign there are more good searches than your budget can reach.

Hold it while tracking is new, the landing page is changing, or you have too few leads to compare one month with the next.

Cut or pause when the search terms report shows money going to searches that will never buy, or when cost per lead stays above break-even after the keywords and page have been fixed. A faster, clearer page often does more for cost per lead than a bigger budget, which is where website speed and a good landing page design come in.

Whether you advertise in Louisville or anywhere else, the budget works best as a monthly decision, made with these numbers in front of you.

Frequently asked questions

What is a good starting budget for Google Ads?

One that buys enough clicks each month to learn from at the click prices in your market. Work it out with the formula in this guide: leads wanted times cost per lead, where cost per lead is cost per click divided by your conversion rate.

Can Google spend more than my daily budget?

Yes, on a given day. Google’s help pages say most campaigns can spend up to twice the average daily budget on a single day, but will not charge more than 30.4 times the daily budget over a month.

Should I pay a Google Ads manager a percentage of ad spend?

A percentage rewards the manager for spending more. A flat fee for the work keeps the incentive on results. Whichever you choose, get the ad spend and the fee as two separate numbers in writing.

How long before I know if Google Ads is working?

Calls can come in the first week, but a fair judgment needs enough tracked leads to compare. On a small budget that can take a couple of months, which is why tracking has to be right from the first day.

Is Google Ads worth it for a local business?

It is when your cost per lead comes in under what a customer is worth to you. The only way to know is to run a tightly targeted campaign with tracking in place and compare the numbers against your break-even.