How Much Should a Small Business Spend on Google Ads?

Start with what a customer is worth

Before thinking about ad spend, know your numbers:

• Average sale value: what a typical new customer spends on their first purchase.
• Lifetime value: what they spend over the whole relationship, including repeat work and referrals.
• Close rate: how many enquiries become paying customers.

These tell you how much you can afford to pay for a lead and still make a profit.

A simple budget formula

Work backwards from the number of leads you want:

1. Estimate cost per click (CPC) using Google's Keyword Planner for your main keywords and location.
2. Estimate conversion rate: the share of clicks that become enquiries. Use your website data if you have it.
3. Cost per lead = CPC ÷ conversion rate.
4. Monthly budget = cost per lead × leads you want.

Example: if clicks cost $4 and 8% of clicks enquire, each lead costs $4 ÷ 0.08 = $50. If you want 20 leads a month, budget about $1,000. If one in four leads becomes a customer, each customer costs about $200 in ad spend. Compare that against what a customer is worth.

Why budgets that are too small struggle

If your budget only buys a handful of clicks a day, it takes a long time to gather enough data to know what works. Google's automated bidding also needs conversions to learn. It's usually better to target fewer keywords in a smaller area with a meaningful budget than to spread a tiny budget thin.

What makes clicks more expensive

• Competitive industries such as legal, insurance and finance
• Large, busy cities
• Broad keywords with lots of advertisers
• Low relevance between keyword, ad and landing page, which hurts Quality Score

How to lower your cost per lead

1. Improve your landing page conversion rate. Doubling conversion rate halves your cost per lead at the same spend. See landing page vs website.
2. Add negative keywords to cut wasted clicks.
3. Focus on high-intent keywords.
4. Schedule ads for hours you can answer the phone.
5. Write ads that match the search closely to improve Quality Score.

Start small, then scale what works

Run a test budget for four to eight weeks with proper tracking. Find the keywords and ads that produce leads at a cost you're happy with, cut the rest, then increase budget gradually on what's working.

Don't forget management time

Ad spend goes to Google. Someone also has to manage the account: keywords, search terms, ads, bids and reporting. Factor in either your time or a management fee. Avoid these common Google Ads mistakes to make every dollar count.

We'll work out a realistic budget with you before spending anything. See our Google Ads service or book a free call.