Inside Google Ads podcast: Episode 16 - How budgets work

I have a confession to make. I have been giving you wrong information about how budgets work in Google Ads.

It's true. I went to research today's episode in my go-to source, the Google Ads Help Center, and I discovered that I was mistaken about a few things about how budgets work.

I'm sorry.

All I can say is that if I've been wrong about this, and I live and breathe this stuff every day, I can only imagine how confused you must be, too.

So today, episode 16, we're setting the record straight on how budgets work in Google Ads. Let's talk about it.

I'm your host, Jyll Saskin Gales. I spent six years working for other brands at Google, and now I work for you. This is Inside Google Ads. Episode 16, How Budgets Work. 

Be sure to stay tuned ‘til the end of the episode where I'll share this week's Insider Challenge for you to solve. 

Our first question comes from Noufel on TikTok, and they say, okay, explain this to me. Google 30-day cycles start from the day you set a budget. It's not a set monthly time frame, right? 

Noufel, I was about to say that's right, but it turns out, nope, that's wrong.

Let's back it up. 

In Google Ads, when you set an average daily budget, Google will use that to figure out two things: your daily spending limit and your monthly spending limit.

Your daily spending limit is two times your average daily budget. See why this stuff gets confusing? So if your average daily budget, meaning the daily budget you set in your Google Ads campaign, is $10 a day, then your daily spending limit would be $20. Meaning, your campaign could not spend more than $20 in a day. 

Your monthly spending limit is 30.4 times your average daily budget. And that is what Noufel’s referring to in this question. So with a $10 daily budget in your campaign, your monthly spending limit is $304. 

Now, previously, I thought that if you change your budget, it resets that 30.4 day cycle. But that's actually not the case. 

When you change your budget, Google Ads looks at how much you've spent so far in that calendar month, and how many days are left, and uses that to adjust your monthly spending limit. 

So let's use an example to illustrate this. Let's say your campaign has a $10 daily budget. That means you have a monthly spending limit of $304. Let's say it's May 16th, the day this episode comes out. We're 16 days into the month and the campaign has spent $200. That means there's $104 left to spend over the next 15 days in May. 

Now, if you change your budget to $20 a day, your new spending limit for the rest of the month will be $20 times 15 days, which is $300. So you can now spend up to $300 over the rest of May, the next 15 days in May. 

That $104 you had left under your previous budget is replaced by the $300 you now have left this month. And then on June 1, the whole thing resets. 

So assuming no more changes, your new monthly spending limit for June would be $20 a day, times 30.4, so $608 for the month of June. 

Google Ads budgets do actually work on a monthly basis, but the way that your monthly spending limit is calculated is always 30.4 times your average daily budget. When you change your budget, it doesn't reset that period, but it does change the amount of money you have left to spend that month, and it's prorated for however many days are left. 

As always, thank you so much for your questions. I'm glad this gave me the opportunity to correct my knowledge and in turn, help yours. 

Our next question comes from Raman Virk on YouTube, and they say, hi, I'm currently doing a maximize conversion ROAS. How do I control the daily spend as it's currently set at a $250 daily budget, but my campaign spends $370 or more a day? 

Raman's question led me to something else I learned from the Google Ads Help Center, and you're going to love this one. 

As I mentioned, your daily spending limit in Google Ads is two times your average daily budget. So with a daily budget of $250, your campaign can spend up to $500 in a single day.

So since yours spent $370 in a day, that's no problem. I mean, maybe for you it's a problem, but according to Google Ads, that's no problem. 

But did you know - did you know! - that there's a difference between your Served Cost and your Billed Cost?

Sometimes the algorithm can get carried away and spend more than two times your daily budget. When this happens, you will not be billed for those overages. 

So let's say your campaign spent $550 one day because performance was just that good, so it was spending more and more. You get to keep those clicks and conversions, of course, they happened, but you would only be billed for $500 that day, even though your campaign spent $550, since you did not give Google Ads permission to spend that much with a daily budget of $250. This is your Billed Cost versus your Served Cost. 

Just because you serve a certain amount in ad spend, it doesn't mean you'll be billed. Your Billed Cost is subject to your daily spending limit, two times your average daily budget, and your monthly spending limit, 30.4 times your daily budget.

I love it. 

Now, before we get to our last question for the day, you must know that next week is a very special week in the Google Ads world. Some might say it is THE week in the Google Ads world. 

And no, I'm not talking about Victoria Day weekend, my fellow Canadians. I'm talking about Google Marketing Live. 

Every year at the end of May, Google hosts an event called GML, Google Marketing Live, to unveil all the new features coming to Google Ads over the next year. 

For the third year in a row, Tod Maffin of the Today in Digital Marketing podcast and I will be co-hosting the third annual unofficial Google Marketing Live tailgate. And you're all invited! 

Google's event starts at 9 a.m. Pacific, noon Eastern.

Our tailgate will kick off an hour before that at 8 a.m. Pacific, 11 a.m. Eastern. 

We'll be joined by a curated panel of fellow Ex-Googlers breaking down all the changes we saw in Google Ads over the last year, our predictions for what's coming next, and we'll be taking your questions live on YouTube and LinkedIn. It's going to be a lot of fun. It's our third year doing this. 

So bring your popcorn, maybe hold the beer since it's a Tuesday morning, and join us for the third annual unofficial Google Marketing Live tailgate on Tuesday, May 21 at 8 AM Pacific, 11 AM Eastern on YouTube and LinkedIn. 

I hope to see you there. 

You can find it on my YouTube channel and my LinkedIn page. And the links for both of those are in the episode description. Or you can just look me up on either platform, Jyll Saskin Gales. 

And our next Inside Google Ads episode will drop two days after GML, which means our next episode will be all about GML. If you don't want to spend your whole Tuesday listening to keynotes, talks, and panels from Google's product managers, I don't blame you. It can get kind of dull. There's a lot of corporate doublespeak. 

Next week's podcast episode, episode 17 on May 23, 2024, I will be sharing the top most important things you need to know coming out of GML in 10 minutes or less.

If you'd like to get the chance to talk about it with me, with Tod, and with fellow practitioners for more than 10 minutes, the Monthly Meet for my Inside Google Ads course members will be on Wednesday, May 22. So the day after GML, the day before the podcast episode comes out.

And we'll be diving deep into all things GML there, too. It's not too late to sign up to join my Inside Google Ads membership program and ensure you don't miss out on that in-depth hour and all future Monthly Meets as well. 

Right. Our third question for this episode comes from Kevin Adams PPC on TikTok. And he says, yes, I heard so many times I don't want to spend very much until I get a better ROI. 

This was a comment on a video I did about a piece of news, a study that actually showed that the more you spend in Google Ads, the higher your ROI gets. And it's true. 

You have to spend money to make money. 

I recently posted on LinkedIn, actually, about a client who increased their budget by 30% and then saw their revenue from Google Ads go up by 50%. And that's just the most recent example. 

I see this time and time again. If your budget is too low, then you're getting the cheap clicks that no one else wants, that no one else is bidding high for. And shocker, they may not convert as well or may not spend as much. So if you don't have enough budget to advertise, don't advertise. 

And for more on what is enough budget, episode 7 of this podcast was all about budgets. I talked a lot there about how much you should spend and how to figure out the right budget for you. 

Today's episode was my chance to eat some humble pie and remind myself and you that even though I'm an expert and even though I'm at the forefront of my field, I'm not perfect. I make mistakes. And I hope that in sharing this with you, your trust in me will grow rather than shrink. 

I spend my time and energy and money putting this podcast together to help you grow your business, which in turn helps me grow my business. So thank you for joining me today to set the record straight about how budgets work in Google Ads. 

Here's your Insider Challenge for episode 16. And after that, I'll share how I would have answered the challenge from last week's episode. 

Picture this, you've just landed a new client, a B2B SaaS startup that wants to spend $50,000 a month on ads for at least six months. They have an established marketing program, but this is their first foray into ads. 

• How do you pace the budget?

• Do you start small and scale up based on results?

• Do you front load the budget and then whittle down based on results?

• What do you do? How do you pace? 

You can participate by sending me your response for this challenge, or any episode’s challenge. The beauty of the Insider Challenge is there's no right or wrong answer, just an opportunity to stretch your brain on real life Google Ads problem solving. Because yes, I was in a real situation just like this before. 

Shoot me an email at thegooglepro@jyll.ca, that's J-Y-L-L dot ca, or send me a voice note in my Instagram DMs. I'm @the_google_pro on Instagram and let me know how you would pace a budget if you had a company that was looking to spend $50K a month for six months. What would you do? 

Last episode, we talked about Maximize Conversions Bidding, and the challenge was whether or not to switch to Target CPA Bidding if your campaign is performing well and you're hitting your CPA goals and getting one to two conversions per day. 

Personally, in this scenario, I would likely switch to Target CPA Bidding, and here's why. 

Switching to a Target Bid strategy is going to give you the opportunity to truly see if you are maximizing the available profitable opportunity. 

Although the interface may not say you're limited by budget when you're on Maximize Conversions Bid strategy, by definition, you actually can't be limited by budget on a Maximize Conversions Bid strategy because a Maximize strategy says to Google, “Here's my budget, maximize within it.”

By definition, your budget can't be limited because the bidding is set by the budget.

Whereas if you're on a Target strategy, the limiting factor isn't your budget, it's your efficiency goal. In this case, the CPA you want to hit. 

So it may turn out that there's actually a lot more opportunity to spend, or maybe there's not, but you wouldn't really know until you switch to Target CPA. 

So given that there is enough budget to do so and that we have enough conversion data, I would switch to Target CPA Bidding. I would set my target at whatever my actual CPA has been recently. And then over the next week or two, maybe a bit longer if it's a lower budget, I would see what happens to Search Impression Share.

I would especially be paying attention to Search Impression Share lost due to rank, but of course, also Search Impression Share lost due to budget, and use that to see if there's room to scale my campaign further. 

What about you? Would you do the same, or are you more of the “if it ain't broke, don't fix it” camp? 

Let me know by shooting me an email, or dropping me a voice note or sending me a DM on Instagram. 

I'm Jyll Saskin Gales and I'll see you next time Inside Google Ads.

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