Inside Google Ads podcast: Episode 88 - Should you run ads?
I was on a coaching call yesterday with a new client, a therapist, and we were having the conversation that I tend to have with a lot of the therapists I meet in my Google Ads coaching practice, which is, how much should you spend on Google Ads and should you even be running ads at all?
Now, in previous episodes, I've talked about my Rule of Two to help you determine if you're ready to run ads or not. But this is a rule that's really designed with e-commerce businesses or SaaS businesses in mind and may not apply to a smaller service-based business like a therapist.
So I wanted to take this opportunity today to walk you through this very simple framework to determine how much you should spend on ads and whether your business and website are even ready for Google Ads. Whether you yourself are a business owner like this or you're a freelancer or agency who works with small business owners like this, I hope that this simple framework will be helpful for you.
I'm your host, Jyll Saskin Gales. I spent six years working for big brands at Google, and now I work for you.
This is Inside Google Ads: Episode 88, Should You Run Ads?
Now, usually when I get a new client, for example, a therapist, I've worked with quite a few, many specialize in anxiety and depression or in couples counseling or in children's therapy, but usually they've been running ads before. And so the first thing I always look at on these calls is the CPC, the cost-per-click, because if I see a cost-per-click for a therapist in the United States or Canada that's below $5, I know that that's probably just too low and suggests that we're not getting good quality traffic.
Either I'm going to find they have the Search Partners or Display Network turned on or they use Broad Match keywords and match with irrelevant stuff. What I typically find in this industry is CPCs in the $10 to $20 range, maybe $15 as an average.
You can use Keyword Planner in your area to try to figure out what those searches might cost. But be forewarned that there are certain terms, and this doesn't just apply to therapists, where Keyword Planner won't show you the forecasts. I found this has been an issue in healthcare and mental health, but you might find it in other industries too, that Keyword Planner will just say, no, can't show you the forecast for that. You haven't done anything wrong. It's just for whatever reason, whether it's privacy or policy, Google just won't show you the forecast.
So if in doubt, if you are a therapist, I would expect $10 to $15. If you work in a different industry and Keyword Planner is just not showing you what you need to know, then I recommend looking up a similar industry or trying a simpler version of your keywords, maybe just one or two words rather than the full three or four words to try to get an approximation of what to expect.
Remember, we're not trying to optimize for CPC. It's more that the CPC itself can tell us what's going on under the hood in your campaigns.
Next, I'm going to look at the conversion rate. And for therapists or other service-based businesses like this, a conversion usually means “filling out a form,” “calling you,” or perhaps “booking something on your calendar.”
Typically for lead gen businesses like this, the more established ones that have well-optimized websites and really know what they're doing, I'll expect about a 10% to 12% conversion rate. For someone like a therapist who, no offense intended to therapists, my mother's actually a therapist, but marketing is probably not your thing, you may not have the most well-optimized website. I would expect a conversion rate of maybe more like 5% to 7%. So if we're seeing a conversion rate of 1%, meaning out of every 100 clicks you pay for from Google Ads, only one is “filling out the form” or “calling you” or “booking a free consultation,” then we definitely have an issue. Either we're sending the wrong people to your website, your Search Terms Report helps determine that, or you're sending the right people and your website is just not optimized to show people how they can get in touch with you.
Now, as you know, this is lead generation. So your conversion rate that you see in Google Ads is just people reaching out to contact you. After that, they contact you, you get back in touch with them, only a certain portion will actually become paying clients. And this is the really important part of Google Ads optimization that has nothing to do with Google Ads. If you were able to take 80% of the leads you get from Google Ads and convert them into paying clients, your Google Ads will be way more profitable than if only 20% of the people who contact you end up being paying clients.
So while, of course, Google Ads can influence that if you're getting low quality leads or the wrong kind of leads, usually that's more of a sales issue. If you as the business owner or your team is doing a good enough job of taking those people who are interested enough to give you their contact information - think about that in this day and age, that's considered very interested! - then actually convert them to opening up their wallets and paying you for your service.
So whether this is in your Google Ads account or a client's Google Ads account, I want you to look at these three things.
The average CPC, look at the last 30 days when in doubt
The conversion rate
And then outside of Google Ads, you may need to go through your email inbox or something to calculate it. What percentage of your leads actually become paying clients? If it's too difficult to determine that from Google Ads versus other sources, feel free to use an overall actual conversion rate for your business.
And then once you have these three numbers, now we can use my framework to determine how much you might need to spend on ads and whether you should run ads at all.
For this example, we're going to say that the average CPC for this therapist is $10 per click, that they have a conversion rate of 6% (so out of every 100 people who click on their Google Search ads, 6 of them contact them in some way), and that they have an actual conversion rate of 50%, meaning of those 6 people who reach out, 3 end up becoming clients.
The first thing I want you to do is take your average CPC and multiply it by 100. Why? Because it's just easier for our rational brains to think about things in terms of 100 clicks rather than abstract numbers.
So for this example, 100 clicks times $10 CPC is $1,000. So what can you expect to get for $1,000? Your results may vary depending on what your average CPC is.
Next, we're going to take that conversion rate and turn it from a percentage into a real number.
So in this example, we have a 6% conversion rate. That means 6 out of every 100 people contact you. So in our example, we have spent $1,000 and we've gotten 6 leads.
Third, we're going to take that actual conversion rate and turn it into a real number.
So in this example, our actual conversion rate from lead to paying customer is 50%. We know that we have 6 leads, so 50% of 6 equals 3. That means we have 3 paying customers.
And now you're ready for the final step. You spent $1,000. You got 3 paying customers. So $1,000 divided by 3 equals $333. This number is what fancy tech people might call your CAC, your customer acquisition cost. In plain English, it's just how much does it cost you to get a customer from Google Ads? Not a CPA, not a lead, like an actual paying customer. And we do that by taking the amount you spent on Google Ads and dividing it by the number of real customers you got at the end of the day.
So in this example, this therapist has a $333 cost to get a customer. Is that good? Is that bad? Remember, metrics are morally neutral. There's no good or bad numbers, just what they are today and what you want them to be tomorrow.
If you are a therapist who charges $50 an hour, then $330 would probably be way too expensive for you. If you are a therapist who charges $250 an hour, then you know what? You just need someone to book two sessions and boom, you're in the money. But now that you're working with a real business number, $333 per customer, rather than some kind of made up Google Ads number like a $166 CPA, we can determine if ads make sense for your business or what changes might need to happen to make ads make sense for your business.
Let's assume that $333 is too expensive. Okay, now we have a real life number to work with. What would we want it to be? Maybe you charge $200 per hour and you wanna break even on that first paid hour. More power to you. That means we need to get your $333 down to $200. How do we do that?
Well, you have the three levers we've talked about, CPC, conversion rate, and actual conversion rate. So let's take them one by one.
If you want to get your cost to acquire a customer down, the first step is to pay less for that initial click.
How do you get your CPC down? By improving your quality score, by just bidding less (though that could backfire to have lower converting clicks), or perhaps figuring out other ways to reach your target customers like a Demand Gen campaign rather than only Search. Your CPCs will be much lower, your conversion rate will also be lower, but it may net out to a better customer acquisition cost for you.
If you are a therapist operating in the US or Canada, I wouldn't expect your CPCs to get much lower than maybe $8 as a floor. There may be exceptions, but if your CPC is already $8 to $10, this is probably not the place to try to work on optimizing, because that's already quite low in my experience. Again, if you're not sure what that should be in your industry, Keyword Planner is a great place to start to see if it even seems realistic for my CPCs to get lower than this.
The next place we can look to try to get your customer acquisition costs down is that conversion rate, improving the conversion rate.
In this example, 6% of people who click on the Google Ads are converting. What if we could get that to 8% or 10%? How might we do that? And there's two parts to that equation.
One is, are we getting the right people to our website? For a Search campaign, you determine that by looking at your search terms and ensuring they're relevant.
And then the second part of that is, once they get to the website, what do they see there and is that actually helping them convert? That's usually a combination of your offer itself. What is it that you do? How are you communicating that, the text on the page? And then the other part of that is what some people call conversion rate optimization. Does your website load quickly? Is it easy to click your call to action button and get in contact with you?
Is it the right person and the right messaging, but just your website sucks and that's why you're losing them? Or is it the right person, but then your messaging is terrible because it just says “Welcome, try our therapy.” That's not really going to get me to want to convert.
So remember to look at both sides of that equation, the in Google Ads part to improve your conversion rate and the outside of Google Ads part to improve your conversion rate.
And then the third way to decrease your customer acquisition cost is to improve your sales, improve that actual conversion rate.
Of those leads you're getting, how many turn into actual customers? And look, most of us get into the services we do because we're passionate about the services we offer. We're not necessarily passionate about the sales part, but the sales part is what can totally kill your business if you're not doing it right.
I'll use my business as an example. I didn't even have a CRM, customer relationship management software, in my business until I'd been in business for about like three and a half years. Literally people would reach out to me all the time. They'd be in my inbox. I'd reply, I'd archive it. And then if I never hear from them again. There were so many missed opportunities there. So I use Copper, and by implementing the system, now every time a lead comes in, whether they email me, fill out my contact form, or DM me on LinkedIn, it goes into that software. And I can keep track of it.
For example, this person reached out to me (because I'm not doing any cold outbound, they reached out to me). They wanted my help. I responded. It's been two weeks and I haven't heard back from them. Why don't I follow up with them again? And by doing that, I've made so many more sales in my business just through the simple act of following up.
Another common challenge I see, especially in the home services space, is someone is a really great plumber or a really great contractor, but not necessarily a really great salesperson. So they'll get these calls and they won't answer the call right away because they're busy. But then by the time they answer it the next day, that person's already gone to a competitor. Or maybe they call and say, hey, is this Joe's plumbing? And you're like, no, this is Susan's plumbing. Okay, bye. Instead of saying, no, this is Susan's plumbing, but what can I help you with? Right? So really using every opportunity to do everything in your power to see if you can help that person and turn them into a paying customer. That is sales.
In this example with a 50% actual conversion rate, if we were able to increase that to just 70% actual conversion rate that would mean that instead of 6 leads turning into 3 customers, that those 6 leads turn into 4 customers.
So rather than dividing the $1,000 that we spent on ads across just 3 people, we can now divide that $1,000 across 4 people, which means our new cost to acquire a customer is $250. That's a huge improvement from $333 just by doing something not at all related to Google Ads, but increasing our sales skills to go from a 50% conversion from lead to customer to 70% conversion from lead to customer.
If you are a Google Ads practitioner who manages ads for someone, it's not your own business. I know it's really tempting and often all we can see to just focus on the CPC and the CVR. But if you've never had a conversation with your client about that final piece, that actual conversion rate, have that conversation. Share this episode with them if you think it'll be a good conversation starter. What they do in their business is, in my opinion, more important than what you're doing in the Google Ads account to determine whether or not ads will be profitable for them.
Now I promised that in addition to giving you this framework and explaining it thoroughly, I would also tell you how to use it to determine how much to spend on ads.
My general rule of thumb is that you want to spend enough to get at least 10 clicks per day. So if your average CPC is $10, that means $100 a day. Now, if you are a small business owner, you may say $100 a day is $3,000 a month. There's no way I can spend that. Okay. Fair enough. But it means it's going to take the system probably a lot longer to learn what works for your business.
And this example here is spending $1,000 a month, that works out to about $33 average daily budget. So with $10 CPCs, you're only going to be getting about 3 clicks a day. If you want the Google Ads targeting algorithms and bidding algorithms to drive good sustainable results for your business, and you're only getting 3 clicks a day, then your conversion rate better be at least 10%, if not higher. A 10% conversion rate would mean that on average you're getting a lead every 3 to 4 days and that in the course of 30 days, you're gonna get about 10 conversions. So it's far below the threshold of 30 in 30 we look for, but assuming this is an always on campaign, after a couple of months, you should have enough data to move on to Target CPA bidding to stabilize your results.
Whereas, if you have a 6% conversion rate, like in this example, which is a totally respectable conversion rate, by the way, but you're only spending about $30 a day, meaning you're only getting about 3 clicks a day, then by the end of the month, you're only going to have about 6 conversions. It's gonna take like half a year for your campaign to have enough data to be able to learn what works for your business, what doesn't, and to move on to Target CPA bidding, which is always our ultimate goal, moving on to a target-based bid strategy.
More on that in Episode 86. If you missed it, that's two episodes before this one.
So if you can't afford enough budget for 10 clicks a day, that's okay, but then just keep in mind it could take a lot longer for your campaigns to see results. You are going to have to be a lot more patient in spending your smaller budget over three, four, five months until you potentially do see those results.
And remember, I'm just talking about the ad spend here. If you also are paying someone to run your ads, well, first of all, if you're planning to only spend $1,000 a month on the ads, you probably can't afford a qualified person to run your ads, but if you are paying someone to run your ads, you need to also factor that into your customer acquisition cost.
In this example, let's say that you're spending $1,000 a month on ads and paying someone $200 a month to manage. A real number I heard from a client and in my opinion way too low. And well, there's a reason they reached out to me for coaching rather than relying on the person they're paying. Anyway, that means your actual spend is $1,200 total and you would then want to divide $1,200 by your number of customers to figure out your real customer acquisition cost.
So should you run ads for your business? Maybe, maybe not. There might be some things you need to get into order so that you can set up Google Ads to be as effective as possible. And if you can't afford to hire someone to manage your ads for you, that's exactly why I offer Google Ads Coaching.
Today's Insider Challenge is this. Let's say you have a client you've been working with for some time, a small business owner, and you just have not been able to get good results for them no matter what you try. After looking at this framework today, analyzing their CPC, conversion rate and actual conversion rate, you look at their CAC and you now know what the issue is. The customer acquisition cost you're getting is about three times what the business owner would need in order for ads to be profitable. What do you do? How do you communicate this to the client? Do you try to solve the problem? Do you maybe try to fire them as a client?
This is a communication challenge as well as a Google Ads skills challenge. I hope it's an extra helpful one for you this week.
Last Episode's Challenge was this. Let's say that you're running a Performance Max campaign and the ROAS is terrible, 0.14 ROAS, but the real life business results that you're seeing from the products in this campaign are really good. You are seeing a huge increase in sales that can't be attributed to anything other than PMax. What would you do in this scenario? Keep investing in PMax or shut it off?
This is actually a real life challenge that's happening in real-time right now. In a recent issue of my newsletter, The Insider, you can find the link to sign up in the episode description, I shared this case study of my client who's an e-commerce business owner who's running a PMax campaign that looks terrible in-platform, but in real life actually seems to be performing well. So here's a little update for you because in the newsletter I shared the July results.
In August, PMax continued to look terrible in-platform. I think it said it drove one sale the entire month. And real life sales weren't as good as they were in July, but were still much better than that. If we can assume most of them were PMax influenced, then maybe the PMax broke even.
Now I'm recording this right now in mid-September and wow, we have seen a huge change this month. For the first two weeks in September, the PMax campaign is saying that it drove five purchases, which is more than July and August combined.
So this PMax campaign that went live at the end of June, we're now two and a half months later. And finally, over the last two weeks, we have a profitable ROAS. The in-platform ROAS for this PMax campaign for the last two weeks is 2.86, a huge difference.
And of course, when we look in Google Analytics, we see even more sales on these specific SKUs that are not being attributed to Google Ads, but the business owner isn't promoting them anywhere else and they weren't selling that well before.
It just goes to show that when you have a smaller budget and little to no data to work with, it can take these AI-powered campaign types a long time to ramp up. I'm really excited about what we're seeing from this PMax campaign now. I'm really glad that my client suggested this and had the budget and patience to wait and give the campaign time to learn. And I'll be sure to come back and give you an update in another couple of weeks or months to see how this continues to grow and thrive in the coming months.
I'll be honest, if it were my own money and I was spending it for two months and seeing less than 0.2 ROAS, I don't know if I would have kept it on or not.
So I'm curious, what do you think? Would you have kept this running if the in-platform results looked terrible, but in your business overall, you're seeing good sales?
My client did, and now we're finally getting to see the fruits of that labour.
I'm Jyll Saskin Gales and I'll see you next time Inside Google Ads.