How to Set a Google Ads Budget: A Practical Model

Short answer: A Google Ads budget does not start with “what can we afford” but with “what can a customer cost us”. Set a target acquisition cost, then work backwards from click cost and conversion rate, and the budget stops being a guess.

The model, in three numbers

You need three inputs:

• CPC — average cost per click (Google’s own forecast tool gives a starting point)
• CVR — your site’s conversion rate (if unknown, start from 1–2% for B2B, 1–3% for e-commerce)
• Target CPA — the most you can pay to win one customer

Then:

Cost per conversion = CPC ÷ CVR
Monthly budget      = target conversions × (CPC ÷ CVR)

Example: CPC £0.90, conversion rate 2%, target 25 enquiries a month. Cost per conversion = 0.90 ÷ 0.02 = £45. Monthly budget = 25 × 45 = £1,125.

Now the critical check: is £45 below your target CPA? If the lifetime profit from a customer is under £45, this channel does not work as configured — you either raise the conversion rate or move to cheaper queries.

Three levers that improve results without more budget

1. Conversion rate

CVR is the denominator. Moving from 2% to 3% takes cost per conversion from £45 to £30 — the same effect as increasing the budget by 50%, without a recurring cost. Which is why the landing page should be examined before any new spend is discussed.

2. Negative keyword discipline

In most accounts we take over, the negative list is either absent or has not been maintained for months. Terms like “free”, “jobs”, “salary” and “what is” are where the budget quietly leaks. A weekly search-term review is the cheapest optimisation available.

3. Campaign separation

Stuffing different intents into one campaign breaks the algorithm’s learning. Brand queries, generic queries and competitor queries belong in separate campaigns, because their conversion rates and acceptable costs are completely different.

A practical rule for starting budgets

Google’s bidding algorithms need data. A budget that cannot produce roughly 15–30 conversions a month cannot feed smart bidding, and results swing. Below that threshold:

• start with tighter targeting and cheaper queries,
• or collect data on manual/maximise-clicks first,
• or concentrate spend in a single campaign — a small budget split across three campaigns clears the learning threshold in none of them.

Is the agency fee part of the budget?

No, and the distinction should be explicit. Ad spend goes directly to Google; the agency never touches it. The agency fee covers strategy, creative and management, and is invoiced separately. Proposals that merge them hide how much of your money actually reaches the auction.

Two fee models are common: a fixed monthly fee, or a percentage of ad spend. At small and mid budgets a fixed fee is usually in the client’s interest — the percentage model rewards the agency for growing spend.

Without correct measurement, the budget conversation is meaningless

Optimisation moves towards whatever you measure. If conversion tracking is set up wrong, the algorithm optimises in the wrong direction and more budget simply grows the loss. So the first job on every account takeover is verifying conversions: is the form submission actually counted, is the same conversion double-counted, are phone calls tracked.

Sources

• Google Ads Help — Smart Bidding
• Google Ads Help — conversion tracking