It is a Google AdWords best practice to set a maximum daily budget to control your spending. Finch recommends increasing your maximum daily budget to not limit your ad impressions. Let us explain when you would want to set a daily budget – and when to increase this budget.
Why does Google want you to set a maximum daily budget? The biggest reason is because you typically have a monthly marketing budget, and by dividing that budget by 30, you’re then able to set the daily budget. If the daily budget is met every day, then you’re still at or below your monthly budget. This prevents you from overspending and makes a lot of sense with Cost per Click or Cost per Impression models, because you’re basically trying to get all the clicks or impressions possible within your budget.
So then why does Finch want you to increase your maximum daily budget? Finch moves you to a Cost per Acquisition or Cost per Value (percentage of revenue) model. This means you set a cost or percentage goal for conversions where you are profitable, and then Finch focuses on getting the maximum number of available conversions at that goal. In other words, you’re paying per conversion (or percentage of sales) so unless you have a good reason to limit total conversions, you should take all that you can get. See the previous blog post, Paid search is not a marketing expense, it is a sales commission!
Back to the maximum daily budget – running out of budget in a CPA/CPV model is bad, because you’re limiting your opportunities for conversions. When you run out of budget, your ads aren’t being shown. If your ads aren’t shown, then people can’t click on them and can’t convert.
In another previous post, we explored how an event might affect search volume days, weeks, or months later. The point is that you simply can’t predict the peaks and valleys of Google’s search volume for your keywords. So on most days you may get 100’s of conversions, but on other days 1000’s of conversions may be possible if you haven’t imposed a daily budget that limits your ad impressions.
If you’re interested in seeing how your daily budget may be limiting your profit, AdWords has a new "Lost IS (budget)" metric at the All Campaigns level that shows the percentage of time your ads are not being shown due to budget restrictions.
You can find the Lost IS (budget) by logging into AdWords, selecting “All Online Campaigns,” clicking the column button, and then selecting “Customize Columns.” Lastly choose the “Competitive metrics” section.
If you made $100,000 from PPC, but your Lost IS (Budget) was 40%, then you potentially could have made $140,000 at the same CPA/CPV goal. In other words, you lost $40,000 in potential revenue because your ads weren’t being shown after you exceeded your daily budget. Finch recommends that you increase your AdWords budget until this metric always shows 0% as long as you have control of your cost per conversion/value – something that Finch provides.
One other note: There are other Impression Share metrics. Don't allow these other Impression Share metrics to influence your cost goal. If you look at Impression Share or Lost IS (rank), then it’s very tempting to raise your cost goal to try and get a bigger percentage of the available ad impressions. This is a mistake. We’ve all joked about the businessman who is losing money on each sale but believes that he will make it up in volume. If you raise the cost goal beyond where it is profitable, then you are spending more for an acquisition than it's worth. In other words, you’ll get more conversions, but less profit per conversion — if this ratio dips low enough, then you will be losing money. To maximize profits, set your cost goal to where you are profitable, and allow Finch to get as many conversions as possible at that goal.