How Much Should You Actually Spend on Google Ads?
There’s no universal “right number” for a Google Ads budget — but there is a defensible formula. Most businesses set a budget based on what feels comfortable, what they spent last year, or what a competitor reportedly spends. None of those are good answers. Here is how we set spend for clients in everything from local services to enterprise SaaS.
Start with the unit economics, not the platform
Before you ever open Google Ads, know two numbers cold:
- Lifetime value (LTV) — the total profit you earn from an average customer over their full relationship with you.
- Target customer acquisition cost (CAC) — the maximum you can profitably pay to acquire one new customer.
A common, healthy ratio is LTV at least 3 times CAC. So if your average customer is worth $1,500 in profit over their lifetime, your target CAC ceiling is around $500. These numbers set the upper limit for your bids and your monthly spend.
If you don’t know your LTV, calculate a rough version this week:
- Average order value × gross margin × average number of repeat orders.
- For subscription businesses: monthly revenue × gross margin ÷ monthly churn rate.
The simple budget formula
Monthly budget = (Target customers × Target CAC) ÷ Conversion rate from click to customer
If you want 20 new customers a month, your CAC ceiling is $250 and your landing page converts clicks to customers at 5%, you need roughly $5,000 in qualified ad spend per month — plus a small buffer for testing.
This formula works because it forces you to acknowledge three things at once: how much you want to grow, how much each customer can profitably cost, and how good your funnel actually is. If any of those numbers shift, the budget shifts with them — instead of being fixed by tradition.
Budgets follow goals. Goals follow margins. Margins follow real numbers — not industry averages.
Three budget tiers we typically see
- $1,500 – $3,000 per month — Local services, single geography, narrow keyword set, three to five high-intent campaigns.
- $5,000 – $15,000 per month — Multi-city or e-commerce brands testing across Search, Performance Max and remarketing.
- $20,000 per month and up — National brands, B2B with longer sales cycles, or aggressive growth targets that justify dedicated brand and competitor campaigns.
These are not minimums or ceilings — they are the bands where, in our experience, businesses tend to settle once their unit economics are honest. Below $1,500 a month, the noise from a small number of clicks usually drowns out any signal you can act on.
Set a learning budget, not just a performance budget
The first 60 days of any new account are about learning what works. We typically reserve 20% of the budget for tests: new ad copy, new landing pages, new audiences, new bidding strategies. The remaining 80% goes to whatever is already proven.
Skip the learning budget and you lock in whatever campaign you started with — even if it isn’t the best version of the campaign you could be running.
Match the campaign type to the goal
- Search — best for high-intent demand capture. People are actively searching for what you sell.
- Performance Max — useful once you have meaningful conversion data and trustworthy creative assets. Not a starting point.
- Demand Gen and YouTube — best for awareness and remarketing, especially with strong video.
- Display — almost always remarketing only. Cold display campaigns rarely earn their keep.
- Shopping — essential for any product business. Optimize the feed before you optimize the bids.
What never changes
Whatever your spend, three things determine whether ads work:
- Targeting tight enough to attract qualified clicks. Generic terms drain budget; specific intent terms convert.
- A landing page that matches the ad, loads fast and converts. Most ad failures are landing-page failures in disguise.
- Conversion tracking that reports real outcomes — not form submissions. Tie ad spend to revenue or qualified pipeline, not to whatever the platform calls a “conversion.”
Common ways businesses overspend
- Bidding on broad-match terms with no negative keyword list.
- Letting Performance Max run without first-party data and clear conversion goals.
- Running a single ad group with 50 keywords and one generic landing page.
- Not excluding existing customers from prospecting campaigns.
- Counting form fills as “conversions” when only 5% become customers.
Common ways businesses underspend
- Splitting a tiny budget across five campaign types so none of them have enough data to optimize.
- Setting bids well below market and showing on page 3.
- Pausing campaigns the moment a single bad week happens, before the algorithm has time to learn.
- Treating Google Ads as a fixed line item rather than a function of growth goals.
How to know your budget is right
You’ve sized the budget correctly when:
- Your CAC is below your target CAC ceiling.
- Your top campaigns are limited by budget, not by impression share lost to rank.
- You can afford to pause underperformers without panic, because winners absorb the budget.
- Month-over-month, the account becomes more efficient as the algorithm learns.
What to do this month
- Calculate your real LTV and target CAC.
- Run the budget formula above and compare against current spend.
- Audit conversion tracking — make sure every reported conversion ties back to revenue.
- Identify your three highest-intent keywords and make sure they have dedicated ad groups and landing pages.
- Reserve 20% of next month’s budget for tests, with three specific hypotheses written down.
If those numbers don’t line up, the answer is rarely “spend more.” It’s usually “fix the funnel first.”