Bryan CarantoIn part 1 of Google Ads Basics, we talked about how to track conversions.
Tracking conversions is essential because it allows you to understand your campaigns’ effectiveness and gives you insights to make better decisions.
And one of those decisions could be adjusting your daily budget. However, not everyone understands how Google Ads calculates the ad’s cost.
As a result, many advertisers wonder why they run into issues like overspending.
That’s exactly what we’ll talk about in this part 2 of Google Ads Basics—how to understand and manage your Google Ads budget.
Let’s dive in!
Table of Contents:
Your Daily Budget
Your daily budget is the amount of money you’re willing to spend on your Google Ads campaign daily.
When you set a daily budget, Google will use that budget to try to show your ads as often as possible throughout the day without exceeding your budget.
Google will also adjust the number of times your ads are displayed based on factors such as the competition for the keywords you’re targeting and the relevance of your ads.
Setting a daily budget on Google can help you boost the visibility of your ads while staying within your desired spending limit. Google will adjust how often it shows your ads based on factors such as the competition for the keywords you target and the relevance of your content.
How Google Calculates Ad Cost and Billed Cost
The daily budget works differently than what most people think or expect.
The popular knowledge is that Google may spend more than your budget on some days, depending on factors such as competition, bid amounts, and bidding strategy.
While that’s true, there’s also one important reason why Google sometimes overspends on some days.
This can confuse advertisers and business owners alike and oftentimes can lead to ineffective marketing decisions around budgeting.
The way Google calculates the cost of your budget (served cost) is based on the number of days per month, and that’s roughly 30.4 days.
Let’s say you set your budget to $1,200 per day on the first day of the month. You’re using Maximize Conversion Value (Target ROAS) for bidding.
Google will multiply that budget by 30.4, giving it $36,480 for the whole month. That’s the maximum amount Google will charge you (billed cost), nothing more.
Even if your campaign spends a million dollars, it will only be billed for $36,480 max.
Why Your Campaign “Overspends”
Now, let’s say that from October 1st to October 14th, you spent $12,000. Then, you removed Target ROAS. How much will the actual daily ad spend be?
Get your billed cost and divide it by the number of days left in the month.
$36,480 / 16 = $2,280
Your actual daily ad spend will spend $2,280 a day. This is the reason why sometimes you see the campaign “overspending.”
Another reason why it overspends is that you changed the budget.
If you change your budget within the same period, your billed cost will also change, and the counting cycle will reset.
Let’s say on the 7th of the month, you adjusted your budget to $2,000 per day. Google will recalculate that they won’t charge you more than $60,800. This applies from October 7th to November 7th.
Your “day 1” is now October 7th, not October 1st.
It’s like Google’s saying, “If you don’t change the budget, I have 30.4 days to spend that—regardless of what happens.”
Anytime you change your budget, the period where the calculations start resets.
How to Find Your Served Cost and Billed Cost
Remember, the cost of all clicks or impressions your campaign received is known as the “served cost.” How much Google will charge you for those clicks and impressions is called “billed cost.”
To find your served and billed costs, go to Reports > Predefined Reports (Dimensions) > Other > Build cost.
Final Words
Knowing how Google Ads calculates the cost of your budget is essential to the success of your campaigns.
As we have discussed, when Google will (or won’t) overspend depends on your bidding strategy, the period you changed the budget, and how much it’s spending.
Google will multiply the daily budget by 30.4 to give you the monthly maximum they will charge you.
When analyzing your campaigns, it is also important to understand the distinction between served and billed costs.
With this knowledge, you can make better-informed decisions that increase your return on investment and get more value from your campaigns.
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