What Do Search Ads Cost? Four Ways to Set a Budget and How to Keep Costs Down

How much do you need to spend to get started with search advertising?
How much do you have to spend to get the results you expect?
If you have never run ads before, you have no feel for the budget, and many people hesitate.
This article covers the going rate for search advertising spend and how to decide your budget,
and goes on to how to keep costs down.

※The article below explains how search advertising works and how to run it in more detail. Do read it alongside this one.
Related article:
What is search advertising? A plain explanation of how it works, how to set a budget and how to manage it

1. How to decide your search advertising budget

First, here are four ways to decide your search advertising budget.

1.1 Work back from your target results

The first is to set the budget by working back from your target.
If you have a clear target CPA (cost per conversion) or a clear target number of conversions,
you can work out the budget with the following formula.

Now put some real numbers into that formula.
With a target CPA of 10,000 yen and a target of 100 conversions, the budget you need is 1,000,000 yen.

Decide the target CPA (the cost of winning one conversion) with reference to these three things.
・(If you have no web advertising history) your CPA from offline advertising
・(If you do have web advertising history) your CPA from web advertising other than search
・The average CPA for your industry
Set your target number of conversions, or your target cost per conversion, at the outset: it is also a key input for analysing return on spend while the ads are running.

1.2 Decide from the going rate for cost per click

Search advertising charges you each time the ad is clicked:
it is pay-per-click advertising.
The higher the amount per click, the cost per click,
the larger the advertising budget you need.
The formula is as follows.

Advertising spend = average cost per click × number of clicks

The going rate per click varies with the industry, how heavily competitors are advertising, the product and the keyword.
For the cost per click on the keywords you want to run, you can look this up withKeyword Planneron Google, orthe Yahoo! Keyword Advice Toolon Yahoo!.
Entering the keywords you plan to run into either tool tells you the lower and upper bounds of the cost per click.

1.3 Decide with reference to the general going rate

The usual starting budget for search advertising is around 200,000 to 300,000 yen a month for most companies,
and agencies commonly take on management from a budget of 300,000 yen a month.
At 300,000 yen a month, the daily advertising budget works out at 10,000 yen.

Check whether that figure is right for how your own business runs.
At 300,000 yen a month, a daily budget of 10,000 yen and a cost per click of 100 yen,
you gather 100 clicks a day.
At a conversion rate of 1%, 100 clicks produce one result, so starting search advertising at the general going rate of 300,000 yen a month is a reasonable figure.

1.4 Decide by talking to an agency

Talking to a search advertising agency lets you set the budget more accurately.
If they have a track record in the industry you are considering advertising in,
they should know the going rates for budget and for cost per click.
If this is your first time running ads and you cannot settle on a budget, asking an agency for a quote is a good move.
By talking to an agency and actually running the ads,
you get a clear answer on whether you can acquire within the CPA (cost per conversion) you have in mind.
If you can acquire within the target CPA, check how far you can push the number of conversions,
then fix the budget with the formula “target CPA × target conversions”.

In search advertising, the typical
conversion rate (CVR) benchmark is roughly 1 to 2%.
That is the level where you get one result for roughly every 100 clicks on the ad.
It varies by industry, business size and keyword, but
if this is your first promotion, bid around 100 yen, see how it goes and adjust from there.

Search advertising management takes specialist knowledge and time.
There is no point putting so much effort into running ads that it gets in the way of your actual job.
Budget planning in particular involves a lot of moving parts, so bringing in a professional agency is one option.
With a search advertising specialist’s expertise and efficiency, you are likely to hit your targets faster.

2. How to keep search advertising costs down

Next, we look at ways to keep search advertising costs down.
Know these five methods and, once your ads are live, you can avoid wasted spend and
run them efficiently.

2.1 Review your bid strategy
2.2 Set negative keywords
2.3 Review match types
2.4 Review your target areas
2.5 Improve ad quality

Here is each one in detail.

2.1 Review your bid strategy

To keep costs down you need to choose the right bid strategy.
A bid strategy is the bidding mechanism that maximises results for the goal behind your ads. Start by setting a goal for running them.

For instance, “increase traffic to our site” or “win conversions” —
without a clear goal you cannot set the right strategy.
With the goal set, for clicks, impressions, conversions and so on,
set the bid strategy best suited to what you want to acquire.

Bidding methods fall broadly into two types: automated bidding and cost-per-click bidding.
With automated bidding, bids are set automatically according to your goal.
Because the adjustment is automatic, it cuts a great deal of the work of setting bids by hand.
Cost-per-click bidding is what you use when the focus is on winning clicks.
With manual CPC you can manage bidding yourself through a maximum CPC.

Building the right bid strategy for the goal behind your ads keeps costs down.

2.2 Set negative keywords

A negative keyword is
a keyword you set so your ads do not show for searches containing a particular term.
Setting them narrows your targeting and makes the ads work harder.
Before you go live, add any obvious negatives in advance.

Say you want to recruit a web designer in central Tokyo.
The main keywords would be
“web designer vacancies”, “web designer jobs”
and so on.
If you have not set negative keywords,
“web designer vacancies Osaka”
and other search terms like it will also trigger your ads.
The job is in central Tokyo, so there is no point showing the ad to designers looking for work in Osaka.
So you set Osaka as a negative keyword.
As a result, the ads no longer show for search terms containing Osaka.

To concentrate budget on the keywords that convert efficiently,
pick out the terms that rarely lead to acquisition as negatives, and
improve ad performance so you do not lose opportunities.

2.3 Review match types

A match type is the setting that decides how broadly your ads show against search keywords. There are three in total: exact match, phrase match and broad match.
※ Since July 2021, broad match modifier has been folded into the new phrase match.

The match type you register a keyword under completely changes which queries your ads reach.
It is important to use match types so that you capture the search terms you want without generating a lot of wasted clicks.
With exact match, for example, the ad shows only when the search term matches the registered keyword exactly.
It lets you make your case precisely to the customer you had in mind, so when budget is tight it tends to hold spend down compared with the other match types.

2.4 Review your target areas

When you run search ads you can narrow the areas they are shown in.
If you run search ads without narrowing the area,
you get more clicks from users outside the area you care about.
That drags down your return, which is something to avoid.

The default for location targeting is
“people in, regularly in, or who have shown interest in your targeted locations”.
“people in your targeted locations, people regularly in your targeted locations”Under these,

a user’s location is identified from information on their computer or mobile device.
“people who have shown interest in your targeted locations”For this one,
it is judged from things like search terms that identify a location.
If you want to hold budget down, narrow the area and select only “people in your targeted locations”.

You can also exclude specific locations.
Adding excluded locations after setting your target areas gives you more accurate targeting.

Setting your target areas this way
lets you run ads written for customers in that area, getting the most out of them while keeping costs down.

2.5 Improve ad quality

Where your search ad appears is decided by a measure called ad rank.
The higher your ad rank, the more likely your ad shows near the top,
which holds down cost per click and so holds down spend.

Ad rank is calculated with the formula below.

In other words, however high you push cost per click,
if the ad itself is low quality it is less likely to show,
and the activity may end up not paying for itself.

Quality score, or ad quality, is the measure of how appropriate your ad is for the person searching.
It is determined by factors such as expected click rate, ad relevance and landing page relevance.

whether the headlines and descriptions are the kind that catch people’s interest,
whether the page they land on meets their needs,
whether the buttons on the page sit in the right places,
whether page load speed is a problem — look for what you can improve.

Improving ad quality this way and raising your ad rank cuts your ad spend.

3. In closing

We have covered how to set a search advertising budget and how to keep costs down.
You can change the budget on search advertising whenever you like, so it pays to stay flexible.
If results beat expectations, adding budget can bring bigger returns.
Equally, decide in advance on a cut-off point for when the ads are not working.
Think flexibly about cost and you can get the most out of the least spend.
There is a lot of uncertainty in search advertising about whether results will come,
and it is by analysing the data, improving, and building up a record
that you grow results.
Get the ads live first, then improve them towards the best possible result.

Related article:
What is search advertising? A plain explanation of how it works, how to set a budget and how to manage it