Setting a Google Ads budget seems straightforward, but should you set fixed budgets in your ad accounts? Or should you allow them to flex up and down over time? The short answer is that you should use flexible ad budgeting in most cases for best return on ad spend. But let’s dig in a bit and think through the issues.
Seasonality
For most businesses, seasonality affects the opportunity to generate revenue throughout the year. There may be shifts in how many people are searching for things over time, driven by the literal seasons of the year or trending topics. Or perhaps at some points of the year, people who click on ads may be more likely to make a purchase—such as just before Christmas. Shifts also occur due to changes in advertiser behavior.
Seasonal shifts in performance can also be exactly the opposite of what you would expect. For example, in the fitness industry everyone knows there is a buying surge in January, so they often increase their ad spending, driving up ad costs in January for all advertisers. That can actually make financial performance go down during the busiest month since clicks are much more expensive. If the costs rise more than the returns do, you’re worse off. In that scenario, other times of the year may actually have more opportunity for profit from spending on ads than your peak season.
Fixed Ad Budgets
Because of these natural shifts in opportunity over time, if you keep your ad budgets fixed from month to month, the results you see will also shift up and down. For example, if we keep a fixed $30K/month budget for an ad account or campaign, we are likely to see months where we get lower revenue from the ads, and other months where it is significantly higher.
What this really means is that with fixed budgets, we will sometimes overpay for the available results. But at other times, we will underpay, missing an opportunity for better results, and leaving money on the table.
Why Use Flexible Budgets?
When we notice shifts in opportunity over time, it is always true that we can achieve higher total returns if we can shift budget from months where we’re overpaying for the available results into months where there is more opportunity. Basically, we might be able to spend $1 and get $5 in March, but perhaps we can spend $1 and get $10 in August.
If we’re playing the long game, we want to try to match our budgets with the periods where we can buy more results with fewer dollars, and that will increase average returns over the entire year.
Sounds great in theory, but what does it look like in practice?
How to Implement Flexible Ad Budgets
If we truly have a fixed budget for the year, like $30K/month times 12 months, or a $360K budget, then we can do some modeling of how the patterns of opportunity are expected to look over time and work out a plan where we might spend $20K or $25K some months, and $35K or $40K other months so we hit the same annual spending target, but get higher returns for it. This method still uses fixed budgets on a monthly basis, but at least they flex from one month to the next. If you have enough solid data to be able to run reasonable seasonality projections, this works well for businesses that still require pre-planned budgets far in advance.
Many companies don’t have fixed annual budgets and instead use totally flexible ad budgeting for sales and marketing efforts. Many advertisers set flexible Return on Ad Spend (ROAS) goals where they truly don’t have a fixed budget. For example, if you set an 8X ROAS goal, based on an analysis that is the optimal level of business profitability, that goal itself is the budget. It means for every $8 in revenue you bring in, you can spend $1.
If you think about it, a ROAS target is actually a budget, but a flexible budget. If actual ROAS is below goals, we automatically cut back because there is less opportunity to get sales at the target level right now. And if actual ROAS starts to run high, we automatically increase spending to capture more sales at a price we’ve already decided is a good one.
Whether you set short-term fixed budgets that flex with seasonality or set ROAS targets and truly allow spending to fluctuate with opportunity in real time, you will achieve better results for your ad spend versus competitors who just stick with fixed budgets throughout the year. That said, flexible target ROAS budgets will outperform other options over time for most advertisers.
Finding Patterns of Opportunity: Accurate Models Need Data
The key challenge with trying to model how opportunity is going to shift over time is that many ad accounts are new and don’t have good historical data. Even if you have been advertising for years, you likely weren’t using the same strategies a couple of years back. Extrapolating seasonal opportunity is as much art as it is science. Trying to plan ahead for spending more some months and less others always involves a bit of guesswork. But when we have several years of data, we can be much more confident about what average seasonality looks like in the ad account opportunities.
This historical data issue is a key reason that using ROAS goals to control spending will tend to perform better than doing seasonality analysis and setting fixed budgets over shorter periods. Target ROAS bidding can adapt in real time to very short run changes in opportunity.
How Should YOU Set Ad Budgets?
Each of these three options of setting a Google Ads budget offer different result profiles for your consideration:
- Same Fixed Budget Every Month – When we use a fixed budget every month, the ROAS is going to fluctuate up and down with shifts in opportunity.
- Real-Time Flex Spending Based on ROAS Goals – When we flex spending up and down with flexible target ROAS goals and budgets to tightly match spending with shifts in opportunity, we will get more total revenue for a given level of spending.
- Pre-Planned Varied Monthly Budget Based on Data Models – If, because of company policies around budgeting, we truly do need to have a fixed annual budget, using the available data to manually set budgets higher and lower in different months will tend toward increasing the total returns for a given level of spending, although not quite as high as if we had a totally flexible ad budget based on ROAS targets.
However you choose to flex your ad budgets throughout the year, it will improve performance over fixed budgets. So work out which flexible budgeting strategy is the best choice for your business and start now.