How does Google Ads pricing work?

Too often, businesses watch their monthly Google Ads budget get drained in a few days, making them think this platform is super expensive. But that’s not always the problem. In reality, it’s more likely down to a misunderstanding of how Google Ads budgeting works.

Let’s clear things up. Here are the key terms you should know:

Daily budget: This serves as a soft guide as opposed to a strict cap on spending. Essentially, it tells Google Ads how much you’re able to spend on average per day.

Ad bid: This is the maximum amount you’re prepared to pay per click on each ad. You can set bids for different ad groups and keywords. Google Ads considers this bid along with other factors, like Quality Score (more on this below), to decide on ad placement.

Ad spend: This is the amount taken from your budget whenever your ad competes in an auction. On high-traffic days when your ad is performing well, Google might spend up to twice your average daily budget. On slower days, spending could be less.

Ad cost: This is the actual price of a click on your ad. In other words, it’s the total amount you’ll be billed. While spending varies each day, you’ll never be charged over double your daily budget.

Read on to learn more about budgeting, spending and bidding.

Budgets

Monthly budget

This isn’t something you set in Google Ads, but it’s important to understand how it ties into your daily budget. Your monthly budget is the amount you’re able to pay to run ads in one month. Importantly, this budget won’t necessarily be spent evenly throughout the month.

For instance, say you set a monthly budget of $1,000 for an ad campaign running from the 1st to the 30th of September. You might pay $30 on September 1st, $70 on September 2nd, $5 on September 3rd and so on, until you’ve spent $1,000 all up.

So, how do you calculate your monthly budget?

It all comes down to:

• Your total Google Ads budget
• The average cost per click of target keywords
• Specific campaign priorities

Daily budget

When you set up a campaign in Google Ads, you’ll need to specify a daily budget. While there’s a shared budget feature, we recommend assigning a different budget to each campaign if you’re just starting out.

To work out your average daily budget for a given campaign, divide its monthly budget by 30.4.

Importantly, the daily budget is just a general guide for Google, so it won’t necessarily spend that exact amount each day.

Instead, you’re providing a rough estimate of what you’d like your daily spend to average over the month. This means the actual daily spend can be higher or lower, depending on when your ads are expected to perform stronger. On days with greater search traffic or engagement potential, Google might spend more to capitalise on the opportunities. On other days, it’ll spend less.

In short, Google strives to maximise your ROI by directing the budget where it’ll have the biggest pay-off.

Spending limits

Google Ads has two spending limits to set. These are firm maximums. You won’t ever have to pay more per day than your daily spending limit or more per month than your monthly spending limit.

Daily spending limit

Typically set at double your average daily budget, the daily spending limit is the highest amount Google Ads can charge you for a campaign in a single day. This limit accounts for variability in web traffic and ad performance for an optimal outcome.

To achieve more clicks and conversions, Google can exceed your average daily budget by up to 100%. For example, if your average daily budget is $30, then your daily spending limit will be $60.

Monthly spending limit

Your monthly spending limit is the maximum price Google Ads can charge you for a campaign each month. It’s calculated by multiplying your average daily budget by the average number of days (Google uses 30.4) in a month, making it approximately equal to your average monthly budget.

Generally, Google won’t exceed this amount by more than a few per cent.

Bids

You can set ad bids manually or automatically. If you go for manual bidding, you’ll be able to define a maximum CPC for each ad group, plus different bids for every keyword within it.

Meanwhile, automated bidding is all about achieving certain goals, like maximising clicks, reaching a specific impression share or hitting a target Return On Ad Spend (tROAS).

Google Ads will set bids based on an ad’s likelihood of successfully achieving your specified objective. These smart bidding strategies learn from data, leveraging a past bid’s performance to optimise future bids.

How much are Google Ads on average?

In our experience, the average cost per click (CPC) for Google Ads (Search) tends to range from AU$2 to AU$4. Ads on the Google Display Network are generally cheaper, often costing under AU$2 per click.

It’s important to note that these averages are for all sites and your specific industry may vary significantly. Lawyers, for example, often pay upwards of $12 per click in even highly optimised campaigns.

Reports show that Google Ads cost about $100 to $10,000 per month in 2024, with 61% of advertisers paying $0.11 – $0.50 per click on average.

That said, these figures are rough averages, and your actual Google Advertising costs will vary depending on numerous factors, like your industry and target keywords.

Keep reading to learn more.

Factors that affect Google Ads costs

Lots of businesses think you need to throw a ton of money at Google Ads to get great results, but that’s just not true. Sure, a big budget can help, but you don’t need it to run killer campaigns.

From tiny startups to huge retailers, anyone can advertise on this platform and see winning returns.

So, there’s no one-size-fits-all answer to how much Google Ads cost. It all comes down to your sector, market trends, campaign optimisation and more.

Let’s deep dive into each factor affecting Google advertising costs:

Industry

The cost of your ads depends a lot on your business type and industry. In general, the more competitive your field, the higher the ad costs. But even in low-competition areas, costs can still be steep.

Take business services, for example. Statista says it’s one of the most competitive sectors on Google Ads. Why? Because landing a new client can bring in $1,000 to $10,000, so a $10 CPC is worth it.

Industries with the highest CPCs on Google Ads include:

• Insurance
• Marketing & Advertising
• Auto DealershipsLegal Services
• Dental Services
• Cryptocurrency

If you’re in one of these fields, ad costs won’t be cheap, but you can still manage your budget. Set a target CPA that matches what you’re willing to pay for a lead and stick to a daily max budget.

In less competitive industries, you’ll likely pay less per click. For example, arts and entertainment businesses have lower CPCs but need to reach more customers to hit that $1,000-$10,000 mark.

Customer life cycle

How long it takes for your customers to make a purchase can impact your Google advertising costs.

So, take time to think about how they end up buying your product or signing up for your service. What does the customer journey look like from start to finish?

For some businesses, it’s all about those quick decisions—like when someone needs a plumber ASAP. If your customer lifecycle is short, people need your service urgently and might buy after seeing your ad just once or twice.

But if it takes a while to win over a customer, you’ve got a longer life cycle. They need more time and info before they’re ready to buy, meaning you have to reach them multiple times. This drives up competition and ad costs.

In longer cycles, it can take 5 to 7+ touch points before a customer is ready to convert. Allowing additional budget for remarketing campaigns on the search and display network can help maximise the impact of those initial campaigns.

Market demand

Demand for your offerings affects how much you’ll spend on Google Ads. So, keep track of what’s happening in your specific industry.

Global events, consumer trends, and even seasonal shifts can all affect demand, which then influences keyword competition and CPC.

For example, if a new product or service is blowing up, people will be searching for it online. This might make your industry more competitive, but it also means you can target popular keywords with chunky search volumes and ultimately get more clicks and conversions from your ads.

The more customers you convert from your ads, the lower your cost per conversion will be, making your Google Ads more affordable overall.

This can be counterintuitive as well. Seeing a demand slump in your sector? Don’t be surprised if your competitors turn up their budgets to help win the limited prospects available.

Ad type

Google advertising costs are also influenced by the ad types and formats you choose.

Some ads, like Search and Display ads, tend to demand higher bids because they’re generally more competitive and engaging. For an even more granular example, responsive Search ads often cost less than standard text ads.

Video ads on YouTube can be particularly expensive especially if you don’t get them “right” with high-quality content suitable to the audience you’re targeting and well-managed placements like specific channels or topics.

Learn more about the different types of Google Ads.

Keywords

Google Ads pricing is all about the intent and competition levels of the keywords you bid on.

The thinking here is pretty straightforward:

If you’re going after a popular keyword with high search volume, expect to pay more per click.

If you’re targeting a less popular keyword with a lower search volume, you’ll probably pay less.

Search intent impacts costs, too.

Keywords with navigational intent (like ‘Woolworths near me’) or commercial intent (for example, ‘hire divorce lawyer’) often lead to quicker conversions, making them more attractive, competitive and expensive.

Meanwhile, long-tail keywords with informational intent (like ‘What is digital marketing?’) usually signal someone researching a topic higher in the sales funnel, so they tend to be cheaper.

Dayparting

Dayparting, also known as ad scheduling, lets you decide when your ads will appear to potential customers. Even though your ads still need to go through an ad auction, you can tell Google the specific times you want them displayed.

This is particularly handy for local businesses aiming to attract customers to a physical location.

For example, if you own a coffee shop that closes at 3pm, you might not want your ads after this time. Alternatively, you could run your ads all day but allocate more of your budget to peak hours when you want more visibility.

Geotargeting

Just like you can adjust your Google Ads budget for different times of day, you can allocate more spending towards specific locations. This is called geo-targeting.

Perfect for tapping into nearby consumers, geo-targeting makes your ads show up for people in certain areas – whether the whole country, a specific state or your suburb.

That means no wasted spend on users in places that are too far away from your offering.

However, some areas tend to be more expensive to run ads in than others, depending on how competitive the local market is.

Device targeting

Desktop browsing is fast becoming a thing of the past. Now, people search online via their mobile phones or across multiple devices at the same time. That’s why knowing where your best leads come from is crucial, and device targeting is key.

More users on a device typically translates to a lower CPC, as a bigger audience means less competition. In 2023, mobile devices made up 53.66% of global website traffic, while desktops only accounted for 46.34%. As there are fewer users, targeting desktop users might hike up your CPC.

Campaign optimisation

As with any marketing activity, understanding what you’re doing will get you stronger results.

Google Ads might be easy to get off the ground, but if your campaign isn’t optimised, you’ll blow through your budget fast. You can’t just set it and forget it.

To keep your Google advertising costs low, you’ll need to:

• Structure your Google Ads account correctly.
• Track performance and make data-driven tweaks regularly.
• Update your keyword lists.
• Run frequent account audits.

You should also let Google test different headlines, descriptions, and creatives to find the best-converting combos. That way, you can run top-performing ads to boost conversions and cut costs. Testing also shows which phrases and visuals your audience loves, helping to inform future campaigns.

The key takeaway here?

If you’re a Google Ads beginner or don’t have the time to learn the ropes, it pays to invest in professional Google Ads management services.

Ad management fees

Management fees are what you pay a professional to run your Google Ads if you can’t or don’t want to do it yourself.

These fees usually cover:

• Keyword research
• Campaign setup
• Ad optimisation
• Performance reporting

Wondering about the cost? It varies, with agencies either:

• Charging a flat retainer fee.
• Taking a percentage of your ad spend.
• Using a mix of both.

Why spend more on top of your ad budget? Partnering with a skilled digital team can boost your campaign performance and overall ROI, making you more money in the long run.

Here’s how:

• Reliable expertise: We know Google Ads inside and out, helping you set up successful campaigns from the outset and avoid costly mistakes.
• More time for your team: We’ll take care of all the nitty gritty details, freeing you up to focus on your core business.
• The latest tools and tactics: We’ll keep your Google Ads strategy up-to-date, leveraging the latest best practices and technology to deliver the best outcome for your business.
• Clear analytics: We dive deep into campaign data, taking advantage of professional insights to improve your marketing and maximise results.

How does Google Ads calculate Cost Per Click?

The beauty of Google Ads is that frontrunners aren’t selected based solely on bids. Plus, you won’t always pay your maximum bid.

Instead, a wealth of factors are considered when determining ad placement and calculating its cost. This fair system allows small local businesses to compete with major global brands – without blowing the budget.

Here’s how Google picks its winners, and what they pay for each click.

Quality Score

Quality Score is Google’s way of figuring out how relevant and useful your ad is to people searching with your target keywords.

When you search a particular query, Google checks if any advertisers are bidding on related keywords. If they are, an auction kicks off, and Google assigns a Quality Score to each ad to determine its placement.

Ranging from 1-10, a Quality Score is based on three key factors:

• Expected Click-Through Rate (CTR): how likely your ad is to get clicked on.
• Ad relevance: how well your ad copy and creative aligns with the user’s search intent.
• Landing page experience: how useful and relevant your landing page is for people who click on your ad.

The resulting Quality Score determines your cost per click (CPC). Higher scores mean lower costs to run your ad and vice versa. This is because high-quality ads gain better rankings, and in turn more clicks and conversions. Ultimately that means a lower max CPC.

So, boosting your Quality Score is key to cutting Google advertising costs.

Here’s how to do it:

• Align your keywords with your target audience’s intent
• Tweak your ad copy to include target keywords
• Make sure your landing page content is relevant and engaging
• Optimise keywords to boost your CTR

Maximum bid

As mentioned above, a maximum bid is the most you’re willing to pay for a click on your ad. It’s a key player in the ad auction, impacting how often your ad shows up and where it lands on the Search Engine Results Page (SERP).

Raising your max CPC bid can boost your ad’s visibility, but it may also jack up your Google advertising costs. The trick is to balance your bid with the ROI you expect from each click.

Ad rank

Ad rank refers to if and where your ad shows up in the paid search results.

Ad rank thresholds are the minimum criteria your ad needs to meet to land a given position on the SERP. That way, searchers only see the highest quality and most relevant ads.

Here’s the formula Google uses to determine ad rank:

Ad rank = Quality Score x maximum bid

For example, if your maximum bid for a specific keyword is $6 and your ad’s Quality Score is 7, then your ad rank will be 42.

Google compares these ranks to decide which ads will appear. Only those with the top ad ranks make the cut.

It’s simple. If you want a higher position than a competitor, you’ll need a better ad rank. And if your ad doesn’t meet the ranking threshold, it won’t show up at all.

Cost Per Click

If your ad is displayed, you’ll only pay when someone clicks it.

But that won’t always cost as much as your maximum ad bid.

Google Ads uses this formula to figure out the cost-per-click:

Ad rank of the competitor below you ÷ your quality score x $0.01.

This means you could end up paying way less than others for the same keyword if your Quality Score is superior. That’s how SMEs with tight budgets can go head-to-head with major industry players on Google.

How can I drive down my Google advertising Cost Per Click?

Looking to cut your Google Ads costs or stretch a tight budget? Lowering your cost-per-click (CPC) is the way to go. Here are four tips to help make it happen.

1. Reduce your bids

This one’s simple. If your ads are attracting significant traffic already, consider testing a lower bid price for specific keywords. Just make sure to monitor performance very carefully thereafter.

2. Focus on less competitive keywords

Another way to curb Google Ads costs is to bid for less competitive keywords.

As discussed above, long-tail keywords are often cheaper than broad terms. Investing heavily in broad keywords can yield poor results if you don’t know what you’re doing, so it’s better to understand your customer’s search intent and narrow down keywords accordingly.

Regularly reviewing keyword match types and search terms can help you identify relevant, less competitive keywords. Use tools like SEMRush or Ahrefs for keyword research, and Google’s Keyword Planner to check average cost-per-click and search volume for better bidding decisions.

3. Boost your quality score

The higher your Quality Score, the lower your CPC.

Want to boost it? Here’s how:

• Make your ads super relevant. Selling tennis rackets? Write an ad that hits the mark with sports enthusiasts. Advertising legal support? Speak directly to a potential client’s concerns.
• Use your targeted keyword in the ad copy so that Google knows it’s relevant and ups your Quality Score.
• Match your landing page content to your ad. The better this page reflects the ad’s offering, the higher your Quality Score.
• Filter out the wrong audience with negative keywords. For example, add ‘cheap’ as a negative keyword if you want to weed out bargain hunters.

4. Take advantage of targeting tools

Focusing ads on your ideal market is key to lowering Google advertising costs.

Because you probably don’t need to target all ages, genders, or locations.

Identify who you want to engage and adjust your settings to match, reducing irrelevant impressions and clicks from unlikely converters.

You can also exclude people who’ve already taken action. For instance, if someone has bought your product, don’t show them ads for it again.

This approach helps to ensure your Google Ads budget is directed at those most likely to convert, in turn giving you the most bang for your buck.

 5. Experiment with different ad types

As we mentioned earlier, ads vary in price depending on their type and format. So, choose the most cost-effective kinds for your offerings and campaign goals.

Plus, adding ad extensions like review stars or phone numbers can make your ads more relevant and, at the end of the day, cheaper to run.

6. Don’t forget about devices

As the type of device that people are searching and shopping on will affect Google advertising costs, you might want to divvy up your bids by desktop, mobile and tablet.

Before setting your device targeting in Google Ads, check out your audience’s device usage patterns on your website. This way, you can direct your budget towards reaching your audience on the devices they actually use.

Ramp up your Google Ads ROI with Redback

While all kinds of factors affect Google advertising costs, these campaigns can still be successful with budgets big and small!

But Google Ads isn’t a set-and-forget medium. You’ll need to plan ahead, spend wisely and optimise each ad regularly if you want to see a strong ROAS.

We’re here to help.

At Redback, we’re passionate about all things PPC. Our Google Ads specialists know how to boost Quality Score, target the right audiences, and use the most cost-effective ad types for your business.

Together, we’ll hit your campaign goals without cookie-cutter strategies, irrelevant keywords, or budget blowouts.

Need comprehensive support for your Google Ads campaign? Call us at (02) 4962 2236 or get in touch online.