What are the best formula to determine you much to spend on Google ads?
Hello Taborton, thank you for your question and welcome to the Shopify AMA, I’m your host, Emmanuel from FeedArmy.
That is very difficult to say, but the first step would be to check what you are comfortable paying for at least 1 or 2 months. For example $50 per day, knowing that if something fails, you can pay for $50*60.8.
If you know you can not pay $50 per day, then go lower. But not too low.
And it also depends on how many products you have. If you are going to be drop shipping thousands or even hundreds of products, $50 is not enough.
If you have just a couple of products $25 per day is even enough to start with.
Then scale as you see more sales and profits come in.
But here is kind of a formula you could follow:
Formula:
Budget = (Target Sales × Target ROAS) ÷ Average Conversion Rate
Then check if it’s profitable:
Profit = (Revenue × Gross Margin) − Ad Spend
Example:
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Target sales: $100,000
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Target ROAS: 400% (4× return)
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Conversion rate: 2%
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Gross margin: 40%
Budget = (100,000 ÷ 4) = $25,000
Profit = (100,000 × 0.4) − 25,000 = $15,000 net profit
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