There's no "right answer" to the question "what budget should I start with?" but here's what you need to know to make an educated decision.
Too High Can Be Bad
If you have a brand new ad account and/or a sales & marketing funnel that has not yet been thoroughly tested & honed, then exorbitant ad spend can put you at risk of overspending in areas that don't provide good results.
In the beginning, nothing has been tested just yet:
- The algorithm doesn't know which combinations of ad copy, users, search terms, placements, etc. will work best
- The ad management experts don't know which settings and campaigns and division of the budget will work best
- The business owner doesn't know which parts of the website or call-to-action or lead magnets or emails will work best
If your budget is "too high" then it might outpace the manpower that's needed for iterations (i.e. marketing experts to edit the website, edit the sales pitch to match the new, cold leads from paid ads, fine-tune the settings in the ad account or the CRM email follow-up, catching & negating an irrelevant keyword, etc). It also might outpace the rate at which the algorithm can gather conversion data points to learn from (meaning the user interactions for the sales cycle to complete & the algorithm to observe what worked). It's impossible to know at what point this phenomenon will happen or even if it's happening, but this section is here to explain why we recommend starting with a somewhat conservative budget if it's a brand new ad account.
However, if you've run some ads recently (less than 30-90 days ago depending on how long your sales cycle is) then the algorithm has some data to work with, and if your website and other marketing assets have been tested & perfected then you are many steps ahead and can afford to be less conservative with your starting budget.
Too Low Can Be Bad
When a campaign doesn’t have enough ad budget to show the ad enough, it can have a compounding negative effect on campaigns.
More money = more opportunity for the algorithm to bid at the right time, the right place, and make sure to get the "easy" sale that it's been following for a while.
Here's a rough example: let's say a user interacts with one of your ads, and the algorithm sees them do it again a few days later... If it's out of budget that day, it might not have the opportunity to bid on that user's second search. A competitor's campaign that still has budget might scoop up this lead that was already invested in & "warmed up" by your ad a few days ago.
Budget limitations can also be detrimental to your return on ad spend, because the amount that you're able to spend per click will affect how far up on the page you’ll be. Higher up on the page means higher conversin rates since those users tend to be more eager to buy.
Another issue with low budgets is simply the lenght of time it takes to get through the "learning phase." Less money means fewer conversions and fewer conversions means fewer data points with which to optimize from. So, if it takes many months to get the hang of things, the business can run out of income in the meantime.
Then there's another compounding affect there, which is that more time exposes you to more shifts in the market. If the algorithm is watching a pocket of the market and trying to hone in on what works and then the weather changes...well, it's going to make it even more difficult & slower for the algorithm to decipher what worked well & when & why because you have that "market shift" factor pulling the rug out from it during the learning.
This is why we recommend raising the budget slowly & consistently in the first few months in order to find that perfect starting budget. Many times we discover a threshold where the return on ad spend begins to suddenly improves after a small budget bump.
Every Industry Has A Different Range Of "Ideal Min. Budgets"
What's your average CPA (Cost Per Aquisition)? If you sell consumer goods and your AOV (Average Order Value) is $60, then your CPA might be $20, for example. Whereas if you sell services and your LCV (Lifetime Customer Value) is $5,000, then your CPA might be $400, for example.
In one industry the algorithm only has to spend about $20 to get it's first conversion data point and in another industry the algorithm has to spend about $400 to get it's first conversion data point.
So, if both of these example companies start with a budget of $1000/month then the consumer good company will get about 50 conversions in the first 30 days and the services company will get 2 conversions in the same time period.
With only 2 conversion data points per month (and maybe only 1 in the first few months since it hasn't undergone any learning period yet), it's going to take the algorithm a long time to optimize itself towards what works (meaning which users convert, which search terms, which placements, which ad copy combinations, etc.)
So if your CPA is large, you will need to deal with larger ad budgets, even in the beginning, just to get things going fast enough before the business runs out of income.
Can You Give Me A Ballpark?
If you have a brand new account & are working with low CPAs (like in the examples in the previous section), then we recommend choose a budget between $2000 - $5000 to start with depending on how patient you are to get through the learning/optimization phase & see results (lower budget means slower to learn/optimize but less money waste in the process and higher budget means quicker to learn/optimize but more money wasted in the process).
If you have a brand new account & are working with high CPAs (like in the examples in the previous section), then we recommend choose a budget between $5000 - $10000 to start with depending on how patient you are to get through the learning phase & see results (lower budget means slower to learn/optimize but less money waste in the process and higher budget means quicker to learn/optimize but more money wasted in the process).
If you have an account that has a good amount of recent conversion history, then we recommend starting with a budget that's the same (or a bit higher) than you were spending previously.
Whatever number you choose to begin with, we recommend raising the budget slowly & consistently in the first few months in order to find that perfect starting budget. Many times we discover a threshold where the return on ad spend suddenly improves after a small budget bump.