How do I determine my ad spend budget?

Brand New Campaigns Should Be Free to Spend - When launching a new campaign, we often set the budget extra high so there is no risk for a limitation in reach in the first few days when the matching algorithms start their learning process. Overspending in the first few days can be compensated down the road. What To Do About The Ever-So-Present “Limited By Budget” Message - When Google gives this message in the status column, you might choose to act upon it or wait. This decision depends on the timing and the ROAS of both the campaign and the overall account.

Why It Matters - When a campaign doesn’t have enough ad budget to show the ad enough, it can have a compounding negative effect on campaigns. For example, when someone first clicks on your ad but doesn’t convert, the campaign might not have enough budget remaining to show the ad to them the next time they search, which is often the time that they’re ready to buy. Limited by budget can also be detrimental to your conversions per cost ratio, because how much you are able to spend per click affects how far up on the page you’ll be. For example, a smart shopping ad might be hidden by the “view more” button, or the search ad is showing at the very bottom under all the organic results. So, raising the budget slightly can often act as a catalyst for raising ROAS.

Increasing the budget almost always has a compounding effect on the ad performance: As the ad begins to appear more frequently, it "snowballs" into a handful of other phenomena, like leads viewing the ad more than once, the machine algorithms honing in on the number of impressions needed before a conversion, etc. So expect the cost per lead to decrease after adding more budget."

When To Act - While limited by budget can be harmful, raising the budget can also be harmful if it doesn’t manage to raise the ROAS; This is because a campaign that doesn’t have a proven ROAS is essentially losing money with every dollar that it spends and so, in that case, more budget will just mean more money lost.

If the ROAS is already proven and you can see an accelerated conversion rate in Google’s recommendation (click on the “limited by budget” error message), then this is a no brainer: more budget means more profit.

If the ROAS isn’t proven, you may want to see if an increased budget can help it get there by removing the compounding negative effects that a limited by budget campaign is struggling with. You can still consider increasing the budget as long as the account’s overall ROAS across all campaigns is proven. Optimize everything else first, because throwing more money at a problem as an experiment to see if it will make the problem go away is a risk, so it’s best to get the account to a good place first to avoid jeopardizing the whole account too much.