Are Google Ads Worth It for Small Businesses in 2023?
If you use Google regularly, chances are you’ve seen ads at the top of the search results page. The Google Ads platform is the leading pay-per-click (PPC) digital advertiser and the source of most of Google’s annual revenue. Millions of companies of all sizes use Google Ads to appear among the first search results when potential clients are looking for a solution their products and services can help to solve.
The idea of your business appearing when potential customers need you the most and Google’s supremacy as the #1 search engine globally has made Google Ads the preferred digital advertising platform for businesses since its launch in October 2000. In 2023 many small business owners may ask, “Is Google Ads worth it for small businesses?” The short answer is: it depends.
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Google Ads Is More Crowded Than Ever
The necessity of having an online presence to reach more people, and the fact that organic strategies like SEO are a long-term investment have inevitably pushed more businesses to Google Ads.
Google Ads operates under an auction model. Every time someone searches for something related to your business on Google, you enter into a competition with other advertisers with similar campaigns. The algorithm will determine in a matter of milliseconds who will appear in which place in the search results.
The auction happens multiple times daily, so it’s safe to say your ad won’t appear every time someone searches for information related to your niche on Google.
The problem is that the competition has become fierce in the last couple of years in all industries. Many seasoned advertisers have become confused because their former successful campaigns are not so successful anymore.
The truth is that the Google Ads space is more crowded than ever before, and businesses of all sizes spend a lot of money daily on the platform. That means the chance to appear in Google search results when your target audience looks for a company like yours has become more a matter of your bid rather than the quality of your ad.
The True Cost of Google Ads
Don’t get me wrong, the quality of the ad still matters, and it’s the first thing you should be looking at if your campaign isn’t meeting your expectations. However, since there are so many high-quality ads out there, the amount of money you’re willing to spend to win the auction has become more relevant than it was twenty years ago when Google ads were first available.
The cost of advertising on Google will vary greatly depending on many factors besides ad quality, such as the targeted region, the business industry, and the current trends. Let’s look at each one:
Ad Quality (a.k.a Quality Score)
Quality score is Google’s way of determining the ability of an ad to be the potential solution a user is looking for on the search engine. This score of 1 to 10 is calculated based on three aspects:
- The expected clickthrough rate (CTR:) is the likelihood of a user clicking on an ad when it’s shown;
- Ad relevance: how close an ad matches the intent of a search query. (Ex. If your ad is about a car wash and the user is looking for a mechanic shop, your ad doesn’t match the user’s intent; therefore, it won’t appear.)
- Landing page: This component of the quality score determines how helpful your landing page is after the user clicks on your ad. The landing page is the last gate that will make or break a conversion, which is why it is the most crucial part of the ad, in my experience.
Consider all three of these components as the gears of a clock: they should be all in sync to increase the chances of appearing in the search results.
The Targeted Region
The average cost per click varies depending on the region you’re targeting because the search queries people use to look for something on Google are slightly different. The amount of advertisers also varies per region; this is why you should expect to spend more if you’re targeting European or North American markets, where the average cost per click across industries ranges between $2 and $4 for search campaigns.
Your industry niche is the most relevant factor in determining the cost of a Google Ads campaign because CPC tends to align with the potential value per conversion. And the amount of profit you’ll get from a client brought by Google Ads will vary greatly depending on your business type. For example, the amount of money a real estate agent will get by selling a house thanks to advertising will be way more than in the case of businesses with lower ticket products, like an online clothing store. Hence, the willingness to pay more or less will vary depending on how much profit a sale via Google Ads would bring.
As shown in the chart above, legal services tend to have the highest CPC ($8 on average, but some advertisers have reported paying a CPC as high as $50.)
Seasonal trends and your business industry go hand in hand. If you sell swimwear, it’s safe to say your ads performance will be different in the summer and winter.
On the other hand, if you run a funeral home, you can expect a more consistent performance throughout the year.
Getting Leads and Conversions Has Gotten More Expensive
So far, we’ve talked about clicks, but getting your target audience to click on your ad is just one part of the equation. The cost of converting those clicks into leads also increased by 91% in almost all industries advertising on Google Ads in 2022, according to the Wordstream benchmark report. This trend has set the average cost per lead at $40.74.
In parallel to the cost per lead increase, Wordstream report also highlighted that conversion rates had fallen an average of -14% year-over-year across industries, with fashion and jewelry (-68%), arts and entertainment (-38%) and general shopping (-33%) showing the most significant drops.
Something to take into consideration when reading these data is the current economic situation and the impact of inflation on people’s purchasing power. When people have more money in their pockets, they’re willing to spend on more things that are not a necessity per se. For example, if you sell jewelry, you may see your Google Ads performance decline when the macroeconomic situation makes people think twice about buying anything that isn’t under the “basic needs” category.
Another factor that can help explain this scenario is that the cost of running a business has increased in most cases, especially in industries hardest hit by the supply chain crisis.
Beyond the Mainstream Data
The data I’ve shown begins to explain the cost of Google Ads, but it doesn’t give the full scope. For a more comprehensive view, you need to go where the actual small business owners and advertisers discuss their Google Ads journey: Reddit.
For example, we’ve covered the average costs per single click, but what does that look like in the real world? To find out, I took a look at what advertisers are saying on subreddits dedicated to discussing PPC advertising.
On this thread, a Redditor new to Google Ads asks if starting a campaign with a budget of $300 per month is okay. He spoke with an agency that told him his minimum budget should be above $800. These are some of the answers his question received:
They’re right. You can set any budget, but can you get results? With a budget that low, your chances are minimal. Answer number two stated that their company only accepts clients willing to spend $500 or above, and that amount was “pocket change” for many.
This can be disheartening for small businesses, as $500 isn’t usually just “pocket change.
We can extract more insights from comment number two because they said something crucial to setting a realistic budget: you must define the goal of your campaign, and you must also consider what you’re selling.
As we mentioned before, high-ticket products will require higher budgets to compete with other advertisers bidding high for their industry keywords because. It makes sense for sellers of high-ticket items to pay more to close a sale. Having a clear goal before setting up the campaign will help you determine if the budget is enough, and if you’re spending it wisely.
Let’s look at another thread. Here advertisers were discussing their “budget floor” to accept managing a campaign for a client.
So to recap, for these digital ad consultants, $500 per month is considered “too low,” $100 can get you “one half of a click” if you’re lucky, and some will “only work for clients willing to spend $30k a month.”
This thread covers the same topic:
These Redditors sound pretty harsh, and certainly this is opinion not data. However, this conversation underscores our point that Google Ads have become substantially more expensive over time, and PPC advertising requires trial and error. This requires businesses to spend money before seeing results.
Of course, these are extreme examples. No one expects a small business to spend $60K a month. However, this commentary does validate the perspective that it is becoming very difficult to guarantee results on a low budget.
Google knows small businesses are struggling to see value from its ad platform, so they’re creating new incentives.
The Credit Bait
Google offers credit to new advertisers ($600 if you’re in Canada) to lure them into testing the platform. But this is not free money; you must spend the same amount first. This is not bad necessarily, but as we’ve stated, $600 does not guarantee you results. Google knows this, that’s why they offer this credit. Remember, advertising is the most significant source of revenue for Google; they want as many advertisers as possible investing money in their platform.
Did you receive an email from Google granting you this credit? If you want to take it, go for it. But I recommend taking the free course Google offers to learn how Google Ads works. If you don’t have time to invest in learning, consider hiring someone to help you.
Should You Skip Google Ads?
This article may seem like I’m bashing on Google Ads, but that’s not true. I’ve worked with this platform since 2014, and I wanted to give a realistic perspective on the viability of Google Ads for small businesses in 2023. Google Ads is a powerful tool and the dominant PPC advertising platform for a good reason, and established small businesses that are ready to scale, have a realistic budget and goals, and are willing to go through the trial and error phase can get great results with it.
For those small businesses with little to no money to spare on marketing, there are still many marketing strategies that will help them bring in clients and are less dependent on budget.
However, there are some particular cases where small businesses with tight budgets can give Google Ads a shot. But that’s a topic I will cover in the next part of this PPC article series.