You know it’s a good idea to leverage both free and paid traffic to build your business.

But exactly how much should you be spending on your ad campaigns?

Unfortunately, if there was an easy answer, you wouldn’t be reading this right now. You’ll need to examine several different factors to arrive at a number that makes sense for you.

The good news is you can customize your campaigns and choose exactly how much your daily spend will be. The bad news is you can’t just guess. Spending too little could mean not getting results when you should be. Spending too much could mean wasting resources that would be better allocated to SEO and content marketing.

Here’s how to answer the question, “How much should I be spending on Google AdWords?”

Establish a PPC Budget

Did you know that you can check keyword prices before you launch an AdWords campaign?

When you’ve worked out the cost per click, you can establish a realistic campaign budget. This can be done using tools like SpyFu or SEMrush.

Keyword prices are determined by the number of clicks it has been getting, which explains why the more popular the keyword is, the more expensive it tends to be.

Some of your chosen keywords might end up being quite expensive. But once you know how much each keyword costs, it’s easier to work out the costs of each lead you generate. There are ways to reduce the cost of your chosen keywords as well—we’ll be taking a closer look at testing and optimization later.

At this point, you should also establish traffic forecasts for your chosen keywords. This can be done with Google AdWords: Keyword Planner.

Following these steps will help you establish an estimate of costs, traffic and cost per lead.

Test and Optimize

When it comes to testing and optimization, the most common and biggest mistake is not testing at all.

Spending a lot on an ad might help you convert some prospects into paying customers. But not all your ideas will be winners, particularly if you’re just getting started. You’re in the market research phase, and you probably won’t see anything back on your investment at first. It takes time to figure out what works. In the long run, however, testing will enable you to find a sweet spot between budget and results, and then you’ll be able to scale what works.

This means you’ll need to budget for testing. How much time and money can you realistically allocate to testing before you need to generate results? This will factor heavily into your strategy.

With Google AdWords—which is a cost-per-click (CPC) service—you only pay when a user clicks your ad, but every keyword has a different cost associated with it, so you must budget differently depending on your targeting.

Use exploratory campaigns to learn search process

You’ll want to make a list of every keyword you’re interested in testing. Choose strategically—test terms you believe are most likely to get you results.

Return on investment (ROI) will vary greatly from one industry to another. After a few months of testing, you’ll have better insight into your best performing ads.

Improve quality score to reduce costs

Your quality score is affected by click-through rate (CTR), the relevance of keywords in their ad group, the relevance of your ad copy, the quality and relevance of your landing page, and your historical account performance.

When Google considers your ad more relevant, you’ll be rewarded with higher ad rankings as well as lower costs.

You can improve your quality score by tweaking many of the items already identified, such as ad text and landing pages. Doing your keyword research, segmenting your keywords into meaningful groups and removing irrelevant search terms can also help you optimize your quality score.

Eliminate non-converting clicks and focus spend on clicks that do convert.

This should be self-explanatory. After you’ve tested various keywords and copy with your campaigns, and you’ve monitored the results of each, you’ll want to focus your ad spend on the clicks that are leading to favorable results.

Putting It All Together

Based on the above information, you should be able to put together a testing strategy and budget. For instance, let’s say you’re looking to generate two sales every month in the next four months. If the cost of your keyword is $3, and you’re converting at 1 percent, you would need to spend $600 per month to get your two sales. You can then determine your ideal margin to decide if the cost of advertising would have been worthwhile.

In this way, you can form a hypothesis around what you need to spend to get the expected results, and create benchmarks for future campaigns. From there, budgeting is mostly a matter of looking at the CPC and how many clicks and conversions you’re interested in generating.

Review Your Marketing Strategy

Paid and free traffic are both valuable, and they each represent many different tactics and channels. If your business has been around for any length of time, there’s a good chance you’re already using many sources to attract your target audience.

As a result, it’s important to think about how AdWords fits into your overall strategy. How will it complement and enhance your existing efforts?

When a business is beginning to establish its online presence, it is likely to get better results from paid traffic compared with free traffic sources. It may take six to seven months for your content marketing efforts to start working, and it could even be longer depending on your niche, publishing schedule and how well you’re addressing the needs of your target market.

Ad Budget: Getting It Right

When you’re trying to determine how much to spend on ads, there is only one easy answer: as much as it takes to get the results you want.

There are general best practices associated with Google AdWords. But this doesn’t mean the same strategies work across every industry and every business. In advertising, anomalies crop up. Performance must be measured against business goals, and only in that context does it mean anything, so it’s essential you are clear on your objectives.