"How much should I put into Google Ads?" is one of the first questions business owners ask me, and the most common answer they've already heard is "start with a few hundred dollars and see what happens." That is how a lot of people end up spending $500, getting eleven clicks and two spam calls, and deciding Google Ads doesn't work for them.
A better way is to start from the other end. Decide how many customers you want, work out what each one is worth, and calculate the budget those numbers require. If the answer is more than you can afford, you find that out on paper instead of in your bank statement.
Know what clicks and leads cost in 2026
Search ads keep getting more expensive. WordStream's latest benchmark report, covering more than 16,000 campaigns and summarized by Search Engine Land, puts the average cost per click at $5.42 in 2025, up from $4.66 the year before. Prices went up in 87% of industries. The average cost per lead was $70.11.
The averages hide big differences. The same report has attorneys and legal services at $8.58 a click, finance, insurance and home improvement in the $7-plus range, and some local service categories under $3. Conversion rates swing just as much: local, urgent services like auto repair and home services convert at 12% to 14%, while legal, B2B and high-ticket categories sit around 3% to 5%.
The good news in the data is that conversion rates improved, with an average of 8.18%. So the cost of a click went up, but more of those clicks turned into enquiries.
Use these numbers only to get started. Your real costs depend on your city, your competitors and how well your landing page converts. Google's free Keyword Planner shows estimated bids for your own keywords and location, and that's worth ten minutes before you set any budget.
The four numbers you need
You only need four inputs to set a sensible budget:
- Cost per click (CPC): from Keyword Planner or the industry ranges above.
- Conversion rate: the share of clicks that call, book or fill in a form. If you have no history, assume something conservative, like 5% for a high-ticket service or 8% to 10% for an urgent local one.
- Close rate: the share of leads that become paying customers. Your sales records or a quick look at last month's enquiries will tell you this.
- Gross profit per customer: what you keep from a typical first sale after direct costs. If customers come back, also note what they're worth over a year.
The maths is short:
- Cost per lead = CPC ÷ conversion rate
- Cost per customer = cost per lead ÷ close rate
- Monthly budget = customers you want × cost per customer
If the cost per customer is lower than the gross profit per customer, ads can pay for themselves. If it's higher, you either need to raise the conversion rate, raise the close rate, or decide that Google Ads isn't the right channel right now.
A worked example (hypothetical numbers)
Here's a made-up local plumbing company, to show how the numbers fit together. It isn't a client and the figures are illustrative.
- Cost per click: $6
- Conversion rate: 10% (people searching for a plumber usually want one today)
- Close rate: 30% of leads become booked jobs
- Average gross profit per job: $300
That gives a cost per lead of $60 and a cost per customer of $200. Each job leaves $100 after paying for the ad, before counting repeat work. If the owner wants 20 extra jobs a month, they need about 67 leads, which is roughly $4,000 a month in ad spend.
Now suppose the owner can only afford $1,500. At $6 a click that's about 250 clicks, around 25 leads and seven or eight jobs. That's a smaller result, but still enough data to judge whether the campaign works. If they could only afford $300, they'd get about five leads a month, which is not enough to learn anything, and a week of bad luck would make the whole channel look broken.
The same arithmetic tells you where to put effort. If this plumber's website converted at 5% instead of 10%, every job would cost $400 and the campaign would lose money. Fixing the landing page would matter more than any bid strategy.
Budget by stage
| Stage | Goal | How to size the budget |
|---|---|---|
| Test (months 1-3) | Find out if the numbers work at all | Enough for at least 10-20 leads a month at your estimated cost per lead |
| Steady (months 4+) | Fill the calendar profitably | Customers you can handle × real cost per customer from the test |
| Scale | Grow without wrecking efficiency | Raise budget 15-20% at a time and watch cost per customer for two weeks |
| Seasonal peaks | Catch demand when it spikes | Increase ahead of your busy season, pull back when enquiries drop off |
If your test budget can't reach 10 leads a month, narrow the campaign rather than spreading it thin. Advertise one service in one area, during the hours you can answer the phone. A small budget concentrated on your most profitable job will teach you far more than the same money split across six services.
How Google actually spends your budget
This catches out nearly every first-time advertiser. The figure you enter in Google Ads is an average daily budget, not a daily limit. According to Google's own help page on overdelivery, a campaign can spend up to twice its average daily budget on a busy day, but over a month you won't be charged more than 30.4 times that daily amount.
So set it from the monthly figure. For a $1,500 monthly budget, enter about $49 a day. Don't panic when one Tuesday shows $90; check the month as a whole.
Where small budgets get wasted
Most of the money I see lost in small accounts goes to the same few mistakes:
- No conversion tracking. The same Search Engine Land piece mentions a separate WordStream analysis of more than 15,000 accounts in which nearly 29% recorded zero conversions over 90 days. Some of those campaigns probably worked, but nobody could tell. Track calls from ads, calls from the website, form submissions and bookings before you spend a dollar.
- Broad keywords with no negatives. "Plumber" can match "plumber jobs", "plumber salary" and "how to become a plumber". Check the search terms report weekly for the first month and add anything irrelevant as a negative keyword.
- Sending clicks to the homepage. Someone searching for "emergency boiler repair" should land on a page about emergency boiler repair, with a phone number and a short form at the top. A generic homepage makes them hunt.
- Missed calls. Paying $60 for a lead and then sending it to voicemail is the most expensive mistake of all. Run ads only during hours you can answer, or have a plan for after-hours calls. We compared the options in AI receptionist vs answering service.
- Leaving the default settings on. New Search campaigns often include the Display Network and broad location options. Turn off Display for a search campaign and target people in your area, not people "interested in" it.
- Judging too early. Two weeks and four leads is not a verdict. Decide in advance how many leads you'll collect before deciding.
Checklist before you set a budget
- ☐ You know your average gross profit per customer and your close rate
- ☐ You've checked estimated CPCs for your main keywords in your area
- ☐ You've calculated cost per lead and cost per customer, and they make sense
- ☐ Conversion tracking is set up for calls, forms and bookings, and you've tested it
- ☐ Each ad group points to a page about that specific service
- ☐ That page loads quickly on a phone and shows a call button and form near the top
- ☐ You've added obvious negative keywords (jobs, salary, free, DIY, training)
- ☐ Display Network is off for search campaigns and location targeting is set to presence
- ☐ Someone will answer calls during the hours the ads run
- ☐ You've written down the date and the number of leads at which you'll review results
When to put money elsewhere first
Sometimes the honest answer to "how much should I spend on Google Ads?" is "not yet." If the maths shows a cost per customer higher than the profit from a sale, and you have no repeat business to make up the gap, ads will lose money until something else changes.
In that case the website is usually the place to start. A clearer service page, faster mobile load and a shorter form can lift your conversion rate, and every point it rises lowers your cost per customer. That improvement also helps every other channel, from organic search to people checking you out after a referral. If you'd like a sense of what that involves, our website development work focuses on exactly these pages. For an online store, the equivalent leak is the checkout: our abandoned cart email sequence guide starts with the checkout problems to fix before any email goes out. Building organic search visibility is slower but keeps working when you pause ad spend.
This matters most where one new client is worth a lot. For small law firms, real estate agencies and home service businesses such as HVAC, plumbing and roofing, a website that turns a few more visitors into enquiries often does more for the ad budget than any change inside Google Ads.
And if the maths does work, ads are one of the few channels where you can turn up demand almost on the same day. That's the reason it's worth getting the numbers right first.
Where to start this week
Write down your four numbers, run the three calculations, and decide what a test budget needs to be to collect 10 to 20 leads a month. Then set up tracking before anything else. If you already run ads, pull last month's spend, leads and closed customers and see what each customer really cost you.
If you'd like help checking your numbers or reviewing an existing account, we run Google Ads management for small businesses in the US, UK, Canada and Australia. You're welcome to book a free 15-minute call and we'll go through your figures with you.