The 7-Minute Profitability Forecast

When I ask most business owners how much budget they have to invest into testing Google Ads, I can almost lip-sync as they say

“We have an unlimited budget if the ROI is there”’

Fair.

But, we can’t make champagne on a beer budget.

We need an initial investment to prove the concept.

How much?

By the end of this, you will know if Google Ads are worth it for your business.

You'll walk away with this nifty performance estimate that looks like this:

You’ll know what targets you need to hit so that either:

1) ads are profitable on first sale or;

2) you’re comfortable with the payback period.

Let’s go.

Are Google Ads Realllly Worth it For Small Businesses?

Google Ads are fantastic for most businesses.

They allow a business to capture demand while people are on their buying journey. 

It's like you're a gas station on a main highway and a bunch of people are running on empty. They know what they want, they know what they need - their only goal is to find a station before their car turns off.

But, paid search isn't a one-size-fits-all product.

Google Ads is the first channel I reach for any client where all these ‘golden rules’ are true:

1. Enough people are searching for what the business offers.

2. We have a large enough budget to generate enough clicks.

3. Customers can be bought profitably. This is where we say hello to the Google Ads Forecasted Profitability Template.

Follow along with my example of seeing if Google Ads is suitable for a Google Ads agency (very meta right?!)

Search Volumes

Google Ads (paid search in our instance) will only work if people are searching for what you are selling.

First things first - put together a list of 10-15 keywords you think your ideal customer would search to find you.

Don't think hard about it. Get in their shoes. What are they searching?

Note: the goal here is to get ballpark figures for us to work with - we don’t need in-depth or comprehensive research here. 

I’ve come up with the below keyword list:

• Google Ads agency

• Google Ads manager 

• PPC agency

• PPC manager

• Best Google Ads agency

• Google Ads agency United States

• Google Ads agency San Francisco

• Google Ads agency New York

• Google Ads agency Canada

• Google Ads agency Toronto

• Google Ads for SaaS

• Google Ads for Electricians

To find out if enough people are searching for your target keywords we can use a free tool searchvolume.ai.

We can see more than 1,000 searches per month for some of the broader target keywords.

Depending on your industry you will have different volumes - let’s take the sum of these avg. month searches which is ~21,000.

With that figure we can estimate the potential clicks we can get from our Google Ads campaigns.

With 80% impression share and a 5% clickthrough rate we can expect 840 clicks.

21,000 x 80% x 5% = 840

You can forecast your clicks with the formula:

Forecasted clicks = search volume x estimated impression share x expected click-through rate.

My recommendation is to plan for no less than 200 clicks to get a general feel for performance. 

This comes with about a million caveats. But, for simplicity's sake, let’s make sure you budget for at least 200 clicks.

If your forecasted clicks are more than 200 then we’re in lookin' good.

If not, brainstorm a little more for other keywords that people may be searching. When I'm struggling for ideas I use Keyword Sheeter. It gets the idea juices flowing with a lot of keyword ideas (plus it's free).

Budget predictions

Now let’s see what kind of budget we would need to get a campaign off the ground.

We first need to get an estimate of what your cost-per-click is likely to be so we can work backward from there.

To get accurate estimates for this we will use the Google Keyword Planner. To get this you will need to create your first Google Ads account.

This won’t cost anything, we are only setting this up so we can get access to the keyword planner.

Once you’re in go to the top right in the UI Tools & Settings > Keyword planner.

Then select ‘Get search volume and forecasts’ - from here put in the keyword list you used in step 1.

You should get a list of keywords with their recommended bids - both low-range and high-range.

The range will differ a lot depending on the competition in your vertical. What we want to do here is get an approximate average. Like when we were putting together the keyword list, let's get rough approximations.

Based on the results from Google Keyword Planner I’m going to use a $40 average cost-per-click.

To get started with Google Ads search campaigns you should at least plan to spend 200 clicks.

This isn’t a hard rule but it is enough click volume to be able to start to get some learnings on the search terms. You can also start to get an idea of the click-through rates and conversion rates of the campaign.

This means that for me to kick off with initial testing campaigns I should budget for $8,000. This doesn’t have to be in a single month - it can be over a 6 or 8-week period. Spreading this investment over 2+ months will mean that data and learning come in slower.

Forecasting results

We now have the data we need to input into the Forecasting Template (make a copy for yourself).

To get the return-on-investment (ROI) calculation at the bottom we need to populate the green boxes.

• The agency management fee: assuming you are going to use a Google Ads agency. Feel free to adjust to remove this based on if/what agency you’re going to use. 

• The starting budget that you plan to spend for campaign testing.

• Estimated CPC from step 2.

• Estimated conversion rate: you can pull this from Google Analytics. Keep in mind that paid search traffic (typically) converts at a higher rate than other channels due to the high intent of the traffic.

• Lead to intro package conversion rate - this is the rate at which you convert leads into paying customers. If you can pull data from your CRM on close leads that is the most accurate. Otherwise, ask yourself - 'for every 10 leads we get, how many turn into paying customers?

• Package price - the revenue you expect to make on average per paying customer. If you run on a subscription model you can either put the first month’s revenue or expected lifetime value. I use the first month’s revenue for a more conservative number and idea to have a better understanding of payback periods.

[Subtle advertising interruption] Congrats - you’ve made it this far. You're almost there. But I get it, for most people this is dead boring. Not for me. If you'd prefer me to do this process for you (for free) then book a call. With a few questions answered from you, I can create a forecast tailored for your business.

Once you have filled all the greenfields you should have an ROI output at the bottom - mine is 106%.

Now you need to assess this through the lens of your own business.

A 106% ROI on the first month’s revenue is terrible and unprofitable for some businesses.

My clients usually stay with me for 12+ months so I can forecast that ROI will be higher. I like to maintain a payback period of 1 month (2 for worst case scenario) to make sure margins remain healthy.

Like I said, every business is different - this is the part where you can decide if Google Ads are worth it.