Budgeting

It is easy to lose a lot of money fast with AdWords, but there are tools in place to prevent the carnage. Even if you are spending only $5 a day, you should know about, use and understand how daily and monthly budgets work.

Daily and monthly budgets are set at the campaign level. You can change them by going into campaign settings, finding the budget fields, entering the changes and clicking "save". I usually leave the page and then go back in to make sure the save took -- probably an unnecessary step, but it is better to be safe than sorry.

Daily Budget

This setting lets you control how much you spend per day in the campaign. It is not an exact measurement -- the AdWords system has some flexibility built in to allow for the inevitable changes in traffic volume "weather". So your actual daily spend can be up to 20% more than your daily budget. If you do overspend on any day, though, the AdWords system will reduce your spend by the same amount you overspent at some time over the remainder of the month. If this balancing-out happens early in the month, you'll probably never notice it. If it happens in the last few days of the month, you might.

The exact formula AdWords uses for the daily budget is the value of your daily budget times however many days there are in the month in question. So if your daily budget is $100, and there are 31 days in the month, you'll spend $3100 (up to $3100). Assuming you spent exactly $100 all the prior days of the month, and then overspent on the 30th by 20%, then on the 31st AdWords would slow your ad serving so that you hit as close to $80 on the 31st as they could get you.

If you spend more than this formula, AdWords will credit your account for the overspend. Don't get too excited, though -- I've never seen an advertiser get credited for overspend in 5 years of managing PPC accounts.

Monthly Budget

The monthly budget is very similar to the daily budget, but instead of entering a budget mark per day, you enter it for the month. Then the AdWords system divides that monthly budget by 30.44 (the average number of days in each month) and you've got the old familiar daily budget again. The AdWords system will try to stick to this daily figure, but if you've only entered a monthly budget, the system will now allow much more fluctuation in the daily spend than would have been allowed with setting only a daily budget. So if your traffic tends to spike up and down, the monthly budget option is for you.

One caveat about the monthly budget -- if you reduce it, you may see a significant drop in your adspend over the rest of the month. For example, if your monthly budget was $3100, and you dropped it to $2000 on the 16th of the month, for the rest of the month you would get only $30 a day in clicks. Why? Because as of the end of the 15th, you'd spent $1550. When you change your monthly budget to $2000, you have only $450 left in budget for the month, so for the remaining 15 days your daily spend is curtailed to $30 a day. To avoid this, change your monthly budget on the first day of the month.

Advanced Trick

If your AdWords account is profitable and you're looking for ways to put more money into your cash machine -- ie, get more clicks -- try increasing your budgets by 50% to 200%. This will take off the safety measure, so you will need to know that your spending is safe because your keyword bids are correct, but opening up the budget will let the AdWords algorithm show your ads more freely. Its an easy fix to seriously increase impressions, but it may take a few days for the AdWords system to really start ramping up your impressions.