Balancing Keywords & Budget

We're so used to thinking about Keywords in terms of their CPC, CPM, CPA or whatever that it's very easy to forget their impact on overall Account budget.  Keywords and budget are intimately and, so long as your Keywords are effective, you can't change one without impacting the other.  It's easiest to understand this with a very simple situation.

Imagine you have an Account with one Campaign, one Ad Group and one Keyword.  In our mythical world, there are always exactly 1000 searches that could match against this Keyword, and your Ad always produces a CTR of 10%.  Each click always costs $1 so your daily budget of $100 always gives you 100 clicks.  Now imagine if you introduce another Keyword with the same performance figures, but the daily budget remains the same.  You now have two Keywords which, between them, could potentially match against 2000 searches and accrue 200 clicks at a cost of $200, but your daily budget is only $100 so Google has to compromise and show an Ad for each Keyword match only about 50% of the time when it could.

This probably sounds very obvious, doesn't it?  But why then do we so often see the following situations being presented to us?

1. An AdWords user has added a number of new Keywords - sometimes an entirely new Ad Group - to a Campaign without changing the budget, and is asking why they're now getting fewer clicks and/ or sales from their existing Groups that are "unchanged".
2. An AdWords user has over 10,000 Keywords in their Account and runs a test of AdWords performance with a budget of just $10 a day.

The real world isn't, of course, anywhere near as simplistic as the model I used in the example above, but if anything the added complexity of varying CPCs, automated optimisations, multiple Ad Variations, etc. only make it more likely that adding Keywords without changing budget will affect overall performance.

#1 above is a particularly interesting example as it could well be the cause of what might otherwise seem to be an inexplicable loss of performance.  Let's say you were running an Account with 5 Ad Groups and 100 Keywords in total.  The Account makes a reasonable Net profit from AdWords so you decide to add another 3 Ad Groups and 60 Keywords or so, and increase the budget a little.  This sounds very reasonable, but if you've not increased the budget enough you could well be taking clicks away from the other established Groups and limiting their effectiveness.  We've seen more than one post in the AdWords Community where users have seen a drop in performance with "no apparent reason".  The danger here is of course particularly high where newly introduced Keywords have a high search volume compared to existing ones, but don't convert particularly (or at least as) well.

#2 is quite fun when you see someone proposing a new Account structure that uses millions of Keywords and you kindly and carefully point out that a valid test of such an Account would probably require a minimum of a six-figure daily budget.  Maybe even $1 for every Keyword, perhaps much much more.   Per day.

#2 is less fun when you try to explain that having a lot of Keywords and a low budget is actually harmful to the Keywords that could work at that budget.  Ask yourself right now how many Keywords you have in your Account that are just "using up" valuable daily budget when you have others that could use it to convert into sales.

So what should you do to add new Keywords?

There's no magic solution, unfortunately:  Being aware that you'll probably need to adjust your budget is half the battle won, the other half is mostly a matter of sensible judgement, use of the Traffic Estimator and Keyword Tool (soon to be married as the "Keyword Planner") and, as always, making sure you monitor performance closely after any changes.

So, if you've added a bunch of Keywords recently and have been scratching your head trying to work out why that meant your sales went down, take a look at your budget...