UPDATED The AdWords 2x budget change: Considering the potential impact
There were still many questions about the impact of this sudden change. Here's a look at several scenarios and changes advertisers might need to consider.
Update 10/11/17: We have heard back from Google on several outstanding questions and clarifications and updated this story to reflect that and what it lays out in a new FAQ about the change.
Following last week’s sudden announcement that Google AdWords campaigns may now spend as much as twice the daily budget that advertisers set for their campaigns, many advertisers now find themselves heading into the fourth quarter with some unanswered questions about the implications of this new structure.
The change went into effect on October 4, the same day Google announced it. The impact the change will have on campaign spend depends on several factors. Many advertisers say they or their clients won’t be affected much at all, while others say they will need to make budget-setting changes. Piecing out these scenarios has raised questions we still don’t have clear answers to
First, let’s recap the fundamentals that we do know about this change:
- It’s aimed at accounting for daily fluctuations in traffic throughout the month: “If your ads don’t show up much because of low traffic, then we’ll make up for that by showing them more when traffic’s higher.”
- Previously, Google’s overspend threshold was 20 percent above the daily budget.
- For campaigns that run continuously throughout the month with no daily budget changes, advertisers will not be charged more than the “monthly budget limit” (daily budget x 30.4 days). If the campaign does exceed the monthly budget limit, advertisers will be credited for “overderlivery” charges at the end of the month.
- For campaigns that do not run an entire month, advertisers will be responsible for paying any “overdelivery” charges, up to 2x the daily budget. That’s because the “monthly budget limit” does not apply in this case. Update: Google says this is highly unlikely to actually happen.
- Campaigns that run all month but with budget changes will have the “monthly budget limit” reset to the new daily budget for the remaining days, as it always has.
- Note, in addition to changing the daily budget, there are three other changes that will trigger the monthly budget limit to reset: changing the campaign end date; changing the ad delivery mode; or choosing a different time zone for an AdWords account.
- There is no way to opt out.
Now, let’s look at some common campaign scenarios and what advertisers could expect from this change.
Scenario 1: Campaign runs the full month and the daily budget is constrained (meaning the advertiser is comfortable with the monthly budget limit)
Implications: This is the the most straightforward scenario. If the campaign spends its daily budget every day for the month, the advertiser pays that amount. If the daily budget overspends on several days, it will eventually even out to the monthly budget limit. Advertisers will not experience any overdelivery charges.
However, not every advertiser is comfortable with or even able to operate on a CPL or CPA target basis in which the goal is to get as many leads or sales as possible within a certain cost per target. Consider this example from the AdWords Community board:
As an HVAC contractor in Southwest Florida, the volume of work frequently exceeds our ability to process it. For this reason, we use a daily budget to limit the amount of incoming sales leads.
In the past, if we wanted more work, we simply increased the budget.
That advertiser will now have to consider that his campaigns may generate up to 2x the number of leads he’s planned for on a given day unless he lowers his budget. Google says that, in general, advertisers will not see additional days of overspending with this change. While lots of businesses want to drive as many leads and conversions as possible within a cost target, this example is not an uncommon one for smaller teams and businesses.
Potential changes needed: In most cases, no changes will be needed, since the daily budgets are not over-set. The advertiser is already prepared to spend the full daily budget each day and won’t be charged more than the monthly budget limit. There will be exceptions like the one detailed above, but Google says if those campaigns haven’t been overspending already they’re unlikely to start doing so as a result of this change.
Senario 2: Campaign runs the full month but daily budgets are unrestricted/not limited
Implications: Again, Google will absorb “overdelivery” charges above 2x the daily budget in this scenario. But the advertiser’s daily budget is already set to account for spiky traffic days. In many of these cases, there’s the expectation that the daily budget will rarely be reached on a daily basis, and the advertiser’s budget may not accommodate reaching that daily budget regularly. Bids and/or automated bidding strategies like Target CPA or Target ROAS are used to constrain spend.
The change won’t likely have an impact on ad delivery or ad spend throughout the month for campaigns that typically never topped out on their daily spend prior to this change, since they were already set to account for days with high interest volume. It’s something to keep an eye on always. From the Google FAQ: If your campaign isn’t limited by budget, your monthly spend will remain the same. There are no changes to how your budget is spent for these campaigns.
Potential changes needed: Monitor these campaigns to see how they are spending. Advertisers on tighter budgets may want to consider resetting daily budgets or adjusting bids and/or ad scheduling to account for the true monthly budget ceiling. Otherwise, expect little to no variation.
Scenario 3: Short-term test and promotional campaigns that don’t run a full month
Implications: Say an underperforming campaign gets paused mid-month, or a free shipping promotion runs for five days. This is when advertisers could find themselves on the hook for up to double their daily budgets. It’s not likely a campaign will overspend, much less by 2x, every day of a campaign, but it could conceivably happen if daily budgets are capped or well under-set. Google says this is highly unlikely.
Potential changes needed: Advertisers need to at least consider the outside possibility of paying up to 2x their daily budget for the duration of the campaign. This is may cause some advertisers to set their daily budgets at roughly half what they had planned and/or to lower bids, with the expectation that the budget will be exceeded regularly and they’ll end up spending the same as the initial budget. Cutting the budget in half will ensure it isn’t exceeded, but it could end up limiting ad delivery and hurting performance.
Scenario 4: Evergreen campaigns that run continuously, but daily budgets change regularly or seasonally
Implications: Update: It does not depend when the budgets change. There should be no impact because the monthly budget limit formula is the same, with the updated daily budget multiplied by the remaining number of days after a budget change is made. From Google’s FAQ: There’s no change to how adjusting your budget impacts what you’ll be charged for the rest of the month. As before, when you change your budget, your spend for the rest of the month won’t exceed your new average daily budget multiplied by the remaining days in the month.
Potential changes needed: No change should be required. There are also AdWords scripts, for example, to help advertisers automate budget overdelivery settings on a daily basis.
Impact of various optimization settings
Apart from the daily budget setting, there are other machine learning-driven factors advertisers need to consider such as bid strategies and ad rotation settings.
Campaigns set to the new default ‘Optimize’ for clicks ad rotation setting
Implications: The default now is to optimize for more clicks. That means the system will try to maximize ad delivery to people most likely to click on an ad and aim to accumulate as many clicks as the daily budget will allow. That could now be as many clicks as 2x the daily budget will allow on some days.
Campaigns using Maximize Conversions Smart Bidding
Implications: Google says automated bidding is not impacted. My point in mentioning the Maximize Conversions bid automation is that advertisers using it typically think about their budget setting differently than when using, say, Target CPA. The point of Maximize Conversions is to spend the entire daily budget in order to maximize the potential for conversions. Google will be aiming to meet the monthly budget limit, but advertisers using this setting now should consider the impact of potentially larger budget overruns on some days.
General effect on pacing and maximizing spend?
There were still unresolved questions about pacing and how budgets will be affected throughout the month, too.
The knee-jerk and not always unreasonable reaction when Google makes a change like this is that it’s more about Google’s bottom line than maximizing advertiser performance. In my initial coverage of this change, I laid out why I think the underlying thought behind it makes sense, but that the execution and messaging about it has been problematic — and seems detached from a connection to advertisers.
Additionally, there are still not great answers to questions about how pacing will be handled: (Responses now provided below)
What happens if a campaign overspends consistently in the early part of the month? Will the system pull back on ad delivery later in the month to come closer to or within the “monthly budget limit?” If that happens, advertisers might need to increase their daily budgets to counter this effect. Google says it is not possible to spend an entire monthly budget in the first half of the month: Overdelivery provides flexibility during traffic fluctuations and isn’t intended to spend your budget quickly. Before the change, it was unlikely that you experienced 20% overdelivery every day and spent your entire budget for the month by day 25. Our algorithm continues to make sure your ads are delivered throughout the month by taking into account your past spending within the billing cycle.
Or conversely, what if a campaign is coming well under the “monthly budget limit” in the latter part of the month? Will the system put ad delivery in hyper-drive to try to hit the “monthly budget limit?” This may not be problematic, but of course depends on the quality of that traffic. Google says that yes this will happen, with the aim being to meet the monthly budget target and that the algorithm also takes into account past spending within the billing cycle.
And how will Google treat pacing in short-term campaigns that have an end date set? Here, the system “knows” the monthly budget limit won’t apply and that advertisers will be responsible for paying up to 2x their daily budgets. Is that what it will optimize for? I don’t think it will work this way, and Google would probably say that’s tinfoil hat talk, but it’s at least plausible and needs to be considered. Google says this won’t happen and that the algorithm isn’t designed to spend budget quickly but to meet the target budget — the daily budget x the number of days — over the course of the campaign.
Will ‘campaign total budget’ roll out to other campaign types?
Google already offers a campaign total budget option that’s “currently” only for video campaigns that have a fixed start and end date, which I, for one, would like to see roll out to other campaign types, particularly in light of this change. When a video campaign is set with a campaign total budget, the system will account for higher-interest days while aiming to come in close to budget when the campaign ends. Advertisers are not responsible for overdelivery charges above the campaign total budget when a campaign ends. Per a Help Center page: “With a campaign total budget, you’ll only be billed up to the amount you enter for a campaign, even if AdWords serves more views or impressions than your budget allows.”
This option, along with the ability to set a monthly budget limit, would give advertisers more control over budget management while still allowing the algorithms to respond to the ebbs and flows of interest volume. Neither of these options seem likely to happen. In the meantime careful monitoring and automation through scripts and other tools can help advertisers maintain spending controls.