Beginning AdWords users usually fall prey to the trap of setting their AdWords daily budgets too low. There is a tendency to be stingy in budgeting the daily limits, limiting daily AdWords spending to, say, $5. This is because they may not yet fully trust the potentials of AdWords, and hence only use it on a test-run basis.

However, it’s not possible for an AdWords campaign with so low a budget to be successful, because to indeed test AdWords’ efficacy, one has monitor the trends of the campaign’s performance. Statistically speaking, AdWords campaigns follow the concept called the law of large numbers — it is not possible to successfully plot trends with only a few samples, which can be expected from a very low-budget campaign.

For instance, if you have set your daily budget to $5, then your ad will only appear for a few times before they are clicked, and the limit subsequently reached. Thus, you only get a few samples per day. Say, you get four clicks for the day, one ad may have a CPC of 25 cents, another $1.50, another 50 cents, and another 75 cents. Had you reached your limit of $5, the ad no longer appears. However, in practice campaigns don’t necessarily reach the daily limit (if only a few people click on the ads).

This way, you only have four clicks, and thus you cannot make a good estimate or trend from your campaign.

We suggest you set your daily budgets to a higher level, say, $100 per day. You may already garner clicks amounting to, for instance, $74, but you still have a good number of actual clicks to gather data from (likely about a hundred clicks). With this, you have a good way of estimating the average cost per click, and you can already compare this to the actual sales figures for the day, and subsequently your daily profit (or loss).

Knowing your average cost per click, and comparing with your actual sales, you can then accordingly tweak your daily budget and bid settings to ensure a profitable campaign.