Why Budget Capping in Search is (almost) always Wrong
Most businesses running a paid search campaign will set a daily budget cap for the campaign. By capping your daily budget, you ensure that your campaign does not spend more than desired. This makes sense, right? Wrong.
Whenever you hit your daily budget the campaign is turned off for the rest of the day. This is called lost impression share to budget. The other way to control spend is by lowering your bids. When the campaign loses impressions due to low bids it is called lost impression share due to rank. Either way, we lose clicks but when we control by bids we gain more clicks at a cheaper CPC while spending the same amount. Look at the chart below.
You receive more clicks as you trade CTR for CPC but when you place a budget cap on your campaign, you are effectively placing a price ceiling on the number of clicks you can receive. The price ceiling is defined by the cost per click and the more you spend per click, the fewer clicks it takes to reach your budget cap. If your budget is $100, and are bidding $10 per click, you can receive 10 clicks before you hit your limit, and Google stops showing your ads. Your impression share is now limited by your budget cap. Move that to $1 and you’ll get 100 clicks of exact same queries.
Having a better CTR doesn’t mean more clicks.
The whole point of having a high bid is to have a good CTR, if there is a budget cap then it just means we are paying premium for no benefit.
To maintain spend without capping the budget you should control your keyword bids instead. Assuming that your CTRs and budget are fixed, CPC is the only variable that can be used to change the number of clicks your campaign receives. By adjusting your max CPC you can maximize your impression share before reaching the amount you want to spend.
