We've done pretty extensive advertising on Google Adwords for some of our clients with small budgets, so I have some info here that might be of help.
Just to make the point up front, these clients requested that we do Adwords advertising for them and wanted to spend the minimum feasible amount to test if it would work -- we didn't suggest they advertise there :)
Over the past 6 months we've had 8 clients with daily budgets of $2 - $3 per day running adwords campaigns.
All of these clients went for low CPC rates to maximize the number of visitors they would get for their (decidely low) budgets at the expense of higher positioning.
This strategy seemed to work in terms of driving traffic as each site used consistenly used up most or all of their daily budget each day regardless of how low we dropped their CPCs
The best performing site averaged just under 500 click throughs per month (at about .12 CPC). The worst performing site averaged just under 220 click throughs per month (at about .25 CPC).
Although this was fairly reasonable traffic for the amount of money spent, only one of the eight sites saw any verifiable increase in sales, leads (or whatever they wanted) due to Adwords traffic.
The successful site is a company that sells power supplies and keys on very specific manufacturer names and industry terms. Also every lead who finds them and converts to a sale is generally a professional buyer out on the web looking for a supplier for a factory or plant -- so they are serious buyers, not "window shoppers".
The worst performing site was a Leather Apparel retailer -- 3000+ adwords click throughs in 6 months and not a single product sale. Very very strange that...
Its possible that many of the clicks per day were wasted on non-buyers (window shoppers, competitors checking out the competition or sabotaging these websites by artificially "clicking out" their ads), but it seems far more likely that small budget campaigns simply don't drive the volume necessary to generate any visible effect in terms of conversion to sales/leads.
As a result, we have begun to discourage our small budget clients from using Google Adwords based on these results.
Hope this is useful.
David
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