If you’ve ever asked an agency “how much should I spend on Google Ads?” and been told “it depends,” you’re not alone. We hear it all the time from ecommerce business owners who come to us after being burned by vague advice.

Here’s the thing. It doesn’t depend. Not really. At DNM Digital, we use a straightforward formula to calculate the right Google Ads budget for every ecommerce client we work with. It takes about five minutes and three numbers you already have access to.

No guesswork. No “start with $3,000 and see what happens.” Just simple maths based on your actual business.

We’ve also built a free Google Ads Budget Calculator you can use right now to plug in your own numbers. But first, let’s walk through the logic behind it, because understanding why the formula works is just as important as running the numbers.

Why “It Depends” Is a Lazy Answer

Search “how much should I spend on Google Ads” and you’ll find hundreds of articles saying the same thing: start with $1,000 to $5,000 a month, test for 90 days, then adjust. Some will tell you to spend 5-10% of your revenue. Others will point to industry benchmarks.

None of that is useful.

Those recommendations completely ignore the one thing that actually determines your budget: your unit economics. A skincare brand with 65% margins and a $85 average order operates in a completely different universe from an auto accessories store running at 30% margins and $45 orders, even if they both want to hit $50,000 a month in ad-driven revenue.

At DNM Digital, we don’t set budgets based on what other businesses spend. We calculate them based on what your business can actually afford, and what it needs to hit your specific revenue target.

The formula starts with three numbers.

1. Your Profit Margin (After COGS)

This is your gross profit margin: revenue minus cost of goods sold, expressed as a percentage.

Say you sell a product for $120. It costs you $48 to manufacture, package, and ship. That leaves $72, which gives you a 60% gross margin.

The formula: (selling price – COGS) / selling price x 100

A few things to note:

• COGS means product cost, packaging, and shipping to the customer. Don’t include overheads like rent, salaries, or software. That’s net margin, and it’s a different calculation.
• If you sell multiple products at different price points, use your weighted average margin. Your ecommerce platform can usually give you this.
• If you don’t know this number, stop here. Seriously. No amount of ad spend advice is useful until you know your margin, because your margin determines everything that follows.

2. Your Average Order Value (AOV)

Take your total revenue over the last 90 days and divide it by the number of orders. That’s your AOV.

We use 90 days rather than 30 because it smooths out the noise: a flash sale, a quiet week, a seasonal spike. You want the number that represents your normal business, not an outlier.

Where to find it:

• Shopify: Analytics > Reports > Average order value
• WooCommerce: WooCommerce > Reports > Orders (total revenue / total orders)
• BigQuery or GA4: We can pull this for you if you’re not sure where to look.

AOV matters because it directly determines how many orders you need to hit your revenue target, which determines how many clicks you need, which determines how much you need to spend.

3. Your Target Monthly Revenue From Ads

Not your total monthly revenue. Just the portion you want Google Ads to generate.

This is an important distinction. Your business also makes money from organic search, email, direct traffic, and repeat customers who come back without seeing an ad. Google Ads is one channel. Be specific about what you want from it.

“$80,000 a month from Google Ads” is a target. “As much as possible” is not. The second one leads to overspending without a profitability floor, and we see this mistake constantly.

If you’ve never run Google Ads before, a good starting point is 15-20% of your current monthly revenue. You’re buying data in the first 60 to 90 days, not just sales. The budget for learning is different from the budget for scaling.

The Break-Even ROAS Formula

This is the single most important number in your Google Ads account, and most business owners have never calculated it.

Break-even ROAS = 1 / profit margin

That’s it. One division.

At break-even ROAS, every dollar you spend on ads generates exactly enough revenue to cover the ad cost and your product cost. You make zero profit, but you also lose nothing.

Here’s what that looks like at different margins:

Look at the gap between 60% and 30%. At 60% margin, you only need $1.67 back for every $1 spent. At 30% margin, you need $3.33. That’s double the performance required, which means you either need a significantly better-converting website, tighter targeting, or a smaller budget.

This is why we always start here with our ecommerce clients. The margin tells us how much room we have to work with, and whether aggressive scaling is realistic or whether we need to be conservative.

You can calculate your break-even ROAS instantly with our free budget calculator. It does this step automatically.

Reverse-Engineering Your Monthly Budget

Now we put the three numbers together.

Maximum monthly budget = target revenue / target ROAS

Your target ROAS should be above your break-even ROAS. Otherwise you’re spending money to stand still. At DNM Digital, we typically start clients at break-even ROAS x 1.5, which gives a 50% margin of safety. As the account matures and we optimise, ROAS usually improves and we can scale from there.

Let’s work through two examples.

Example A: High Margin Business

• Revenue target: $50,000/month from Google Ads
• Gross margin: 60%
• Break-even ROAS: 1.67x
• Target ROAS: 1.67 x 1.5 = 2.50x
• Maximum monthly budget: $50,000 / 2.50 = $20,000/month

At this budget and ROAS, the business generates $50,000 in revenue, spends $20,000 on ads and $20,000 on COGS, and keeps $10,000 in contribution margin. Profitable from day one.

Example B: Low Margin Business

• Revenue target: $50,000/month from Google Ads
• Gross margin: 25%
• Break-even ROAS: 4.00x
• Target ROAS: 4.00 x 1.5 = 6.00x
• Maximum monthly budget: $50,000 / 6.00 = $8,333/month

Same revenue target. Less than half the budget. Because the margin is tighter, there’s simply less room to spend.

This is exactly why “industry benchmarks” are useless. Two businesses wanting the same revenue need completely different budgets based on their margins alone.

We don’t recommend starting at your maximum budget either. Begin at 60-70% of that number and scale up over 60 to 90 days as ROAS stabilises. For Example A, that means starting around $12,000-$14,000/month rather than jumping straight to $20,000.

The Mistake Almost Every Business Makes

They set their budget based on what someone else spends.

“Our competitor spends $15,000 a month.” “An article said the average ecommerce ad spend is $10,000.” “Our old agency recommended $5,000.”

None of that tells you anything about your business. Your margins are different. Your AOV is different. Your conversion rate is different. Your product mix, your shipping costs, your repeat purchase rate. All different.

The formula approach removes all of that noise. It starts and ends with your numbers. At DNM Digital, we’ve used this exact method to set budgets for ecommerce clients ranging from $3,000 to $150,000 a month, and the process is the same every time. Only the inputs change.

What to Do Next

You now have everything you need to calculate your Google Ads budget. Here’s the quick version:

• Calculate your break-even ROAS: 1 / your gross margin. Takes 10 seconds.
• Set your target ROAS: break-even x 1.5 for a conservative, profitable starting point.
• Reverse-engineer your budget: monthly revenue target / target ROAS.
• Start at 60-70% of your maximum budget and scale over 60-90 days.
• Check your contribution margin: revenue – COGS – ad spend. If it’s negative, reduce spend.

Or skip the manual maths entirely. We’ve built a free Google Ads Budget Calculator that does all of this instantly. Enter your margin, AOV, and revenue target, and it gives you your budget, break-even ROAS, target CPA, estimated NCAC, and contribution margin in real time. No sign-up, no email gate. Just the numbers.

Quick Formula Reference

Want us to run this on your real account data? At DNM Digital, we do this analysis as part of every new client engagement, using your actual historical ROAS, conversion rates, and customer data. If you’d like a personalised budget recommendation, get in touch.

Try the free Google Ads Budget Calculator