How To Calculate Your Online Advertising Budget

How To Calculate Your Online Advertising Budget

Please, GIVE ME ALL YOUR MONEY. There’s your budget! No, but seriously, how do you even begin to approach how much of your precious funds should be headed out over the internet to hopefully gain sales from those nameless, faceless people we call online customers? Saddle up there cowgirl, let’s go on a ride of discovery and adventure!

Setting an online advertising budget is FAR less complicated than most people make it out to be.

Starting out, you need to determine what your OVERALL marketing budget is. That number can be arrived upon in multiple ways, but the best approach is to figure out all the ways you’d like to advertise and to determine then how many sales you’d need to cover those costs. You should have at least a nebulous idea of how many sales you can get in a month currently, so there’s your floor.

To make a safe, conservative assumption, you can assume that anywhere between 1%-2% of your online leads will convert. Some industries, such as those with low-cost goods may have different benchmarks; there are several benchmark reports released on an annual basis that you should consult.

Figure out how many sales you need to cover this cost. You can determine the size of your costs by doing a little keyword research (Matthew Woodward has written an excellent article on performing keyword research including both free and paid tools you can use) and getting an idea of what an average cost per click would be. So now you have your cost per conversion estimate (multiplying the cost per click by 100) and your conversion value estimate (what’s your profit per sale?) so bingo bango there’s your ROI!

Of course, it’s not that simple, but you can play with the numbers to determine if your budget is in the ballpark of reality by using the assumptions mentioned above.

The tough part with online advertising such as Google Ads or Facebook Ads is that there are SO many optimization choices, bid strategies, audience choices, and placement options that you can’t possibly know what is going to work best for you to start; this is where testing comes in.

Most agencies utilize variations of the A/B test strategy, meaning two hypotheses are tested simultaneously to determine which is correct, and then the winning strategy is then again split-tested against a new variation of the strategy, and on and on as you get better and better results.

There’s a minimum amount of money required to do this effectively and efficiently, and that’s usually what trips most people up. The actual act of buying online ad space is pretty straightforward, and honestly if you only have a few hundred dollars to commit to it… you might as well do it yourself. There isn’t much testing and optimization that CAN be done at that level, and most of the professional help you’ll get won’t show results because they honestly can’t.

Once you hit around $1,000 (maple dollars of course), that’s where the ability to split test and get meaningful result data becomes truly available. We find that advertising budgets return exponentially better results for small businesses until they reach around $10,000 (of course, also based on overall company performance) where the results then become more campaign-dependent than budget-constrained. 

This is a bit of a shorter post because it’s not easy to recommend a budget (accurately) without data. A law firm, for example, has a MUCH different budget calculation than a florist. Your sales are worth different amounts, and your cost per lead is VASTLY different. Law clicks are some of the most expensive in the business! If you want us to take a look at your data, please contact us, and we’d be happy to give you a suggestion based on your needs and realities. 

Have a question about how to set an ad budget? Comment below and I’ll be happy to get you on the right path!

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