This is a very common topic for us, how much money should I spend on my ads? It is a great question and certainly needs to be answered but before you start to talk about ad budgets you need a strategy for your ad platforms. There is a lot that goes into the strategy of placing ads which ultimately determines the budget. Once the strategy has been developed there is some math that can go into the cost of the budget. Let’s talk about Math!

The Math of An Advertising Budget

The subject of math is not fun for most people, well except for us because we love making data-driven marketing decisions. But let’s talk about how math gets involved. The first number that you need to know is what is the conversion rate of the website? If you are not sure, go back to our blog post on conversion rate optimization. Why do you need to know the conversion rate? It will help you determine how much traffic you need in order to get the desired outcome.  It’s fairly common that most people do not have their conversions set up right to even know what their conversion rate is. Which then in turn makes it difficult to create the best advertising budget. But there are always minimums to work with to start to test the website. But before we talk about that, let’s break this down.

Essentially you need to know if you drive traffic is driven to your website at what % are you able to convert that traffic? It’s okay if you don’t know as it’s common for business owners and well some marketers don’t know that.  We can help set that up and get a baseline of how your traffic converts.

Once you know this number, the next thing you need to know is what ad platforms are you going to use to market. This comes AFTER you have developed the strategy of choosing ad platforms. Which again a lot goes into choosing the platforms and strategy of ad buying.  Without even knowing all of that most ad platforms have averages for some of the basic metrics you should look at such as CPC and CTR. The CPC and CTR are metrics that help with making an advertising budget because they give actual costs.

CPC is the cost-per-click, how much each click costs. CTR is what is the average rate at which when the ad is presented you are able to get someone to click through to the next page, often called a marketing landing page.

These average numbers are often broken up by not just the platform but also the industry. They are often though, just averages and, we at elevated marketing solutions often very much beat those averages. So take them lightly, but they help you make an advertising budget. Your own personal ad campaigns with CTR and CPC should become the new standard to beat every month with proper A/B testing.

Alright, one more metric we need to talk about, what is the audience size? Depending on the platform you can find out this information differently. In Google Ads, you would do the proper keyword research which we have talked about in other blog posts. With that research, you have a rough estimate of how much traffic is available. With platforms for social ads such as Facebook ads, after working on the digital marketing strategy using your data, you can see what size the audience is. Alright, we have what we need.

Back to the math…

Conversions Rate

Average Cost-Per-Click

Average CTR

Audience Size

Here is the formula;

Audience size divided by average CTR gives you the amount of traffic you would generate multiplied by the cost per click gives you how much that would cost.

Without going any further you just have figured if you want to dominate the space, not everyone has that kind of budget.  They just want a piece of the pie. Other business owners have specific amounts of leads they would like to achieve. In this case, you need to finish the formula.  To get the number of leads you would generate you then do this math;

Take the above numbers of clicks you can generate above and multiple by your conversion rate.  This is how many leads you can generate.

Simple math right?

What Can Go Wrong With Simple Formulas In Deciding Advertising Budgets?

Are the numbers right that you are basing your math on? We wrote a blog post on, can you accurately forecast digital marketing. There are some factors to consider. You based it on averages across industries, which are often done across the entire United States and sometimes even worldwide. Different geographic areas have different quirks in the market that have them perform differently. You might not have had your specific numbers, hey we all start somewhere.

You also based that on average without knowing how your creative and messaging will perform.  There are a lot of variations there and we talked about how design affects ads cost over on another blog.

You also based your numbers on what the platforms gave you for search volumes and audience sizes. We have widely seen this wrong.  Google can’t keep up with their keyword planner tool and how many searches are given for keyword variations on a given day because 15% are brand new! On social ad platforms and audience sizes, you are assuming you choose the perfect audience right off the bat.

Lastly, let’s talk about algorithm changes, and running proper campaigns. How well one agency sets up your campaign compared to another agency can very much make a huge difference in what you pay. Platforms reward ad agencies that set up their marketing campaigns with the best practices in line. This takes work ethic and let’s face it, work ethic is hard to come by.

Then you have the platform algorithms when they all of sudden decide they decide “this” is more important to them than “that” and how you set up and optimize your campaigns needs to change. Digital marketing and ad platforms change daily, imagine every day you go to work and you have a new set of rules for doing your job, welcome to digital marketing.  This is why we wrote a blog post called, digital marketing is easy, right?

So while in most cases, numbers don’t lie, in marketing realty sets in of the market conditions.

Creating An Ad Budget Based on ROI

We mentioned it above but we didn’t go into many details.  Sometimes you know how much you are willing to pay per lead, you are at a sophisticated level of marketing, congrats! If you know these numbers then you can just start to make sure the math above is right to get to the ROI that you need and make budget and platform decisions based on the ROI you need to achieve. You need to go into though assuming that you won’t instantly hit those numbers.  If it was that easy, we would just print money in digital marketing, right?

The Funnel of Your Ads Budget

One factor we haven’t talked about is what is the sales cycle of your potential client/product.  This cycle can tell us how often someone might need to see your ads before they decide to pull the trigger.  This can also drive costs up.

When you have a longer sales cycle and need more touchpoints, you are going to need more campaigns upstream in the buying process and you are going to want to be able to A/B test the ads in those campaigns. Let’s break that down.

Campaign #1 focuses on point #1 in the cycle of buying, you want to test different messaging and creativity at point #1, so this needs to be its own campaign. Then you have points #2, #3, and so forth.

You get the point (pun intended), you will need several campaigns, and when you have several campaigns a couple of things happen.

First, you need enough data to make statistical decisions on these campaigns.  The second that happens is the algorithms need enough data to make decisions on how to improve your campaign using their own machine learning.

This also leads to the fact you might have several different types of services to market and with that, you need a funnel for each type of product or service that you have.  You can quickly see how simple budgets do not get you the answer and marketing that you need with your ads funnels.

When dividing up the ad budget you do have a quick and dirty ad budget strategy, you need to take 70% of your budget and market towards TOF top of the funnel or those who do not know who you are. Then take the other 30% and put it at the BOF bottom of the funnel or remarketing. This is a common mistake we see in that all money goes toward just lead generation not understanding that on average most people don’t convert the first time they come to a website. 

Okay one more point, using just one platform to create that funnel is a mistake. there are all kinds of platforms that do re-marketing and an omnichannel approach to your advertising budgets will make you more successful.  Not all platforms are created equal for remarketing.

Deciding Ad Budgets Within Platforms

We talked about it above in dividing budgets by your funnel of purchase or the number of products/services that you have but there are also metrics within each platform to consider. We hinted at it above on the math. Let’s talk about those specific metrics.

Search Ads

What Is “Impression Share”?

Impression share is shown often when your Google search ads are shown in relation to how much traffic is available.  You don’t need 100% to win at this. Maybe you don’t want to grow that fast and you only need to show a certain amount. But maybe you are a startup with investors and being the best is what you need. This is where subsections of impression share matter such as top impression share and showing at the top of results.

This just shows you the opportunity but your conversion rate and CPC need to be in line to ensure you are producing results. This can be an ego measurement if you are not careful to pay attention to those two numbers because just showing up to the search engine results is only part of the funnel. We won’t get into all the metrics you need to pay attention to in Google ads to be successful but we did write a blog post on that.

Social Ad Budgets

How Is Audience Size Determined?

We talked about this above, but we just want to give a little insight here. Audience sizes are determined by the criteria let’s say that Facebook ads or any native ads, display ads, Linkedin ads, and so forth set as what they determine goes into that audience. We have no idea of the legitimacy of those audiences until we start running ads and see if they have nailed it right. Their ability to gather audience information is constantly changing due to social and governmental pressures.

With the advertising campaigns becoming less and less able to track, we need to ensure we pay attention to advertising platforms that can contextually get us to audiences. Contextual just means the content on the pages has to do with the type of industry we are in. Think back to industry-relevant magazines. When we talk about advertising budgets and audience sizes we are now going into the scope of the internet and how many websites exist that are about your industry. This is a very different subject.

Low Budget vs. High Budget Advertising

Let’s wrap it up with low advertising budgets and high advertising budgets, you can make a strategy with both. You just need to adjust your expectations to perhaps just bring brand awareness if you have a much lower budget. There are strategies such as running video campaigns where we can get you in front of a very large audience for a very low cost.

Saying that you shouldn’t advertise because you have a low budget is like saying I don’t want to run a business, everyone needs to market. We did a podcast on the importance of always marketing. You just won’t have the data to make statistical decisions quick enough.  You won’t be able to move quickly to scale your marketing because the data is not there.

Alternatively, with large advertising budgets, you can quickly analyze data to figure out what part of your advertising funnel is broken and make decisions quickly in order to scale your marketing.

You can also spread out and market more products and services with large budgets and figure out which product or service your audience is more likely to want to buy first and then upsell them later with your email marketing. It’s like when growing any business the more time and money you have the quicker you can grow but you don’t always want to grow quickly.

Advertising Budgets Once Again Require Time and Effort

If you are getting your ad agency blurting out quick advertising budgets without thinking through everything above, congratulations you just got sold on how easy digital marketing is, when in fact it’s not. It takes highly skilled individuals who are able to ask good-quality questions and troubleshoot complex questions. There is a reason we were named the best advertising agency in Indianapolis.