This is a question that comes up a lot when I am working with small businesses planning on running ads for the first time. Business owners always get a little bit nervous because determining how much your ad spend should be feels like a dark art.
Here are some tips to help establish what the right ad spend is for your business, regardless of your industry and the size of your email list.
What is your marketing goal?
Before you start running a single ad, it’s important to be clear on what you’re trying to achieve with your ad campaign. If you think about your customer journey or your sales funnel, you need to visualize which part of the journey/funnel your ad campaign is targeting and what kind of action you are trying to elicit from your audience.
I always start with this question when doing an advertising strategy document, and I suggest you consider this before you speak to an ads expert. When considering running ads, you should consider a top of the funnel campaign that will help an entire new audience to discover your brand; and, at the same time, you should consider running a middle of the funnel campaign that will remind an audience that already knows you that you’re still there ready to sell to them.
Historically, it’s going to require several marketing touches or exposures to your messaging to take a completely new audience to spending some money in your business. The colder the lead, the more expensive it is going to be to turn them into a customer.
To recap: Your ad spend will depend on how well your audience already knows your brand, your product and your service. The colder the audience, the more expensive the conversion.
Do you have a built audience?
Where are they spending their time? Do you have an avatar? This information will be key to determine the most effective channel to advertise on. If you already have a healthy email list or contact list (over 1 thousand people) that you have organically collected; it is easier to create an audience warm prospects, and look alike cold audiences you can advertise to.
If you don’t have a healthy email list, it might be worth it to spend some time building one before spending money on advertising. Like I mentioned before, it is less expensive to sell to people who already know who you are vs people who have never heard of you before.
In broad strokes:
- If your audience is on Facebook, this is the cheapest place to advertise; although they are not as cheap as they were a few years ago. I recommend a budget of at least $1250 per month on off-peak months.
- If your audience is on Instagram, you need to be prepared to spend a pretty penny to compete with the direct to consumer brands who dump millions in the platform every month. I recommend a budget of at least $2250 per month on off-peak months.
- If your product/service is targeting professionals, Linkedin might be the way to go since you can target based on things like company size and job title. I recommend a budget of at least $2000 per month.
- If your audience is very young, TikTok is the hot place to be. I recommend a budget of at least $2000 per month.
- If your site gets a lot of organic traffic, and your SEO is strong, Google might be your best bet. I recommend a budget of at least $2000 per month.
What is your competition doing?
One of my college professors used to remind us that if you think about something nobody else is doing, there’s probably a reason nobody is doing it. Looking at your competitors’ strategy can help you determine what is working for them, what phases of the customer journey they are targeting and what kind of calls to action they are using in their paid ads.
Did you know that you can access the full library of ads currently running on the Meta platform? You can! And it’s free! This tool is a great resource for when you’re trying to figure out what to say and how to say it.
What is your cost per acquisition?
How much does it cost for you to acquire a new customer? Make sure to include any costs associated with advertising such as creative and campaign management, ad placement, sales commissions, fees, etc. Keeping an eye on your cost per acquisition will ensure you’re spending the right amount of cash to acquire new customers.
I emphasize to my clients that running ad campaigns for their business is a lot like gambling – you never know what the results will be – especially if you’re doing it for the first time, you have a new/small brand, or you’re testing the waters in a new medium. So you need to be sure you’re not robbing Peter (your business) to pay Paul (ads).
Also keep in mind the cost of your product. It will be much cheaper to sell a six-pack of an energy drink for $10, than it will be to sell entry to a $650 summer camp. In turn, the profit margin on the energy drink is lower than the one on the summer camp.
Can you sell over and over again to your existing customer base?
When you build a strong stable of products, it makes sense to try to up-sell or re-sell to your existing customer base. It’s much cheaper to access your existing customer base, than it is to warm up a completely cold lead. This is why you see so many businesses using a monthly membership model to sell their products and services. This means they can continue generating revenue from their existing client base without having to sell to new leads over and over again. A referral model where a happy client becomes an ambassador for your brand, might be a less expensive option to acquire new customers than running ads.
Account for seasonality
If you paid attention, I talk about “off-peak months” in my back of the napkin calculations above. That’s because in digital marketing, like everywhere else in the world, there are peaks and valleys when it comes to demand for ad placement. The “peak” season for consumer brands in social media starts in mid-October and ends in January 10.
Your peak season might vary by industry. For example, accountants and bookkeepers have their peak season between January 1 and April 15 when taxes are due in the United States. Outdoor brands can be very popular in Spring and Summer and die down in the cold months, etc.
Remember to allot for testing and optimization in your ad spend
I like to tell my clients that digital advertising works like a marathon. The algorithm of the platform you choose to advertise in will need time to prime itself to deliver the best results. It takes the Meta algorithm at least 2 weeks or 50 conversions to get out of its learning phase and start delivering optimal conversions at the best possible price. Therefore, you need to be prepared to invest in paid ads for at least 6 months to really collect on the valuable data and results that come from running ads online.
Want to discuss more about strategies that are specific to your product or service? I’m always happy to chat ad spend. Book a meeting with me and let’s discuss getting your ad campaign live.
