Introduction
There is no one solution to the correct amount to spend when it comes to ad expenditure. This is an article that will not tell you a right or wrong answer. However, it will hopefully lead you in the right direction of knowing what is worth spending on ads.
There are a few questions to kickstart your thought process when debating on how much to spend on digital advertising for your business.
Firstly, ask yourself how much investment is required in order to hit your expected goals. Next, give yourself a realistic fraction of your budget that you can afford to spend and find out what the lifetime value (LTV) of your average customer is. Following that, you should consider how efficient you are in converting your website traffic into leads, and leads into customers. Lastly, calculate and understand the total amount you will be spending on each individual bid.
By now, you should have understood how to use the pre-existing data to regulate the expenditure you need in order to hit your goals, as well as how to get the most effective use of each dollar spent. Once the fundamentals have been understood, follow the next few steps to figure out the ideal expenditure required.
How Much Investment Is Needed
The most elemental goal for every business out there is to produce a revenue growth that can be maintained in the long term. This is the main reason why you should always start working from the end result of your goals when it comes to calculating how much investment is required in digital advertising. This will also help you to observe how much profits your digital advertisements bring forth.
Most likely, there will be many different departments working towards the same goal. This will include the marketing, sales, and customer service sectors. It is important to start with analyzing previous performances to have a clearer understanding of how much is a good deliverable for each department.
There are three kinds of objectives to aim for regarding marketing. They are paid, owned, and earned objectives. These objectives will be attained with a couple of events, including paying for media campaigns.
What Percentage of Your Marketing Budget to Put Aside
The fact is that most companies would not have the kind of advertising funds that is required to make a huge impact or simply do not have the necessary historical data to assist you in your decision making. As difficult as it is to answer, you have to be fully aware of the answer to how much money you actually have. To facilitate the process of finding the answer, look at the cash flow of your business, and determine how much is accurately available for you to advertise.
The most important thing is to set a realistic budget, such that your goals can be met in the long term. Your goal has to start off comfortable as well, for you to be able to continue the plan moving forward.
However, having a low or limited budget does not mean paid media is totally out of the question in your marketing plan. You may want to look into other business statistics to get a better understanding of how to optimize each and every dollar spent.
What Is The LTV Of An Average Customer
Lifetime Value (LTV) is defined as an estimation of the attributed profit from the entire relationship you forge with a customer. Fundamentally, it tells you how much profit you will make from one customer over a period of time. To get the LTV of an average customer, multiply the average yearly revenue brought to you by a customer by the average lifespan of the customer.
This also means that the higher your LTV is, the more money you can invest in getting a new customer. However, if you are tight on cash, you may want to heighten your average customer’s LTV first. A few of such methods include how you are pricing your models as well as kickstarting marketing events to increase the efficiency of your digital ads and making them more cost-saving.
Converting Leads Into Customers And Vice Versa
After you have derived your average LTV, it is best to work backward to find out what your advertising budget should be on a monthly basis. You will need two things for this. The first is the average rate that your website visitors are converted into leads, and secondly, the rate of your leads turning into the customers you profit from.
If your numbers are lower than you have expected, it shows that your dollars are not being optimized to its fullest potential and in this case, you should consider testing your calls-to-action, as well as introduce social proofing. This will help increase the conversion rates on the landing page, which is where most, if not all of your visitors first land on. To convert more of your leads into potential customers, it may be best to use an automated email to push your candidates towards a potential purchase. Whatever you decide to do, pouring in more money is not the way to go if your numbers are already low.
How Much Money Is Spent On Each Bid
To find out what is your highest bid, you can multiply your LTV with your conversion rate and multiply the result with the lead to customer rate. If you realize that on previous campaigns, you have been bidding too much than the expected returns, it may be time to bid more efficiently and effectively. Actions such as improving the copy of your ad, implementing keyword strategies and targeting the correct audience all ultimately play a huge role in how effective each dollar is being spent
Reevaluating Expenditure to Maximize Impact
With that being said, your advertising budget should be flexible and adapt to any obstacles and demands that occur throughout your entire business journey. You should always adopt a mindset of an experiment when it comes to reevaluating the expenditure, in order for you to find the investment that gives you the highest efficiency and maximum profit. Besides digital marketing, there are also other opportunities to drive brand awareness and profits on social media platforms.
Conclusion
As a concluding statement, you should reevaluate how much you have spent only on a quarterly basis. This way, your campaigns will have sufficient time to see consistent and trustworthy results. This will also provide you time to adjust your budget accordingly to hopefully attain your year-end-goals. Since it is proven to be an effective way to market your business through digital advertising, why not give it a chance today!