No matter how much effort you put into your content, it’s nonsense if you don’t advertise or market them enough.
And when it comes to generating advertising campaigns, you need a budget. The budget determines the amount you’re willing to spend and sustain throughout your promotion.
Different businesses will have different budgets for their ad spend. But how do you determine how much you should set for your brand?
In this guide, let’s learn all about setting the ideal ad spend budget for your business. Plus, let’s also look into essential factors to help you get started.
Ad Spend Explained
Before we get into all the details of the ideal budget, you should understand what ad spend is.
In simpler words, ad spend is how much your business is spending on promotional and advertising campaigns.
You can determine this by measuring the amount you spend on ad placements. And you can also include costs on ad operations personnel or agencies.
Businesses can measure ad spend in various ways, such as:
- CPC: cost per click
- CPM: cost per thousand impressions
- CPS: cost per sale
- CPL: cost per lead
- CPI: cost per install
- CPA: cost per action
Yes, the cost is basic and easy to understand. But when you’re aggregating and measuring costs in multiple channels, it’s a different thing.
That’s why it’s essential to measure your ad spend. It prevents confusion while mapping out your revenue data on different channels.
Uses of Ad Spend
So, why should you measure your ad spend? And how is it significant?
The main reason why it’s helpful to track your ad budget is to determine a campaign’s return on ad spend or ROAS.
Today, you can find different ad platforms available. And knowing whether your advertisement is effective and collecting data about it is essential.
When you analyze your campaign’s ROAS, you know which ones work and which ones don’t. You can also identify the campaign that generates the highest investment return.
Yes, online advertising is simple, but the real battle happens with analytics. If you are skilled in tracking your ad spend and performance, you’d be able to allocate more of your budget to profitable campaigns.
Collecting your ad spend can take place in three ways:
- Direct data from all platform and media integrations
- Mobile attribution while tracking link parameters
- Manual tabular data through a spreadsheet
Among these types, the first method gives you 100% accuracy and data completeness.
Starting Small With Ad Spend
Even when you’re starting a business, it’s always vital that you start small and slow. Then based on the initial performance of your first few campaigns, you can begin to scale up.
This is true even when your brand is already well-established online. And when you start slow, it’s easier to make adjustments after seeing initial conversions.
To make it easier to understand, think of ad spending as a marathon. When you’re in a marathon, you start from the lowest number or fastest time and progress. It’s the same for setting a budget for ad spend.
Also, there’s a reason why brand owners love utilizing digital marketing. There’s no judgment as to how small your initial budget will be. It’s also important that you don’t feel pressured by your competitors.
Don’t go all in from the beginning with your budget. Remember the fable of the turquoise and the hare? Ultimately, the turtle won. And in digital marketing, slow and steady also always wins the race.
The 5% Rule
The 5% rule is the ideal recommendation for your marketing budget. This includes all costs for the following:
- Public relations
- Marketing
- Promotions
- Advertising
The ideal budget shall depend on your brand’s marketing foundations. But expert opinions and the latest researches recommend spending 2% to 5% of your total sales on marketing.
5% is reasonable, regardless of whether you’re a large-scale or a startup business. But remember that it’s not 5% for the rest of your business career. Depending on your upcoming projects and campaigns, there will always be instances when you need to spend more.
How To Identify The Ideal Ad Budget
When finding the right budget for your ad spend, these questions are useful:
- How much is your available money for ad spend?
- How big or small is your business? Is it well-established?
- What is the maximum output capacity of your business?
- What are your advertising goals? And how can you achieve them through ad campaigns?
- Are you aware of your historical cost per acquisition, average customer value, and conversion rate?
Steps to Start Spending Your Ad Budget
No matter how much you allocate in your ad budget, it’s no use if you don’t know how to manage it properly. Now that you’re well-knowledgable about the 5% rule, the next thing to know is how to spend your ad budget efficiently.
Here are great tips you could follow.
1. Know Your Marketing Goals
Okay, this is always the first step. What’s a campaign without well-aligned goals?
When you have set your marketing goals, budget allocation for your ads becomes easier. We recommend using the SMART approach when identifying the plans for your business.
Your marketing goals can be one but not limited to the following:
- Increase your website traffic
- Increase your site’s targeted leads
- Develop new divisions for your business
2. Establish Your Marketing Foundation
If you have the goals, the next thing to set is your marketing foundation. Is it established enough to reach your marketing goals?
You can check your website, communication pieces, and entire brand. And when you do, you can try to answer these relevant questions:
1. Is your brand clear and identifies your company’s real identity?
2. Does your brand look and feel the same across all platforms?
3. How does your brand fair with your competition?
4. Do your potential customers have a clear path to purchasing your products or services?
5. Are your tools in place to track and monitor your marketing’s success?
3. It’s Time to Spend
Now that you have tangible goals and a marketing foundation, the time has come to allocate your ad budget.
What’s the first step? Improve weaknesses you found from establishing your marketing foundation. This helps launch your business growth and generate better website traffic.
Knowing your foundational weaknesses can help you become more prepared for selecting activities for your ad campaigns.
Helpful Tips for Setting An Ad Budget
To help you out, here are valuable and effective tips on how you can set up a budget for your ad campaigns.
Start with Running Your Ad Campaigns for 3 Months
Of course, the best way to spend your ads is to use the money you have saved. This strategy is more self-sustainable after a few months rather than spending money you don’t have.
What does this mean? The total revenue you generate from ads should be able to pay the amount you spent after the third month. But this excludes inbound advertising such as Google Search.
Also, why three months? Think of it like this. It’s rare that new customers will automatically commit to a product they see, especially when it’s from a startup business. Moreover, when you see a product commercial for the first time, do you instantly purchase the product? No.
That’s why you must establish familiarity first. And the best way to do this is to run your ad campaigns for a period of three months.
A three-month time frame is an ideal time to get people to become familiar with your brand. It’s also when you’ll start seeing results flooding in.
If you don’t plan to run your campaign for long, it will not mature. And you won’t get the conversion and ROAS you desire.
The Importance of Analytics
Now that you have set the budget for your ad spend, you can start creating promotional campaigns for your business. The next question is, how do you know which is effective? This is where ROAS, or return on ad spend, comes in handy.
Return on ad spend, or ROAS, is a marketing metric. It measures how much revenue your brand receives per dollar spent on advertising. ROAS is practically the same as ROI or return on investment in its purpose.
Generally, when your ad campaigns are effective, you’ll get more revenue from your dollars on ad spend. This will make your ROAS higher. And the higher it is, the better.
One of the easiest ways to monitor your ROAS is through a Google Ads account. But it’s also possible to calculate it manually, as long as you know the money you’re earning and spending.
Calculating ROAS
Calculating ROAS is pretty simple. You just need to divide your brand’s conversion value by the advertising cost. You would know the conversion value by determining the total revenue you earn from a particular conversion.
For instance, let’s say you spent $25 on an ad campaign that earned a total revenue of $100 on a product. This gives you a ROAS of 4. So for every dollar spent on your ad campaign, you earn $4 back.
Treat Your Ad Spend Seriously
The budget for your ad spend will help dictate the success of your promotional campaigns. But before setting one, you should keep your marketing goals and foundation in mind.
The 5% rule is an excellent guide to knowing how much you should allocate for your ad spend. But remember that there will always be exclusions.
Ultimately, you should master your business, its goals, and the maximum budget capacity to spend for your digital marketing.
And with the ideal marketing ad spend and valuable content, you’re on your way to success. Check out CJ Content Co for content writing services.