Set An Advertising Budget That Reaches Goals And Doesn’t Empty Your Wallet

Iryna Deremuk

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Advertising budget allocation is one of the main problems that companies face before launching promotional campaigns. How to choose appropriate channels? How to split spending? How to understand that your ads are effective enough? These questions often bother business owners and startup founders. 

It is vital to highlight that budget planning highly depends on your industry, seasonality, competitive environment conditions, and most importantly — business KPI. Thus, you should be ready that your budget for advertising won’t be similar to the competitors’ ones, even if your products are almost identical. In this article, we’ll explain all the peculiarities of ad budget and share tips from our Senior PPC specialist Anton Karnaushenko on how to set it correctly specifically for your company.

 

What Is Included In The Advertising Budget?

what is included in advertising budget

First of all, let’s find out the definition of an advertising budget. This term means the business allocation of expenses on promotional activities during a definite period of time. As we understand from the advertising budget meaning, this allocation is like a forecast that can be flexible and adjustable over time according to new marketing goals

What is included in the advertising budget? The main aspect that influences expenses is the sources of traffic you choose to promote the business. Among the main ones are Google Ads Search, GDN, YouTube, Facebook Ads, Instagram ads, LinkedIn ads, etc. All of them have different algorithms and policies, thus your expenses will also vary significantly.

Furthermore, you need to consider marketing objectives — you may want to increase the number of leads, drive purchases, improve revenue or raise the number of mobile app downloads. These will be the factors affecting your KPI and, consequently, determining the future budget. 

Moreover, your buyer personas, approximate targeting for social networks, keywords and competitor advertising spending also play important roles. Taking into account all these nuances at once will help you calculate advertising budgets correctly for each traffic source.

Steps to Develop An Advertising Budget For Your Business

how to prepare an advertising budget

There is no definite typical advertising budget for all industries. However, there are common steps that you need to do to identify how much your business should spend. Let’s take a look at the main ones in this section.

  • Highlight your company’s current situation

First of all, think about who your buyer personas are and where you can find them. Analyze your niche and the product itself. For example, if you’re working with software development, it is reasonable to attract an audience through Google and LinkedIn, but Instagram won’t work well for you. At the same time, social media won’t appeal to companies that sell metalworking equipment, but you can reach impressive results if you promote them on Google search. Think about what is best for you, as it will influence directly how much your company spends.

  • Outline the sales funnel

After the first step, let’s think about your sales funnel. What actions do your customers need to take before they make a purchase? If it’s possible, shorten the sales funnel and reduce the number of these steps. The reason is simple: the more effort consumers need to take, the better your value proposition needs to be, and the more costs you have to spend on advertising. Then consider your product life cycle and think about customer retention. Maybe you don’t need to attract new customers and can save money by applying retargeting marketing strategies.

  • Identify your operational spending

Costs that you pay platforms for showing your ads are not the only expenses needed to launch effective advertising campaigns. Subscriptions to AI generators and analytical tools, salaries of copywriters and designers are among the most widespread expenses that you need to consider before launching the promotion. Sometimes they can play a vital role in choosing the right types of advertising that will help to save your budget.

  • Study target audience and the competition

As we’ve already stated, buyer personas are one of the most important factors that influence your marketing costs. If you understand their behavior, preferred channels, pains and ways to solve their problems — you can develop a clear-cut strategy to make your advertisements as effective as possible. 

One more important thing is your market share and the ways your competitors promote their products. You can gain some useful insights by looking at other companies’ strategies: from how much they spend on marketing to what channels they choose. By analyzing competitors’ behavior and performance, you can implement their best tactics into your strategy and understand the average advertising budget you need to beat them. 

  • Set specific goals

Your overall marketing objectives directly identify the KPIs. For example, if you aim to raise brand awareness, post reach will be more important for you than users’ actions. At the same time, if you focus on sales, it won’t matter how many people you reach, but the number of consumers who took the targeted action will play a vital role. Consequently, the KPI you set, will directly influence the budget you need and the channel to choose, thus this step is essential while defining your advertising spending.

  • Create promotional strategy

Finally, it’s time to incorporate all this data together and build a well-defined plan. Identify your KPIs, choose appropriate channels, adapt promotional campaigns to persuade the target audience and, finally, estimate the amount of money you need to reach the goal. We’ll tell you more about the methods of advertising budget setting in the next section.

 

What Are The Different Methods of Setting An Advertising Budget?

why use digital advertising

In this section, we will analyze in detail how to calculate the budget for an advertising campaign or predict it close to the truth. The most popular methods for calculating an advertising budget are: 

  • Based on the experience of your marketing vendor
  • Through competitor analysis 
  • Using planners to calculate the budget 
  • With the help of mathematical calculation using the average cost per impression / click on the market 

It is best to combine all these methods for a more accurate forecast. We share with you the insights from our Senior PPC specialist Anton Karnaushenko on how to do it below.

If you have already worked with a similar business, you probably know many things from practice. You can remember the average cost per click, CPM and the number of impressions you can get and with a certain advertising budget for a definite industry. Also, you may know what expenses are required to achieve the set KPIs. 

While developing an advertising budget based on your experience is the easiest and most realistic option, there are still other variants. Now let’s consider methods of budget planning with the help of advertising systems and forecasting of various theories. However, it is essential to note that such predictions are never 100% correct since the actual indicators always differ from the planned ones.

 

Google Ads Search

Budget planning in Google Search is different from targeted advertising on social networks or GDN. There are keyword tools for Google Search, and we can also refine this plan with competitive analysis in additional tools. Here is a step-by-step tutorial on how to determine a marketing budget for your campaign. 

We recommend applying Keyword Planner for budget forecasting. To use this tool, you need to log in to your Google advertising account, then select Keyword Planner in the top menu.  google ads search

Next, go to the “Get search volume and forecasts” tool.

google keyword planner forecast

You need to enter the list of keywords prepared by SEO specialists for your project and enter them. We recommend adding all the keywords, as it will help you make the plan more accurate.

google ads metrics and dimensions

Then go to the Forecast tab. Here, Google will automatically set the bidding strategy, language, country, etc. You need to change all this data according to your project: substitute the country and language, select the required period when the ad will perform, and choose the number of clicks on the graph. Also, we recommend setting the Manual CPC bidding strategy. 

Now you see that Google predicts the maximum bid for your project and even the number of conversions. This parameter won’t align with reality, as the platform cannot predict this metric, so you shouldn’t pay attention to it. What you need to do is move the slider on the graphics to the “Maximum number of clicks”.

google ads clicks graph

Then we go down to the Keywords, select them all and change the ad group to “Phrase match”.

google ads phrase match

Now we can see the forecast.

google analytics forecast

There are only several metrics you should pay attention to: 

  • Impressions 
  • Cost
  • Clicks 
  • CTR
  • Average CPC

Now, for a more realistic cost per click, let’s compare this metric from the Google planner with competitive analysis. We use SEMrush to conduct the study of promotional results and ads budget, as it allows us to see what keywords competitors use for advertising.

ads budget

Let’s take a look at an approximate cost per click from SEMrush. To make the calculation easy, we will take our competitor’s average cost per click, which is $3. As you can see, this approximately matches the forecast of $2.9 Google provided us with. We recommend taking a worse option — that is, focus on $3 per click. 

Google shows us a CTR of 7.2%, but we have an experience in the niche and know that it would be lower, about 7% CTR. Now we need to understand how many clicks we can get, considering the number of impressions from Google and our planned CTR. To calculate it, we use the following formula: 

Clicks = Impressions * CTR Clicks

Clicks = 28,000 * 7% = 1960 clicks

Based on the CPC and the number of clicks, we can find out how much money we need to advertise our keywords in Google Search.

Cost = Planned number of clicks * CPC

Cost = 1960 * $3 = $5880

Use this formula to calculate your budget for advertising, and don’t forget that it will be an approximate number that will get more and more accurate as you get more experienced.

 

Targeted advertising

When forecasting the budget for targeted advertising, we proceed with a general analysis of the audience. You should clearly understand the behavior of different buyers’ segments and develop a set of creatives for each group. When you launch a campaign, some advertising systems immediately give you a forecast of the budget, impressions and clicks. Otherwise, you will need to predict the total number of the target audience on social media and, based on this data, forecast the average CPC and CTR for your business niche according to your experience.

 

GDN campaigns

When creating an advertising campaign in the GDN, you need to select the focus, find your audience, choose targeted settings and the budget you’re ready to spend, and enter an enhanced CPC bid to get this tab.

GDN campaigns

As you see, in this example, Google gives an estimated performance. To make a budget forecast, we need to take the maximum cost per click from the estimation, the minimum CTR and the average number of impressions provided by Google. In our example, let’s take: 

  • Impressions — 100,000 
  • CTR — 0.4% 
  • CPC — $0.87. 

According to our formulas, we calculate the number of clicks and the total cost of the campaign: 

Clicks = Impressions * CTR Clicks

Clicks = 100000 * 0.4% = 400

 

Cost = Planned number of clicks * CPC

Cost = 400 * $0.87 = $348 per campaign

Note that you should calculate the estimation for each segment of the target audience. If you have several different types of buyer personas, consider them in the same way, substituting the parameters in the targeting settings.

 

LinkedIn Ads

This type is very similar to GDN campaigns. To identify how much the marketing budget should be, you need also to define your target audience and segment it. Then enter each segment into the campaign settings and set your daily budget, and LinkedIn will provide you with planned indicators. It is vital to remember that the minimum daily budget for LinkedIn is $10. 

Look at the screenshot below to see how to forecast the results of your campaigns.

Linkedin Ads

 

Facebook Ads

The principle is similar: you need to create a campaign for your audience, and after setting up a minimum budget you will get an approximate number of impressions. It is essential to note that Facebook does not give a CPC, CPM, or even the number of clicks forecast. To predict these metrics, you need to discover average CPM and CTR indicators for the market in your niche. The Digitalce team has worked with many businesses and can guide you on the average CPM for some industries in the USA and Canada.

 

E-commerce

$20.00

IT outsourcing / software development

$50.00

B2B SaaS

$40.00

Services

$20.00

Events

$15.00

Mobile Apps

$20.00

 

We take these metrics from our experience, so they may differ from yours depending on the project. Seasonality, the situation in the world, competition and market changes also matter. However, using these CPMs as guidelines allows you to roughly predict how much you can spend based on the aimed number of impressions. Take a look at the example of a marketing budget.

PPC Facebook marketing budget example

On the screenshot, we can see that Facebook predicts a reach of 10 million users, which is a lot and will require significant budgets. Thus, let’s take 100,000 users from the total reach. 

Assume that the company we promote works in the e-commerce sphere. Then we will pay $2000 (100000/1000*20) for displaying our advertisement for 100,000 users. The overall CTR on Facebook based on our experience is 1%. So, you can expect around 1000 clicks. In total, with a CTR of 1% and a CPM of $20, you can spend $2000 to get 1000 clicks.

It often happens that such systems, when predicting targeted advertising performance, inflate the number of clicks and cost per click, so that a typical campaign for a small business can result in huge expenses. 

To avoid this, you need to take into account only the cost per click. This is because you can regulate the number of clicks by increasing or decreasing the advertising budget. Take a look at the marketing budget example. If you plan to spend $5000 and the system shows that the audience is wide, the cost per click may be high. But don’t despair — you can proceed with $5000 and get a completely different number of clicks, depending on your product’s peculiarities.

 

Common Mistakes In Setting Objectives Of Advertising Budget

common mistakes in advertising

Now you understand how to calculate the advertising budget for your campaign. Let’s go further and discover the main mistakes we recommend avoiding in order to get a positive return.

  • Applying ineffective methods

It isn’t enough to take an example of a marketing budget and apply it to your company. All businesses differ. So, if you see that LinkedIn advertising doesn’t bring you positive results, maybe, it is necessary to change the tactic. Sometimes, all business owners need to think out of the box and try new methods which may be more cost-effective for them.

  • Using outdated information

Market situation changes, as well as the audience’s behavior, seasons and overall trends in advertising. Thus, it isn’t enough to collect data about customer preferences, create a strategy and use it for years. You need to revise your promotional tactics and the budget regularly to make changes when it’s necessary. Especially, as this will directly influence your advertising frequency and overall expenses.

  • Focusing only on lead generation 

Did you know that it’s 5 times cheaper to retain an existing customer than to acquire a new one? Thus, we recommend applying different tactics to motivate clients to stay with you. One of the most well-known promotional techniques is retargeting. You can offer new products, promo codes and special opportunities to your existing clients for them to buy from you again and again.

  • Not conducting A/B tests

Speaking about ads budget, it is vital to highlight that testing is one of the most effective ways to prevent unnecessary expenses. Conducting A/B tests means launching two campaigns that slightly differ by creatives, settings, budgets, etc. and then analyzing their performance. This way, you can find the most cost-effective approaches to promote your business and get the best results.

 

Wrapping Up

Congrats, now you understand all the peculiarities of how to determine a marketing budget. Use these tips to boost your profits and attract more clients. If you want to get an efficient strategy and launch campaigns that will bring you new clients and raise profits, the Digitalce experts are always ready to help you. Get in touch with us to define the most appropriate advertising budget for your business. 

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