What should I spend on Paid Advertising?
The question, “what should I spend on paid advertising?” is a common question we hear a lot with our clients and businesses. I heard it this morning, which gave me the idea to write about it. It is a tough question to answer, which often begins with “it depends.”
I usually ask some follow-up questions like:
- Are you creating the ads?
- Have you done paid advertising before? If so, how did it turn out?
- Whom are you targeting, and why?
- When you say, “paid ads,” what platforms?
- What is the call to action?
- Do you have an offer?
- Who is doing your creative?
- How are you going to measure success?
- Are you able to track calls that come through the paid advertisement?
- What is your Average Order Value?
- What is the Lifetime Value of that Customer?
- What is your typical cost of acquisition?
- If I gave you $1000 to spend on just one customer, who would you target?
- Do you want to target people who search for your product or service?
- Are you a new or existing business?
The list goes on and on.
They soon realize that their question, while innocent enough, is not a simple answer. The reason I ask who is doing the ads is that if you haven’t had success in paid digital advertising, you will most likely waste your money. We always recommend getting a reputable and professional paid advertising agency help you out, at least initially.
We find that many business owners struggle with where to spend marketing dollars. In general, that depends to based on your target market. Before you do anything, you must create an ideal customer profile which will give you most everything you need to target specific customers. If that customer primarily engages on Facebook, then that platform is where I would spend most of the ad revenue. Twitter, Youtube, Instagram, LinkedIn, Snapchat, and many more are other social platforms to consider. When it comes to search engines, Google is the big elephant in the room. You shouldn’t have a search advertising strategy that doesn’t include the Google platform.
That said, back to the question: what should my ad spend be.
Have you heard of the 5% rule?
So have we. And we use it as a baseline but not the “rule.” The small business administration recommends spending about 7-8% of your gross revenue on marketing and advertising. So, in general, to answer the question, you will want to spend 2-12% of your total revenue on marketing. Depending on your goals, product/service, and target market, your allocation of that budget will change.
For example, if you are a $1M/yr business, you will want to spend between $20k and $120k on marketing. You will not want your entire marketing budget spent on paid ads, but if you are trying to see quick results, you will want to allocate a good portion of that to paid advertising.
We hope this helps. If you are looking for help with paid advertising, feel free to schedule time with us at a time that is convenient for you.