We get asked this question all the time!
If you’ve ever asked an ads expert “how much should I spend on ads?”, you’ve probably got an answer like “it depends”.
We know, we know, that answer is annoying af.
As a short answer? Unfortunately, this is true. It does depend. But the long answer is: we can show you how to work out the answer that is right for your business!
Here’s how…
Prefer to learn how much you should be spending on ads in a video? Watch Katy break this down below.
Step 1: Use the Objective and Task Method
The Objective and Task Method of marketing budget-setting allows us to set a budget based on your business goals.
This method is like a magic formula! Just decide how many results you want (like sales or leads) and multiply that by the cost per result. For example, if you want 100 orders a month, and you’re willing to spend $20 on each order, your monthly ad budget should be at least $2,000.
Target * Cost Per Result = Minimum Ad Spend
The longer you’ve been running ads, the easier this will get, because you’ll have a good idea of what that average Cost Per Result looks like. If you’re starting from scratch you’ll need to think about what figure would make sense for your business.
Consider the lifetime value of the customers you’re acquiring, and what you’re willing to spend on each one. Most businesses spend 1/3 – 1/5 of their customer’s lifetime value on acquiring that customer. This is going to depend how aggressively you are trying to grow and your margins.
If you’re setting a target to generate a certain number of leads, consider your average conversion rate from lead to sale to ensure you’re driving enough leads to hit your sales goal. For example, if you know you can convert 1 in 2 leads into a client, and you want to acquire 10 new clients, you’ll need at least 20 leads.
Step 2: Consider the Testing and Learning Phase
Ad platforms need a bit of time to learn and optimise, and find the people most likely to complete the action you want them to. For example, if you’re running a campaign with the objective to generate purchases, most campaigns are going to be in the learning phase until they’ve driven at least 50 purchases.
The aim is to get out of this learning phase as fast as possible, ideally in under 7 days on Meta and 24hrs on TikTok as a general guide.
Now if you need 50 purchases to get out of the learning phase, and each purchase costs you $20, then you’re going to be in the learning phase until you’ve spent at least $1000.
So going back to our original example, you might decide to spend $1000 of your budget in that first 7 days to get out of the learning phase, then from here you could adjust up or down depending on your actual results.
Step 3: Consider what your competitors are spending
Online advertising is an auction, so you’re competing with other advertisers for every single impression. The only way to compete is by having great quality ads that are super relevant to your audience, and by setting a competitive budget.
Once you start outlining your audience in any ads platform, it will give you an indication of what results you can expect based on your budget. From here, you can reassess and see whether your budget is still realistic or needs adjusting.
So that’s a very high level overview of how we set ad budgets for clients! If it all sounds too hard and you just want someone to do all this for you? We get it. Reach out here and book a chat if you’re ready to see how we can help you make your brand stand out and profit!
