One of the most common questions we hear is “How much should I spend on paid advertising?”.
The truth is, it will vary depending on a number of factors and it’s critical you do your research before diving into paid advertising.
For example, if you’re an ecommerce store selling a £10 product at a 20% margin, it may be very difficult for you to even advertise at a profit (unless you generate a LOT of repeat purchases).
In theory, you’d need a maximum CPC (cost-per-click) of £1 and a website conversion rate higher than 50% to be able to make ANY profit (and that’s not factoring in additional overheads!).
However, if you have a solid back-end to the businesses with a lot of repeat buyers, you may even be able to afford to make a loss on the front-end acquisition and generate your profits through repeat purchases and email marketing after the initial purchase.
However, if you’re a B2B company selling workshops priced at £50k+, you can (and should expect to) spend a lot more to acquire a new customer.
So, What is a “Good” Ad Budget?
While there is no cookie-cutter solution that works for everyone, that doesn’t mean there’s no good answer for you and your business. You see, the proper ad budget varies based on several factors that you need to consider:
- What industry are you in?
- What are the industry’s current trends?
- What platform are you most likely to reach your audience on?
- How high is your average order value?
- Do your customers tend to be recurring spenders, or are they typically one-time shoppers?
- What is the average CPC on your desired platform?
While all of these questions may not appear significant, something as seemingly trivial as the platform you pick can make or break your ad campaign’s success. The answers to these questions like average CPC can also fluctuate over time, so if you want to keep up with your competitors, you’ve got to make sure your data is accurate and up-to-date.
How Much Should I Spend on Paid Advertising?
Ideally, at LEAST 10-15% of a company’s budget should go into marketing, advertisements, and SEO. This tends to be an average across a range of industries but some predominantly online businesses will actually spend significantly more!
Below is a chart detailing an average of how much each industry contributes to overall ad spend:
Percentage of budget
Consumer Packaged Goods
Consumer Service Consulting
As you can see, there is a big difference between the budget most consumer industries have and the marketing output of other sectors.
That’s because business-to-consumer (B2C) sales have to grab the attention of every individual they want to sell to, plus do it well enough that thousands will see their ads and eventually buy their products.
In contrast, industries focused on business-to-business (B2B) sales only have to convince department heads and KPI (key people of influence) that they’re worth working with a smaller and more niche target audience.
How To Pick The Right Platform To Advertise On
There are a number of important questions you’ll want to ask yourself before picking the platform to advertise on…
“Is this platform going to be the best place to reach my audience?”
Another thing to consider is how well known your product/service is to the market. If you’ve just launched a brand new product that nobody else offers, it may be very difficult to reach potential customers using Google Search as nobody will be search for what you do (yet!).
“Have I thought about the “intent” of this platform?”
It’s critical to understand the psychology of when and why people use certain platforms and how this is likely to affect the mindset they’re in.
Google is generally a great place to start for beginner advertisers because it uses keyword targeting. This means you can target people who are already actively looking for your product/service. With social media on the other hand, you’re relying on interest-based targeting to find your target audiences and grab their attention in a sea of noise (not an easy task!).
It’s also important to think about the mindset people are in on each platform. For example, somebody using LinkedIn is probably more likely to engage in a business-purchasing decision than somebody browsing through Facebook to catch up with friends and family. Does that mean you can’t reach B2B decision makers on Facebook? Absolutely not, but the type of ad you put on the platform will need to be changed to fit the context of the platform.
That’s why when brands advertise on TikTok – they often piggy back on major TikTok trends so they fit in and don’t “feel” like an advert. After all, when something looks like an ad and smells like an ad, most people will tend to avoid it!
“Will my budget give me enough data given the average CPC’s of this platform?”
One of the most important parts of any advertising campaign is gathering data (ie clicks and conversions). However, if budgets are tight and the average CPC is high, you may not be able to get a sufficient amount of data to easily test and optimise your campaigns.
We would suggest starting with a budget that can bring you at LEAST 500 clicks a month. This will give you something to work with in terms of being able to test different ad copy, audiences or landing pages to see what works best.
The issue is, some platforms will have a substantially higher average CPC than others. LinkedIn is a perfect example of this with an average CPC of above $5. Obviously, the benefits (especially in B2B) are that you can target people based on specific job roles. Something you’re not able to do (at least not with the same accuracy) on other platforms. However, if you only have a $100 per month budget, that means you may only be able to get 20 clicks a month, if that! In this scenario, you would most likely not collect enough data to adjust your marketing for optimised user interaction, and end up losing money on irrelevant ads.
“Is it the right time to advertise on this platform?”
Almost all marketing and advertising platforms operate on a bidding system. This is where current trends, industry statistics, and seasonal factors come into play and can affect the average cost-per-click.
For example, some products will be more desirable in certain seasons — would you buy a swimsuit in the middle of winter? Possibly, but most people won’t, and factors like this affect optimal times for making a marketing bid.
However, that doesn’t mean you can’t get creative and find unique angles/offers to make your campaigns a success when others wouldn’t.
Know Your Buying Cycle
All companies across all industries have a buying cycle. Understanding its patterns and workings is essential to getting the most return on your marketing investments and advertisements.
For example, a high-ticket B2B software solution will have a much longer buying cycle (possibly with multiple stakeholders involved) than somebody just buying a new t-shirt.
Factoring this in, will allow you to set realistic expectations in terms of how quickly you can expect to ROI on your advertising.
If you have the budget for it, you may also want to explore using multiple platforms to set up a full-funnel marketing campaign. This will help you ensure your pipeline is full of people at each stage of the buyer journey.
Advertising On Facebook, Google, and LinkedIn
These three tech giants are some of the most popular advertising platforms to work with, and with good reason. While they all reach wide audiences and implement user data to show your ads to the right consumers, they each have their own benefits and downsides.
How Much Do Facebook Ads Cost
Facebook ads are actually reasonably cheap. According to this article by Buffer, the average CPC on Facebook is just $0.35 globally. However, as mentioned above, this can and will fluctuate on an almost daily basis depending on seasons, industry trends, competition and more.
How Much Do Google Ads Cost
Whilst the overall average CPC for Google Ads is between $1 and $2, this will vary greatly by industry. Above all else, Google allows you to get very specific with your ads, by using both keywords and negative keywords to pinpoint exactly when your ads should appear in search results. This option makes it more flexible than other marketing platforms and saves you money by not showing your ads to audiences with no interest in your business.
How Much Do LinkedIn Ads Cost
As mentioned above, LinkedIn can be one of the most expensive platforms to advertise on with an average CPC of above $5. However, with the ability to target specific job roles, it can become an invaluable tool for B2B marketing or when looking to target specific decision-makers.
Want Advice On Where To Most Effectively Advertise Your Business?
No matter what industry your business is a part of, advertising to the right audiences is essential.
If you’re currently spending too much on your ad campaigns or you’re just unsure which platform to get started on, be sure to book your FREE website & marketing audit today. One of our marketing strategists will record you a 10-15 minute video screen share with some practical tips on how to begin attracting more traffic, leads and sales to your business today.
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