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ow to set a marketing budget

How to set an advertising budget.

The first thing to note here is that, yes, you need an advertising budget. Not just a marketing budget, but a specific advertising budget.  

 

‘The difference is that advertising and marketing are not the same thing.’ 

 

What’s the difference I hear you cry in frustrated confusion.  

The difference is that advertising and marketing are not the same thing. Advertising is a small part of the marketing mix. The marketing mix consists of the 5 P’s… 

Product – What are you actually selling and how do you define it. This isn’t as obvious as it sounds… 

Price – Yep, you guessed it, how should you price your offer? 

Place – Where do you sell your product? Online?  In a physical retails store? Through a distribution channel?  

Packaging – This could be physical packaging. It could be bundling if you sell a digital product. It could be how you give students access if you sell a course, or what your welcome and onboarding documents look like if you have a professional service. 

Promotion –  PR, websites, email marketing and, yes, Advertising. 

 

All these things and more fall under the heading of marketing, and your marketing budget has to cover a host of expenses, including but definitely not limited to, things such as… 

  • Market research 
  • Web development 
  • Copywriting 
  • Graphic design 
  • Product or service development 
  • And advertising.  

This is why it’s important to set money aside specifically for advertising. It’s pointless developing an exceptional product or service, having a brilliant website and the most compelling design and copywriting if you don’t have the money to tell anyone about it.  

 

‘No one is buying your product if they don’t know it exists. Attention is the most valuable currency there is in marketing and advertising.’ 

 

So then how do you go about setting an ad budget? In real world language, how much money do you allocate? Anyone who has been following me for a while knows what I’m about to say… 

 

It depends… 

Here’s the process you can follow to get set your budget.  

There are two ways to do this, depending on how much data you have to work with.  

If you have a low ticket product, under $100, and you have less than, say, 50 sales then you probably don’t have enough data to make any meaningful decisions. For a high ticket offer, over $500, you’ll need 10-20 sales. And for those products between $100 and $500, somewhere between 20 and 50 sales will give you a good place to start. 

 If you don’t have enough data, then your budget is going to be allocated based on what you can afford, and your first priority is to collect enough data to make decisions. If you haven’t made ANY sales, or maybe you’ve made 1 or 2 sales to friends, advertising may not be the right move just yet.  

 

‘What sells your product or service is having something that solves a problem that needs solving, for a group of people willing and able to pay to have that problem solved.’ 

 

Advertising isn’t going to sell your product or service for you, it’s going to amplify your message. What sells your product or service is having something that solves a problem that needs solving, for a group of people willing to pay to have that problem solved. If you don’t have that, or if you don’t know if you have that, I’d put your advertising on hold unless you have deep pockets. You see, advertising can be used to test and validate your offer, but if your offer isn’t good, you’ll spend a lot of money on ads to find out no-one wants what you’re selling. Validate your offer before you start advertising… 

 

Right, now that’s out of the way, here we go.  

  • Set some goals for your campaign.   
  • Goals at the top of your sales funnel might be something like Grow your online audiences by 1000 per day, increase your web traffic by 500 per week or grow your podcast subscribers by 200.  
  • Goals in the middle of your sales funnel might be to grow your email list by 500/1000/5000 people, get 200 people signed up to your webinar or 5 day challenge, or get an extra 2 onsite quotes per week. 
  • At the bottom of your sales funnel your goals will be more like increase your monthly revenue by $5000/$10000/$50000, increase sales of a product by XX% or book X sales calls per week.
  • Work out how many people you’ll need to reach, how many clicks you’ll need, how many quotes you’ll need to do and so on, to achieve that goal. Your conversion stats should give you a good idea.

 

Remember, to work out your budget this way you’ll need some existing conversion data. So, for example, if your goal is to make an additional 3 sales per week, and you convert your sales calls at about 50%, then you need to book 6 calls per week. Looking at the data in your ad account, what is the average cost for each booked call ?  

If your cost per booked call is $100, you know your budget will need to be $600/week to hit your target.  

If you’re not tracking the cost per call, then what’s the conversion rate of your website? [HINT: It’s the number of people who book calls per day/week/month etc divided by the number of people who visit your website.] Now, what is the average cost per landing page view (LPV) This is not the same as cost per click, because not every click becomes a website visitor.   

If you know how many Landing Page views you need to get 6 booked calls, and you know how much it costs to get each person to your website, you have your ad budget. So your equation might look like this… 

 

Calls needed = 6 

Website conversion rate = 5% therefore you need 120 website visitors 

Cost Per LPV is $5 

So your budget is $5 x 120 website visitors =$600. 

 

Advertising budget formula
One way to calculate your ad budget

 

The metrics you need to measure and use for calculations will be different depending on your objective, but you get the idea. You also may need to take more of a holistic approach if you’re using numerous traffic sources. For example, if you know you’re spending $1000 a week on advertising across multiple channels, but not all of them can be tracked (newspaper, radio etc) you might need to simply divide the cost of your advertising by the number of website visitors and get an average. This makes it hard to determine how to split your budget but, hey, it’s not a perfect world.  

 

 

  • Now that you have your advertising spend you’ll need to work out your other costs. Other things to allow for in your ad budget are… 
  • Copywriting 
  • Graphic Design 
  • Photography and/or videography 
  • Agency fees (working with an agency can help reduce your ad budget, as they’re likely to get lower cost per conversion so you can have a lower ad spend, or get more results. They’ll also include design and copywriting in their price 
  • Web development. If this is your first campaign, you may need to allow for the cost of getting your tracking properly set up. Again, an agency may include this in their fees. 
  • Software if you’re creating dedicated landing pages 
  • CRM for email and SMS marketing if you don’t already have one. 
  • The actual cost of sending SMS 

There will likely be other costs to consider but this will give you a great start. Always allow a little extra in your budget for things that come up unexpectedly or take longer than you thought.  

Once you have your budget allocated, do a final check to ensure you haven’t missed anything.  

Now you have a total budget, review your goals and ensure it’s still financially viable. There are various formulas floating around that propose to tell you how much you should spend to get a lead, or a sale, or to add a name to your database. The reality is, what’s viable will be different for every business.

You’ll need to weigh up things like the average lifetime value of a client, your overheads and profitability along with things like the long term value of building a database. For more on this, check out our blog on how much you should spend to get a new client. 

 

 

From here the key is to continue monitoring what works and what doesn’t so you can continue to refine your plan, and your budget.  

 

Need help figuring this out? Grab a free 45-minute brainstorming session and let us get you on the right track here