• February 6, 2016

How To Decide What You Spend On Paid Advertising

How To Decide What You Spend On Paid Advertising

We took a hard look at customer acquisition recently in our blog, A Startup’s Guide to User Acquisition, but high-growth startups and small businesses have a lot of questions about how paid advertising fits into their marketing plan. Frankly, every single paid user acquisition plan is, and should be, different. But there is a plethora of info on the internet on this topic so we want to share it with you and let you know specifically what you need to know from each resource.

First things first, how do you know if you need paid advertising?

  1. 5 Things You Must Do Before Jumping Into Paid Internet AdvertisingKISSmetrics

VENTUREAPP Brief: There’s no point in paid advertising if you can’t guarantee you will get the most out of the investment, because it can get costly. Start by (1) understanding how longtail keywords work and specifically how to use tools like Google’s AdWords tool. (2) Know which type of ads you want to put out there – banner, text, Google Adwords, social networks, etc. To do this successfully, you need to have a solid understanding of your audience, but either way you should test multiple audiences before going all in on any one source. (3) Be ready to track, track, track. Create custom URLs, use tools like KISSmetrics or Mixxpanel, etc. (4) Use custom landing pages that match your ads for maximum conversion. If your ads use specific messaging, studies show that consumers expect to land on a page that mirrors the language that made them click in the first place. (5) Test and review, test and review. This isn’t a set it and forget it tactic- you need to plan and budget regularly based on results of each test.

Now, what are your goals and how do they drive an overall marketing budget?

  1. Three Steps To A Solid Marketing BudgetDave Lavinsky, Forbes

VENTUREAPP Brief: We covered how to create a budget for your small business, but this article by Lavinsky dives into the specifics around how to calculate marketing spend as part of a larger business budget. He advises companies to take any expense that you must pay each month and subtract it from your revenue to give you an idea of what you can afford with your marketing budget. From there, you need to figure out what your goals are for marketing. Now, you’re likely reading this article because you know that paid advertising will contribute to your goals, but it must be said – i.e. if you need a good amount of leads in 30 days, your actions will be a lot different than if your goal is to create longtail keywords and long-term awareness.

Money, money, money…

  1. What Percentage of Gross Revenue Should Be Used for Marketing & Advertising?George Boykin

VENTUREAPP Brief: The quote from this piece that stood out to us is from the U.S. Small Business Administration: “Spend 7 to 8 percent of your gross revenue for marketing and advertising if you’re doing less than $5 million a year in sales and your net profit margin — after all expenses — is in the 10 percent to 12 percent range. Some marketing experts advise that start-up and small businesses usually allocate between 2 and 3 percent of revenue for marketing and advertising, and up to 20 percent if you’re in a competitive industry. Still other marketing experts counsel a range between 1 percent and 10 percent, and even more depending on how long you’ve been in business, competitive activity and what you can afford.” Based on your finances, it’s good food for thought.

  1. How to Determine the Perfect Marketing Budget for Your CompanyLaurel Mintz

VENTUREAPP Brief: This piece in Entrepreneur highlights specific budget recommendations based on size and stage of company for various channels – branding, web, social media, and advertising. Mintz recommends that for companies 1-5 years old, using 12 to 20 percent of gross revenue or projected revenue on marketing. She also digs into her own version of “marketing math” for businesses she advises.

  1. Calculating Your Ad BudgetRoy H. Williams

VENTUREAPP Brief: Another good piece specifically for small businesses with storefronts to dig into minimum and maximum allowable ad budgets by taking 10 percent and 12 percent of projected annual, gross sales and multiply each by the markup made on your average transaction. Then – because location is everything for a local business – deduct rent costs from the adjusted 10 percent of sales number and the adjusted 12 percent number to create your minimum & maximum budgets.

Here are some useful articles on paid advertising spend best practices and optimization

  1. You Have $100 to Spend on Social Media Marketing. Here’s One Way to Spend ItBuffer

VENTUREAPP Brief: The social team at Buffer claims they spend close to nothing on marketing, and so they posted a blog on what teams can accomplish with a very small budget. They learned that the industry average of paid social media marketing ranges between $200 to $350 a day, so they optimized $100 social spend for their readers spread out over design, paid, scheduling, analytics, etc., and lists some useful and affordable tools to help you get it all done. In another Buffer post, they highlight What $5 Per Day Will Buy You on Facebook Ads – based on three different ads with different objectives, they saw on average $0.57 per page Like, $4.01 per click to their landing page, and $6.35 per additional 1,000 people reached on their Boosted page.

  1. How Much Does Google AdWords Cost?WordStream

VENTUREAPP Brief: This post details the seven variables that impact the cost of a Google Adwords campaign including a rundown of the auction system, average cost per click, expensive keywords, and more. The average WordStream client’s (all small businesses) budget for AdWords is $9,000-10,000 per month.

  1. How to Set Up Twitter Advertising to Build Awareness for Your Business – KISSmetrics

VENTUREAPP Brief: A great step by step guide on everything paid Twitter, including how to set up and track promoted Tweets, promoted Accounts, and promoted Trends.

Hopefully these resources will guide you on your way to driving paid advertising success. Still need help figuring out what you need to spend on paid advertising? We can help, just ask.