How Much You Should Actually Spend on Digital Advertising in 2021
Figuring out how much you should spend on digital advertising is a very common question that everyone wants the answer to, unfortunately, there is no perfect answer. The amount being spent on digital advertising is different for every business and will continue to fluctuate for each individual business. However, there are questions you can ask yourself that will help you determine a good budget for your company.
How much investment is needed in order to hit my revenue goal?
The primary goal for your business is to generate long-term growth that can be sustained. To determine your budget work backward from your company’s revenue goals which will tell you how much revenue digital ads are responsible for.
What percentage of my marketing budget can I realistically afford to spend?
Take a look at the cash flow for the company as well as what the current profit margin is to help get a good idea of how much money is available to spend.
What is the lifetime value of my average customer?
Knowing the lifetime value of a customer (LTV) is a method to predict future profits. The higher the LTV of a customer is, the more money you can spend to acquire new customers, and marketing efforts to increase the LTV will be prioritized and more successful.
How well am I converting website visitors into leads and leads into customers?
Work backward from the LTV to determine the monthly advertising budget. It’s important to consider the average conversion rate and the average lead-to-customer rate, as you don’t want to spend resources on ads that aren’t performing. Increasing landing page conversions and converting more leads into customers is key in increasing revenue.
How much money am I spending on each bid?
You can calculate the maximum amount you can spend on each ad using this equation: Maximum Ad Spending = Lifetime Customer Value x Conversion Rate x Lead to Customer Rate.
You want to bid less than the expected return to get the most out of your spending and assess previous bidding to see if you were bidding too little or too much.
Remember to reevaluate your spending to maximize the impact. It’s recommended to reevaluate your budget quarterly or semi-annually, as you want to give campaigns time to bring in reliable results that you can base educated decisions on. Overall, your digital advertising budget is unique to your business and should be flexible to meet changing demands.