How Do I Determine What My Digital Ad Spend Budget Should Be?
Determining your digital ad spend budget is one of the first steps in launching a marketing campaign. But you may struggle with how much to budget for paid advertising.
How do you figure out a realistic budget that gets results without overspending? How do you find the sweet spot?
We’ll address that in this post to ensure you know what budget is ideal initially and long-term.
Average Monthly Spend According to Research
Every marketing campaign differs, meaning digital ad spend can vary significantly. For example, a brand-new company just getting its feet wet with marketing may spend substantially less than a well-established company that’s been refining its marketing for years. That said, data exists to show how much today’s companies spend on average.
One of the most recent studies comes from Wordstream regarding Google advertising — one of today’s most popular paid ad platforms. According to their research, “the average small business using Google advertising spends between $9,000 and $10,000 per month on their online advertising campaigns. That’s $100,000 to $120,000 per year.”
Also, note that there are plenty of other paid advertising platforms besides Google. For instance, Facebook, Instagram, YouTube, and LinkedIn all deliver a solid return on ad spend (ROAS), and there are countless other options, as you can see in this graphic.
For simplicity’s sake and because it offers the most data, we’re referencing the Google ad network here.
Again, the exact amount spent and the specific platforms used will inevitably vary. But across the board, $9,000 to $10,000 a month is a pretty good baseline that has proven to get tangible results. As long as that’s feasible for your company, that’s a good number to get you started. And, as we’ll discuss later, you can always scale up or down as needed.
Average Cost Per Click
Next, I think it’s helpful to briefly cover cost per click (CPC), which is how much you pay when someone clicks on your ad. As of 2022, Wordstream research found the typical CPC across all industries ranged between $2 to $4.
Note that the average CPC differs significantly between industries. At the highest end of the spectrum are attorneys and legal services, which is more than $8 per click on average. On the lower end are arts and entertainment, real estate, restaurants and food, sports and recreation, and travel, which all cost less than $2 on average.
Some outliers are as high as $100 and as low as $1, but looking across all industries, $2 to $4 is the norm for a CPC. You can reference the graph below to see your industry’s average.
Our Advice for Setting a Digital Ad Spend Budget
Now that we’ve established a baseline for average monthly spend and average CPC for businesses, here’s our advice based on our experience. Just like with most other areas of marketing, building a winning paid advertising campaign relies heavily upon data. So generating reliable data is a critical part of the process.
In the beginning, you’ll need enough data to figure out three key things:
- How much it costs to get a click
- How many clicks to generate a lead
- How many leads to generate a sale
Gathering this data requires that you conduct some initial testing of the water. As you experiment with various ad networks, these are the three key metrics you’ll want to track. During this time, your campaign likely won’t be as efficient and profitable as it will be in months or years after you’ve had time to apply the data and make iterations. And that’s okay. It’s a necessary precursor to building a lucrative campaign to maximize your ROAS.
In specific numbers, you need to spend $3 or less per click and $50 or less per lead for your campaign to be profitable. Once you know that it’s profitable, you can scale it based on your capacity because you already know that for every $1 you put in, you’ll get more than $1 back (and hopefully a lot more).
Most of the upfront work and risk is in the initial experimentation. You’ll need to allocate a realistic budget that allows you to generate the necessary data to understand your average CPC, how many clicks it takes to generate a lead, and your average cost per sale. As mentioned earlier, most small businesses spend around $9,000 to $10,000 monthly. If you have the funds, this should be sufficient to get the ball rolling to get the data you need.
Once you’re seeing a positive ROI where you’re getting more than $1 back for every $1 you spend, you can rev up your campaign as needed and as your budget allows because you’re guaranteed to make money and not lose it. Over time and as you accumulate more data, you can make gradual adjustments to your campaign to keep increasing your ROAS and overall profitability.
Partnering With an Experienced Agency
As I said before, the CPC from industry to industry can vary substantially, with the extremes being as low as $1 or as high as $100. That’s why it’s often best to work with an experienced marketing agency that knows the ins and outs of the process. They can run some estimates to suggest initial ad budgets based on your exact business and industry. Additionally, they have the expertise to help you track what works through testing, comparing, and refining to significantly increase your chances of succeeding with digital advertising.
If you’re looking for guidance with your campaign, 3.7 Designs can help. We offer comprehensive digital marketing services and use a strategy-driven process that’s informed by research and driven by data to ensure consistent results. We’ll help you set up your digital ad spend budget and assist with your entire campaign if needed. We can also help with the design and UX side of things to ensure a positive visitor experience — something that’s integral to having a healthy conversion rate.
If, for example, you’re sending a lot of traffic to a landing page from paid advertising, but it’s not converting visitors into leads and sales, you’re essentially throwing money out the window. With the right improvements, though, you can increase conversions and, in turn, boost the profitability of your digital ad campaign.
Setting the Right Budget
Even though digital advertising is a cornerstone of most marketing campaigns, many companies aren’t sure how to approach it from a budget standpoint. Considering that it’s easy to spend a lot of money in a hurry with digital ads, it’s essential to get your ducks in a row right from the start, setting the proper budget that allows you to get results without overspending.
Following our advice above should help you start on the right foot and generate the data necessary to maximize your return on ad spend. Further, many brands can benefit from working with a professional partner, especially during the initial stages. If you’d like to discuss your digital advertising with 3.7 Designs, you can reach us via our online contact form or by calling 800-672-1714.