Ads are important for online businesses. But, have you considered calculating the ad budget?
According to the CMO Survey, for over a decade, top marketers were asked how they expect their marketing expenses to change each year. It was observed that the budget for marketing has remained relatively consistent and has increased competitively for the major participants.
Knowing the ad budget trend helps in calculating ad budgets. As an advisor of digital marketing, I am often asked how to calculate the budget ads.
Let’s discuss how you can correctly invest in advertising with a friendly budget.
Beginner Tips in Calculating Ad Budget
You have to understand that ad budgets are only a subset of the overall marketing budget. Remember, advertising is part of the sales and marketing efforts, and investing in ads will help build up the business.
But, business owners should maintain the advertising budget to achieve a realistic promotional and marketing goals. That’s why you have to know some of the critical points to efficiently calculate the budget.
Determine the Target Consumers
You have to ask yourself, “who are my target audience?” You have to know who are those interested in purchasing the product or service you offer. It is useful to have an idea of the demographics of your target consumers.
Most Useful Media Platform to Reach the Audience
Media usage has changed over the years. These days, small and large enterprises do not only consider placing ads on televisions, radio, or print. Most importantly, business owners invest in online media platforms. The Internet is an impressive way to reach customers.
Get the Customers Attention
Do you think product ads depend on rational or emotional appeals? How can you get the attention of the target consumers? Your ads should extend emotions to the consumers. More so, it has to grab the attention of the repeat and target consumers.
But, among these critical points, I know what you are looking for. You are wondering how much profit you will likely earn from the money you spent on advertising.
Remembering these key points will help you ponder on the market conditions that you anticipate. You will reach the specific goals you set for your company. More so, it guides you on how to best budget and allocate the funds.
How to Facilitate Ads in Digital Marketing
To gain success in facilitating ads in digital marketing, you should relay a message in your ads that will appeal to your target consumers. Do you notice that several ad campaigns based on trying to resolve a problem within the business?
Take this as an example: the current pandemic has affected every business today. Clearance sales are taken into action, and ad slogans tell you that “Everything Must Go.”
But, the Small Business Administration of the United States has a piece of advice to business owners. Your ads should pitch your products or services to resolve a consumer’s problem.
In line with this, the Small Business Administration suggests that the ads budget should consider the following criteria:
- Time: Air your ad campaign on times when the customers want to buy. Do not base it on the time you want to sell. Make your ads consumer-centered.
- Popular items: Only advertise things that are popular to consumers. Do not base it on your preference or on the items you want to get rid of.
- Consumer benefit: Again, make your ads consumer-centered. It should relay a message touting customer benefits.
- Platform: You have to choose the right advertising platform. Each media platform has different abilities to reach prospective consumers.
Allocate Ad Budgets Across All Platforms
You have to consider two platforms when calculating ad budgets– the online and offline channels. Do you think you have to estimate the investment allocation on these platforms? Absolutely! In reports of Forrester Research, these following conclusions were stated:
- Average firms and institutions predict to allocated 45% on their total budget in the online platform.
- The largest share on the ad budget investment is search engine marketing. Meanwhile, online displays (such as banner ads and video ads) takes the second largest share.
- Social media advertisements will continue to grow, as well as mobile marketing.
- 26% of the marketing budget is allocated on paid media. But, when the budget is broken down by category, we have found that more of the total marketing budgets are given to digital media advertising.
Calculate Ad Budget – How Much Should I Spend on Ads?
We’d be lying if I say there aren’t any other ways to advertise our business– but, networking and word-of-mouth are not the only ways to rely on, but, for us to have more web traffic and gain more customers, we have to launch a small campaign through ads. But how much will you spend on ads?
To have a clear view of how much you should spend on ads, you need to set the minimum and maximum allowable ad budgets. You can do this in just three steps!
First, you have to calculate 10% and 12% of the projected annual and gross sales. After that, you have to multiply each percentage to the markup of your average transaction. You have to remember that you have to use the gross markup.
Second, deduct the annual cost of rent 10% and 12% sales numbers.
Third, the remaining balance is the minimum and maximum allowable ad budget. You may have realized that you have already spent your ad budget or there’s more budget left for advertising.
We will give out an example to make the steps clear. Let’s assume your business will have $1,000,000 sales this year. You know that your rent is at $30,000 and a profit margin of 48%.
Following the first step, you have to get 10% and 12% of the sales. That would be $100,000 for 10% and $120,000 for 12%, right?
Now, moving on, we have to convert the 48% profit margin into markup. Most of us know our profit margin fully well, but not the markup. To do this, you have to divide the gross profits by cost. If your gross profit of $480,000 is divided by the hard cost of $520,000, then we would have a 92.3% markup, right?
As we have our markup, we have to multiply the 93.2% markup on the sales percentage. It shows the minimum and maximum cost of exposure is $92,300 to $110,760. From each of the budgets, you have to deduct the rent budget, which is $30,000. That would leave us to $62,300 to $80,760, and this is the official minimum and maximum allowable ad budget for the year.
Some would advise having 5% to 7% of the gross sales, but we think it is impractical to have that calculation without considering the rent and markup of your average sale. It is best to reconcile your ad budget with your other expenses.
Reevaluate Budget Expense
In summary, your advertising budget is not fixed; it should bend and flex since the demands of your business changes over time. You can experiment with your budget when reevaluating the expense. It will give you more ideas about which initiatives will give you more profit– adjust the way you budget.
However, we would recommend you reevaluate your budget expense on a quarterly basis. That’s the best length of time that can bring in reliable results.