As you start to use online advertising for your business, you’ll need to know how much to budget.
As a general rule, you should spend five percent of total revenue on marketing. That will maintain your current position (in this case, on your online platforms).
If you want to grow or gain greater market share, you should spend closer to 10 percent of your total revenue.
Now that you know how much you should spend on advertising, you have to decide where the money goes. I usually encourage my clients to break up their online advertising into three categories.
This is where you get to tell your audience about your product or service. You can showcase how you’re different, tell your story, share customer testimonials, show your awards, give them your authority status.
Here is where you will probably make sales and earn customers. So you should see a direct return on investment from this online advertising to your product sales.
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If you’re running educate ads, I start with two percent as my budget. If you have $100,000 in total revenue, then two percent of that should be within this ad category. That’s $2,000 over the year in educate ads on your online platforms (Facebook, Instagram, Google). And as your revenue grows, this number grows.
This is where you’re branding your company or your identity. They’re simple awareness ads on your online platforms. This is a harder strategy to get an exact return on advertising. This is an investment strategy.
I think build ads should mirror your educate ads when you’re starting out. After you have an audience built up, you can lower this a little bit.
To start, your build online marketing budget should also be at two percent of total revenue. The difference for these ads is that I don’t always raise the budget with increasing revenues.
You’ll have to watch and see what your platform’s growth is and customize this to your individual business. If you’re posting organically and engaging with your audience, then as that audience grows, this number can come down (or stay the same as your revenue grows).
If you have a special offer – such as a Father’s Day special – this is where I would categorize this. It can be a product, a story or a contest – something to drive more engagement for a specific time with your audience.
You might not see a direct return on investment from this ad either, depending on your goal. If you’re selling an item for Father’s Day, then a direct return is simple to find. If you’re telling the story of your family heritage around Father’s Day, then you probably won’t be able to do the return on investment calculation.
This is where that final one to 1.5 percent of total revenue can go.
(And keep in mind that if you’re trying to gain more marketplace, you should use 10 percent of total revenue and all of the above numbers double.)
That is where I start with online advertising. As you grow and scale, you start to add a few more categories. For now, if you’re starting out with your online advertising, this is a good budget to start with:
- Educate = two percent of total revenue
- Build = two percent of total revenue
- Inform = one percent of total revenue
And it’s simple to figure out the budget from there:
- Total revenue = $100,000
- Educate annual budget (two percent) = $2,000
- Monthly budget (divide by 12) = $165
It’s that simple. You can adjust as you get to know your marketing needs, but this gives you a starting point. And it always keeps you investing money in your marketing strategies.
Donita Fowler is an online marketer who supports entrepreneurs in their quest to be the boss of their online platforms.