Optimal Ad Spend to get the best results for your business
Updated: Jun 23
So you're curious about ad spend. I get it. Every business owner has been there. Some more often than others, but hey that's what we're here for. You're just not sure how much money you should be allocating to your advertisements and a quick and cheap solution would really help. Well I don't have that answer.... oops.
Advertisements are unique little creatures, like children. They're really dependant on a multitude of factors like your parents, environment, future trajectory or in more relatable marketing terms, your business model, where you are in your business/campaign, where you are trying to go and what it is EXACTLY that you are trying to accomplish.
Let me give you some context through some case studies we've done with our clients.
Exhibit A: Brand New Business (Or little to no online presence)
You are new to digital marketing and don't wanna blow a hole in your expense column through wasted ad spend but at the same time you know it is necessary to get the ball rolling at the very least. How much should you spend on the advertisement itself? Well here is something to consider before you answer that. Recognize where you are and trying to go. You NEED to establish yourself as the primary focus, sales/conversions don't come fast, I don't know who's been lying to you Get Rich Quick "business owners". I mean just the other today we had a call with someone who distinctly asked us "What is the easiest and fastest way to get clients/sales in the next few weeks?".... the answer *Crickets*.... In any business you honestly (and probably legally) cannot guarantee results of any kind. But sue me, I'll make you a guarantee, if that's you, there is nothing on this earth that will help you until you change the way you think. Period.
As for those of you who actually are in it to win it, in it for the long haul, your first step in this situation is to create awareness. 80-100% of your budget should be purely used for awareness. Who is going to buy from you if they don't know you, and know you well enough to give you their hard earned money AND do it consistently? Make yourself familiar to your audience. Whatever you are working with as ad budget, allocate majority to Brand Awareness and make yourself known to your audience before you start trying to convert them. After at least a solid 2-3 months of this, you can start dropping that allocation to 50-60% and start re-distributing to conversion campaigns between sales and promotions to start really testing out the audiences who are going to explore, add to cart/come in to your shop, and possibly purchase.
From there, you're going to need to break that Conversion Allocation into buckets. If you're getting conversions that is great! Target similar audiences and keep it pumping, while you use a portion of budget for finding new audiences. If you aren't getting conversions, this requires some problem solving. If you are getting people to your store and they're adding to cart, but just not buying, then the issue is filling in the gap and possibly making it easier to purchase, using discount at purchase to further entice the sale, throwing in a FREE item, FREE delivery, something to keep the momentum of sale at its peak. If you're not getting people to even add to cart or view your store then your Brand Awareness advertisements are not up to par and that is where you need to put your attention.
Obviously, a newer business is going to require more capital on the ad spend to get the wheels turning, you are fighting an uphill battle until you reach a certain point, a point of maximization and that is the sweet spot you want to reach. You want to reach a point where your ad spend can actually drop and your sales will GO EVEN HIGHER. You have the wind at your back and your past work has laid a good enough foundation to carry you, at least for the time being. This is our next case study.
Exhibit B: Business that has ran Ads effectively for at least 3 months
So you've laid the foundation, congrats! We know how difficult it can be, trust me, nothing comes without its growing pains, and heck sometimes you need to go back and lay that foundation again, but once you're here it gets pretty nice. You have had multiple Brand Awareness Campaigns in place, you have had multiple Conversion Campaigns in place, maybe even Video View Ads, etc. Now if the foundation is right, you can lower your ad budget and really focus on targeting your best audience. This requires much less ad budget, but again the ground work must be laid appropriately. To put this into context, we recently just laid the ground work for one of our education facing eCommerce clients. For 3 months we returned approximately 2.5-3x on their ad spend. Then we dropped their ad budget down to 1/3 and focused on our most profitable audience sets, ads, and copies, and returned over 20x what they had spent in advertising. That is what laying the foundation looks like, effortless, profitable advertisements to take your business and sales to a new level.
This requires significantly less ad budget than the prior Exhibit A, approximately 1/3-1/2 of the amount of ad budget. Many times you will need to revert back to laying the foundation for periods of time because staying at the top is always going to require peak performance in all aspects, but it definitely is a game changer once you have already done it once.
To conclude, I'd say your ad spend is a direct relation to where you are and what you are trying to accomplish. I hope I was able to shed some light on the relevant focus for those two specific business situations. Of course, there is no one size fits all, but that frame of reference should help put into context how much ad spend is needed and the breakdown of how it should be used for the most optimal results.
Till next time my fellow entrepreneurs, be bold!