Online advertising presents an opportunity to reach hundreds of thousands of people, at just a fraction of the cost of advertising on television, billboards or in print publications.

But how do you determine how much to spend?

In my consultancy, business owners often tell me they want to grow their business, but they are reluctant to spend money on advertising, or have allocated only a very small budget.

And I can understand why.

We constantly hear the stories of how someone spent $100 on Facebook Ads, and then made a gazillion dollars. Or Google or LinkedIn has sent them a $50 voucher to start advertising, and they think that’ll be all they need to achieve sales.

But then when a business decides to jump on the online advertising train, spends $50 or $100, and achieves no sales, they conclude that online advertising just doesn’t work for their business model.

Combine this with the reality that most of their customers and sales have come through free referrals or word of mouth, and business owners can become complacent about investing ANY funds in their marketing.

But if you want to grow to double your revenue, those referrals are not going to magically increase to double the volume of prospective customers you need to reach your goals.

Make no mistake. Marketing is an investment in the growth of your business.

It’s no different to the rent paid or equipment you purchase for your storefront, or the stock you order from suppliers to generate a profit by adding your own margin.


Where to start advertising online


Okay, so you’re committed to growth, and you know online advertising can help you get there.

So, where to first?

The paid online advertising options for your business are endless. Moz have outlined the different online channels by average cost, average effort and ROI, but the most common are:

  • Pay-Per-Click Advertising (PPC) or ‘paid search’ for specified keywords on search engines (e.g., Google Adwords)
  • Social media advertising (e.g. Facebook, Instagram, Twitter, LinkedIn). This is similar to PPC, but is interest-based rather keyword-based, and can involve other objectives, such as brand awareness, in-store visits, and engagement.
  • Display advertising, often in the form of banner ads on industry or websites.

Of the available options, most small to medium businesses start with the goliaths in the online advertising space – Facebook and Google Adwords.

The easiest way to choose is to consider where your customers are, and also what platforms you’re most familiar and comfortable with.


Keep this in mind before you start advertising


Running a single ad might not achieve your business goals by itself.

Most marketers agree that multiple exposures or ‘touches’ are needed before a potential customer feels familiar enough with your brand, product or service to make a purchase.

The number of effective touches was previously thought to be seven, but this has increased with the growth of our digital world. Research by Schmidt and Eisend shows that at least 10 exposures are now necessary to maximise customer response to an ad.

For marketers, this is translated into what we refer to as a ‘funnel’, and seeks to move prospective customers through awareness, consideration and purchase stages.

As an example, a funnel for a nutritionist promoting in-person consultations may include:

  • a brand awareness ad
  • a couple of blog articles
  • a free ebook in exchange for email subscription
  • several email newsletters
  • a visit to a booking page on their website

And this whole funnel will often start and end with an online ad.


Online ad spend calculation formula


Okay, now it’s time to determine your ad spend budget…

There is a simple calculation to determine this, however you may need to make some estimations to start.

Once you’ve been advertising for a while, you’ll know exactly how your key metrics are performing, and you can determine your required ad spend budget with greater accuracy.

Step 1:

Firstly, how many additional people in one month do you wish to have as customers? If your goals are revenue based, divide your total revenue goal by your average sale value, to determine how many new customers you need.

E.g. Goal = 10 new customers a month

Step 2:

Next, do these people become customers in-store, from free phone consultations, or by buying on your website? And how many web page visitors or people do you need to speak to for each sale?

If you don’t know, estimate.

E.g. For every 5 phone consultations, 1 becomes a customer.

Step 3:

Multiply the number of enquiries or visits by the number of new customers you would like each month.

E.g. 5 enquiries x 10 new customers = 50 scheduled phone consultations required to reach monthly goal.

Step 4:

Here’s where we bring your ads into the picture.  Let’s say we show an ad on Facebook that sends people to a landing page to book a free phone consultation.

What percentage of people who visit that page actually book a free phone consultation? If you don’t know, use an industry average here of 10%.

This is your landing page conversion rate.

Step 5:

Now divide the number of enquiries you need to reach your goal by this landing page conversion rate.

E.g. 50 enquiries divided by 10% = 500.

This is the number of clicks required to meet your goal.

Step 6:

What is your cost per click (CPC)? If you’re already running ads, you will be able to see this within the advertising platform.

If not, use the industry average of $1 if you’re using Facebook ads. For Google Adwords, use the estimated CPC shown for your keywords in the Keyword Planner. For display ads on other platforms, request an estimated CPC.

If you are running a series of ads (or a ‘funnel’) to move prospective clients through brand awareness and consideration before purchase or booking, calculate the average CPC of the ads in the series.

Multiply your CPC by the number of clicks you need.

E.g. 500 clicks required x $1 CPC = $500

This final figure is the approximate monthly advertising budget you will need to bring 10 new customers into your business.


Your ad spend may not be all you need to consider


Other factors come into play, and will affect how well your ads perform and convert to new customers. This can range from the impact of an increase of other advertisers on the platform, how engaging and emotionally appealing your ad is, and well you defined your audience targeting or keyword research.

Also, your online advertising spend might not be limited to what you pay to the platform.

You may also need to allocate either knowledgeable staff, or trustworthy, outsourced vendors to run your advertising for you.

You can run your own ads on Facebook or Adwords, for example, but don’t underestimate the learning curve to do so. If you don’t have the time to invest in learning how these platforms work – and how to optimise your campaigns – you’ll be left behind by specialist advertisers in the auction process, resulting in a significantly higher cost to advertise, and lower conversion rates.

If you try to do it all yourself, advertising may also keep you from your zone of genius. I’m guessing you’re not in business to become the best marketer out there – you’re in business to do what you do best.

Budget for outsourced advertising management, or at the very least, some coaching or consultation from a specialist to show you the basics, help you develop an advertising funnel strategy, and guide you in your campaigns.


The final word


Invest in the marketing budget you can afford, keeping in mind the revenue you are aiming for. Remember that there are no guarantees in online advertising, but don’t think you can get by forever without spending money on your advertising either.

Ultimately, test and see which type of campaigns and platforms provide the highest return on ad spend, before investing a large budget.

If you’re doing more than simply dipping your toes in the water of online advertising, seek the advice of a professional to guide you in the campaign structure and ad creative.

But as a minimum…make sure you DO at least dip your toes in the water!

Here’s to reaching more people through online advertising, and changing more lives through your business!