How to set a proper ad budget


I often get asked this question from entrepreneurs: "How do I set an ad budget for my digital marketing campaign?"

When it comes to advertising, there are many things to consider. What type of advertising should you use? What's your budget? How often should you advertise? There are so many factors that go into advertising, and it can be challenging to know where to start. So I've put together some examples to help entrepreneurs answer this question for themselves.

Setting up a proper ad budget is all about the math.

One of the most important things to consider when setting your budget is what you want to achieve with your advertising. For example, you can increase brand awareness, drive website traffic, and even generate leads. Once you know your goal, you can start thinking about how much money you want to spend on advertising each month. 

The 20% Rule

The way to look at it is that I want to set aside a certain percentage of my sales as an ad budget. So when it comes to setting up an advertising budget for businesses, we're saying, "Hey, I want to increase my sales by this amount, but I'm willing to spend a portion of it to get the new sale."

For most small businesses, you'll want to start with a marketing budget equal to 20% of your sales goal.

For example: if your goal is to make $10,000 in additional sales, you'll start with an ad budget of $2,000.
That's right: 20%. This would be an excellent place to start.

From this point, you can analyze whether your business pricing, offering, and model make sense. In a nutshell, if your business would have a hard time being profitable with a 20% marketing budget, perhaps that is a sign you need to look at your business closer. You may have to "go back to the drawing board" regarding your business model, pricing, etc. Ultimately, your business has to make financial sense.

Ultimately, marketing is a cost that every business that wants to grow has to account for in some form; proper planning at the onset ensures you get the number right before wasting money on ad spending.

Adjusting the 20% Rule to Fit Your Business

Sometimes, it makes sense to go higher or lower than 20% for your marketing budget.

If you're a new company in a competitive niche, you may need to increase your ad budget initially to greater than 20% - maybe even 30% to 40% - to help your initial marketing push.

If you're an established business - especially one with set margins - you might start lower - say 10-15% ad budget.

Again, while not set in stone, the 20% rule helps as small businesses have a starting point for planning our campaigns.

Getting Started 

What do you do if your business wants to market but doesn't have the 20% budget set aside? In this case, start with bite-sized steps.

  1. Determine what you can afford as a monthly budget.
  2. Choose one marketing channel that can work for your monthly budget
  3. Commit to 6-12 months of spending your monthly ad budget
  4. Use best practices to A/B test your ads, making adjustments based on ad performance
  5. Once you find ads that produce sales, start slowly scaling those ads by re-investing some of the profits from new sales to increase your ad spend.

This method allows you to slowly increase your ad budget to your desired levels - while removing some of the risks - over time as your find winning ad campaigns.

There are a lot of different factors that go into determining how much you should spend on advertising, including your industry, your target market, and your goals. First, you need to figure out how much you can afford to spend each month and then allocate your funds to help you achieve your goals. Lastly, Get started! With these tips, you can build your ad budget and generate ads to achieve your desired growth.

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