How much should you spend on marketing?
Seven weeks ago, a prospect came to us wanting “help with their marketing.”
They weren’t sure how to go about promoting their service, feeling totally lost as to what they should do.
Then they said the seemingly inevitable words….. “Well, we tried Google Ads. It didn’t work.”
“How much did you spend?” We asked.
“Oh, like $180,” was the response. “We didn’t get results.”
Spending $180 on Google Ads is like staring at someone attractive at the grocery store, then saying “dating doesn’t work” because they didn’t notice, come over to you, say that they were single, and that they were exactly the partner you were looking for.
Everyone tells you something different. “SEO is all you need”, or “TikTok is the ONLY way to get customers!”
Facebook and Google lean into this – of course they still make money when you waste yours… so why would they dissuade it? Anyone who’s managed a business page has seen Facebook pushing “just boost this for $5”. And the neighborhood crack dealer also just wants you to take just one hit.
Okay, I recognize that the most annoying answer a person can give is “it depends.” I get asked all the time – what marketing should we do? How much should I budget? What social media channels should I be on? How much should we spend on ads?
It depends. It’s totally different for businesses even in the same industry.
This is also why I like tracking Target Customer Acquisition Cost (CAC) instead of CPA (Cost per Acquisition). Because if you can Acquire a new customer for $200, selling a product for $50 is a bad deal. But if you can Acquire a new customer for $200 for a product that sells for $10,000, well, that’s a money machine!
I digress. You probably don’t know those numbers (although I really, really, really recommend you know those numbers).
You don’t want a “it depends,” you want an answer.
These are very, very rough numbers that I am sure people will argue about and tell me I’m wrong about. I’m also oversimplifying a lot of ad buying (especially programmatic).
But is there some kind of way to gauge, what is the minimum viable spend to make a channel “worth it?”
First, you need to define your goal. Across the customer acquisition funnel, ad spend gets more expensive the closer to the bottom of the funnel you get.
There are ways to target ads by your goal – do you want a lot of people to just see it? Or do you want people to click on it? Or do you want people to click on it, go to your site for 2 minutes? Or do you want people to make a purchase? All of these are possible. But as you go closer to a sale, it usually is more expensive. (And to be annoying, this is a general rule of thumb. It depends on who you’re targeting and where.)
Second, more budget usually means better results, clearer results, and better, clearer results faster. Think about a boat. If you put that boat on a puddle, it won’t float. You need a minimum amount of water for that boat to float. Think of ad spend in that way. There’s a minimum viable spend before you can get any results.
Sure, you can put that boat on a slow-moving stream, and it’ll float, and maybe even shift a little bit. But put it on a raging river, and you’ll be down the river in no time. Think of additional spend like the water beneath your boat.
What do you need to spend on Google Ads?
Short answer is: Google recommends a $10-$50 daily budget if you’re a beginner.
The more correct answer is: It depends.
Before deciding a budget there is something we as business owners need to make peace with…
Any advertising campaign you run requires an investment to secure data that will allow you to make an informed, data-driven decision about your budget.
That being said, we can use the wonderful tool of Google to help us inform how large that initial investment should be.
Wordstream is a website that provides benchmarking for different industries across a variety of advertising platforms. Let’s use their numbers to see what an initial investment should be for a fictional local auto-body repair shop (Arnold’s Body Shop).
In 2022, Arnold’s Body Shop brought in $1,000,000 in revenue and we have decided to allocate 5% of our annual revenue to Google Ads.
This means our Google Ads budget is:
$50,000/yr
$4,167/mo
$139/day
It is recommended that you set your budget for 30-40 days and do not interfere with it too much as it gathers data.
Knowing what our daily budget is, we can expect to spend between $4,170 – $5,560 to get our ads started and have a strong data set that we can optimize and learn from.
For the automotive industry, the average CPC is $2.46 – meaning with our budget we can expect to get about 50 clicks a day. Looking at our first month’s results we would like to see 1,695 – 2,260 clicks.
When determining what our budget should be, we can turn this equation on its head and begin with an end goal in mind.
For Example:
We are now a brand new E-Commerce company and would like to drive traffic to our website. We are trying to determine what advertising channel has the best conversion rate and the lowest Customer Acquisition Cost (CAC).
We decide we are going to try Google Ads and want to drive 1000 clicks to our website over the next month. Using the industry standard of $1.16 CPC we can determine our budget.
1000 Clicks x $1.16 CPC = $1160/month or roughly $40 a day.
Now the important questions to ask here are:
How many of my clicks are converting?
How much is a conversion worth to my company?
As of writing this in 2023, Google Ads will work for a vast majority of companies and If you have the budget, are a great way to achieve your business goals. The issue is many people want to see results immediately, and never allow themselves to have access to the data or they short-change their campaigns and never get good quality data.
The key is making peace with the fact you will need to invest money in order to get the data to properly inform your final budget and marketing. The old adage is true, you have to spend money to make money.
Generally speaking, when you invest more money in Google Ads, you get your insights faster and with a more accurate data set.
You can then use this data set as a benchmark to start the optimization process by taking steps such as:
- Changing the landing page
- Changing the Call-To-Action buttons
- Changing your ads keywords to target searches with higher commercial intent
What do you need to spend on Facebook Ads?
Short Answer: According to Facebook, if you set a cost per result goal of $5 your daily budget should be at least $25 to get started.
Correct Answer: For Facebook ads, we use the same methodology when deciding an initial budget. On average, Facebook ads are slightly cheaper than Google ads on a CPC basis.
For example, the automotive industry average Facebook CPC is $2.24 vs $2.46 on Google.
Facebook ads, however, are generally lower in buyer intent than Google. Facebook is a great avenue for top of funnel marketing and promoting your killer deal.
For example:
Your child bounces a basketball off of the hood of your car and you need someone to fix it, chances are, Facebook is not the place you are going to find them.
BUT When you Google “remove dents from my car”, you see Arnold’s Body Shop listed at the top and recall their Facebook ad for “20% off the next time your kid damages your vehicle”
You are familiar with them and their deal, you decide to choose them to fix your problem.
You are now a converted customer! (And sorry about your car.)
What do you need to spend on LinkedIn Ads?
Short Answer: The minimum daily budget amount required to start on LinkedIn is $10. The minimum lifetime budget amount for campaigns is $100. LinkedIn also requires a $2 bid for Cost-Per-Click (CPC) or Cost-Per-Thousand-Impressions (CPM) on Text Ad campaigns
Correct Answer: LinkedIn is different from Google and Facebook in that it is much more expensive and primarily used for B2B marketing campaigns. The average CPC on LinkedIn is $5.58, according to theb2bhouse.com.
LinkedIn’s audience and level of targeting is very different from other platforms which is why the CPC is so much higher. The industries that utilize LinkedIn are closing deals that are much larger than the average Google & Facebook advertiser, hence why the bids and CPC are much higher.
LinkedIn does allow for high precision targeting of hard-to-reach audiences, so it can command a higher price. Just be prepared to pay a pretty penny.
Tactics without strategy is like a builder without a blueprint.
Just as a builder without a blueprint may build a structure that is unstable or not fit for purpose, tactics without a strategy will result in actions that are unfocused, inefficient, and ineffective.
A comprehensive strategy provides a clear plan for how to achieve a specific goal, including the resources, timelines, and actions required to get there.
Without a well-defined strategy, tactics lead to wasted effort, resources and most importantly shuts the door on opportunity.
