How Much Should my Business Spend on Paid Advertising?
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Are you an entrepreneur looking to get the word out about your new venture? Or maybe you are a small business owner striving to increase sales by reaching a new audience. No matter what products and services your company may offer, you cannot rely on one-time announcements or word of mouth to get your message across. Instead, you should consider investing in an effectively designed paid advertising marketing campaign to build brand awareness and generate profit.
While the technological advancement in the digital era has made marketing more complex than before, it has also opened new doors for business owners to attract leads, keep customers, and foster growth. Today, advertising is not limited to television, radio, billboards, and newspapers. An increasing number of companies are now working with digital marketers to position their brands in the increasingly competitive marketplace through paid advertising.
There is no denying that paid advertising has become one of the most powerful tools business owners can employ to achieve their campaign goals. However, the question is, how much advertising spend should you be spending on this marketing strategy?
As it turns out, there is no right or wrong answer to this. The amount of your marketing investment in paid advertising depends on several factors. Thus, you should be aware of these factors before deciding the ad budget your business will have.
What Is Paid Advertising?
Paid advertising is any advertising for which you pay money. This differs from owned or earned advertising. Paid advertising is an online advertising model where marketers bid to take part in real-time auctions to show their ads on specific platforms and networks such as Google, Facebook, or LinkedIn.
Paid advertising is also called biddable media or PPC advertising. PPC stands for pay per click, which means you have to pay the platforms on which an ad appears every time someone clicks on it. A paid advertising marketing plan can be a very effective way to drive new business by increasing traffic and conversions.
How Much Does an Average Company Spend on Advertising?
Advertising budgets may vary with the industry and size of the business. Nonetheless, the general trend you need to follow with a B2B business is spending around 7-9% of your revenue on marketing. For B2C companies, the proportion is generally higher but can vary from as little as 4% to 11%. This higher margin makes sense since the brand sells directly to the customers and must engage them accordingly.
If you’re a business owner thinking about allocating money for your advertising budget, you should first research your industry and competition. This analysis will allow you to formulate an innovative marketing strategy that promises great results.
What Is a Good Paid Advertising Budget?
According to the US Small Business Administration, businesses that make less than $5 million in sales and have a net profit margin of 10 to 12% should spend 7 to 8% of their revenue on marketing and advertising.
Moreover, a good advertising budget means that you’ve considered all the factors that affect your business, so you can capitalize on your advertisements in the most optimized way possible. However, your marketing goals must be clear, measurable, and specific to set a good advertising budget.
For instance, if your goal is to increase customer engagement, you will need a different budget than increasing the number of people making purchases. Similarly, your advertising budget would be different if you want to increase your profit by expanding your target audience and market share. It would also be best if you also clarified your goals in numbers. How many people would you need to engage to achieve your conversion metrics? Is your marketing goal to add more people to the mix or increase purchases from the current pool of customers?
You can calculate a well-paid advertising budget when you know what you wish to achieve from your marketing efforts, and what steps you need to take. You will want to lay your marketing goals and identify your audience, For any company or small business, you must focus on the specifics instead of the general economies of scale.
The right kind of advertising can be extremely beneficial when you target the correct customer segments to maximize sales and your return on investment.
It is also worth mentioning that your marketing plan must involve all aspects of your business. It should inform the customer about your products and services and aim to create a tangible difference in your business model.
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What Are The Benefits Of Paid Advertising?
Here are some of the most noteworthy benefits of paid advertising:
Yields Instant Results
Traditional marketing avenues including SEO take time to yield results. However, promoting your business on digital channels through paid advertising enables you to reach potential customers and generate new leads quickly and effectively. In addition, it only takes minutes to create these ads.
Reaches a Larger Audience
Paid advertising on social media empowers small and medium-sized businesses to reach a larger audience while transcending borders and language barriers. To put this into perspective, Facebook has over 2.9 billion users and while TikTok surpassed 1 billion users in 2021. Hence, running an ad spend budget on these social platforms will likely garner better results than publishing an ad in your local newspaper.
Paid advertising is much more cost-effective than other marketing channels, such as television and radio commercials. Small business owners and startup companies can start advertising on some paid media platforms for as little as $5 per pay. Gradually, you can streamline your approach and increase the budget for increased sales and conversions.
Targets Specific Customers
Identifying your target market is the first step to promoting your business. With billboards and posters, you have little control over who sees your advertisement. However, paid advertising tools to allow you to target a specific audience segment based on its location, age, gender, interests, and other factors. Also, you can simultaneously run different ads for different target markets.
How To Choose the Right Marketing and Advertising Platform for Your Business?
Before you decide on which marketing channel is right for your business, you must look closely at your business model. Since marketing budgets have a lot of components, experts suggest small businesses must choose a suitable platform and utilize it properly.
Some of the top promotional platforms are as follows:
The cost of developing a website includes paying for the domain, design, and original logo. Additionally, you would also need to pay the server hosting the website and the content creators to ensure that the material on the website is fresh and attractive to all those who are visiting it. In addition, hire specialists who can inform you how your website is performing and perform SEO tasks that will help you optimize it for the search engines.
2. Social Media
Social media is a great way to advertise your business.
The best thing about social media and why people invest in it is often the sheer volume of people you can reach. People spend a lot of their time on social media and that number is only increasing. Small brands should take advantage of this. Social media marketing uses these popular platforms to help you connect with your audience, promote your brand, increase sales, and drive website traffic.
However, to make the best use of social media, you will want to sign up for paid advertising. Focus your efforts on and target those marketing activities that are the most in sync with your business.
For example, promoting it on LinkedIn may not be very beneficial if you own a baking business. Meanwhile, Facebook and Instagram would be great platforms for such small businesses trying to reach their potential.
3. Online Paid Advertising
Online marketing through Google Ads and Bing Ads allows businesses to capitalize on the massive reach of the search engines. Therefore, you must also allocate a budget for these platforms and plan how you’re going to spend it. Marketing budgets for these avenues can be as big or as little as you need them based on your return on investment. For first-time advertisers, you can start small. As your business grows or receives more feedback, consider refining your target audience and increasing your online advertising spend.
4. Traditional Media
Digital Advertising is more budget-friendly, and customer segments have shifted towards digital channels. However, traditional advertising, radio, print, and TV are still in circulation depending on the demographic of people you’re trying to reach. Interestingly enough, the older the demographic, the more money they have, and so if your product is more premium, then it would do your company well to apply some money to these resources.
5. E-Mail Newsletters
Another way that you can engage your customers with your brand is by sharing the latest updates about your products, discounts, and promotional offers through email marketing.
Think of this as the digital equivalent of advertisement mail that people used to receive. The point of difference with these E-Mails is that they are received digitally in your end box and you can end your subscription at any time. Your safest bet is to ask your customers whether they’d want to receive updates. Some companies also employ loyalty programs and special offers for the customers who subscribe. Through these subscriptions, they can also gain further insight into their customers’ behavior.
Experts believe small businesses can garner more attention on social media if they use a video format. The COVID-19 pandemic saw many small businesses make a more significant shift towards social media apps like TikTok to gather more customers for their business. If you’re planning to engage in a format of this sort, you will have to include the cost of camera equipment, video editing, and hiring talent or influencers into your business marketing strategy.
Paid advertising can help your business scale new heights of success in no time. It is one of the most effective ways to create awareness about your products and services and generate new customers while establishing long-lasting relationships with your customers.
However, when allocating money to this kind of venture, identify your target audience and spend your marketing budget on the right channels.