We get asked all the time, how much budget should we invest? There is no right answer to this question. We could say £5k, £20k or even £100k but that’s not the right either. Pulling a number out of thin air is not the right way to approach budgeting, we believe that you need to start from the results you want to achieve and work backwards from there.
For example, if you want to increase revenue by £1,000,000 next year is a £100,000 advertising budget going to be enough? If so why is that the case? Budgeting is not just picking a number and going with it, it should be based on your targets, current data (if possible) and market specific conditions.
Today we’re sharing our process for helping clients determine their ad budget, including a version of the spreadsheet we use. It’s free to download here.
Before we start, we want to add two notes.
First, if you have historical data, this should influence how you budget.
Second, this is an overall budget. We recommend splitting this budget by each channel because not all channels will have the same CPCs, conversion rates, etc. This will give you a more clear picture of how each channel is performing.
Here’s how to get started:
Step 1: What’s your annual revenue target?
We like to start with the goal in mind and work backward. For this example, let’s say your yearly revenue target is £1.5M.
Step 2: What percentage of your revenue target is coming from paid ads ideally?
You likely have multiple marketing channels: sales, organic search, paid media, partnerships, etc. For the sake of this example, let’s say you’d like 30% of your revenue from paid ads.
Step 3: Calculate the total revenue brought in by paid ads
Multiply £1.5M by 30% = £450,000
This is the total amount of annual revenue ideally brought in by your paid ads.
Step 4: Find out or estimate your Annual Average Revenue Per User (ARPU)
For this example, we’ll say your ARPU is £2,000.
Step 5: Find out or estimate your average CPC for paid ads
Let’s say in your industry the average CPC is £7.50.
Step 6: Find out or estimate what percentage of traffic converts to a free trial or demo
For this example, we’ll say 4-6% convert to a free trial / demo. It’s helpful to have a low estimate and high estimate. As you’ll see in our spreadsheet, we make calculations using both the low and high conversion percentages. This gives us a range of budgets to look at.
Step 7: Find out or estimate what percentage of your leads actually sign up
We’ll say our sales team converts those free trial / demo leads 15-25% of the time. Similar to above, we want to have a low and high conversion metric here. We’ll use both in our spreadsheet.
Step 8: Plug all of that information into the spreadsheet
Input your numbers shown in blue in the spreadsheet. Blue indicates that a number in the spreadsheet is an input; black indicates it’s a fixed formula or calculation.
From there, you can see the range of “monthly budgets” shown in column I. This will give you a range of estimated ad budgets.
You can tweak your inputs and see how it affects your budget.
Return on Investment (ROI) and Payback Time (PBT)
Based on your inputs, we calculated your estimated PBT in months, as well as the return on investment after 1 and 3 years. This can give you some peace of mind that based on your inputs, your investment will not only likely be earned back, but will give you a good ROI.
Seasonality will likely also impact your budget each month. While this spreadsheet gives you an estimate of your monthly budget, you’ll want to invest more in anticipation for and during your peak months, and less during slow months.
As a B2B company, you might not notice seasonality right away, but as you grow, it will become more pronounced. If you have spikes in sales in May and June, you should allocate more budget to that time period. If your slow months are usually January and February, then you can lower your budget during that time.
Understanding when your users are most likely in the market for a product or service is crucial to allocating your marketing budget. For example, December tends to be quite a slow month and that's why we advise our clients to reduce their budget during December as it's likely these customers won't buy until the new year.
Of course, you want to generate leads with your ads. But it’s also important to note that your ad budget is doing more for the brand than that. It’s also building awareness. On average, a customer needs to see or hear about a brand seven times before they purchase. This is called the “Marketing Rule of 7.” So when you’re considering your ad budget, keep in mind that it’s money spent toward the goal of having customers discover your brand and consider working with your brand. Even if it doesn’t result in immediate conversion, it’s still helping to build your brand.
Your Ads Will Have a Bigger Impact Than You Can Track – Here’s Why
No matter how well you set up ad tracking, there is always some element of ad activity that can’t be 100% tracked due to GDPR cookie issues, Apple's privacy policies, and how customers interact online. Bottom line: your ads are having a bigger impact than you can see in Google Analytics.
After determining your ad budget, here are some next steps to consider:
- Evaluate your revenue target: Review your annual revenue target and ensure it aligns with your business goals and objectives.
- Assess your current marketing channels: Take stock of your existing marketing channels, such as sales, organic search, partnerships, and paid media. Evaluate their performance to inform your ongoing strategy.
- Build ad campaigns: Get started with paid ads using your new monthly budget. Reach out to us here if you want help.
- Monitor and measure results: Closely monitor the performance of your campaigns. Track key metrics such as lead generation, return on investment (ROI), and payback time (PBT).
- Focus on brand awareness: Remember that your ad budget not only generates leads but also contributes to building brand awareness. Consider the impact of your ads on brand recognition and customer engagement. Continuously assess and refine your ad campaigns to enhance brand visibility and customer perception.
By following these steps and regularly reviewing and adjusting your ad budget, you can work towards achieving your revenue targets, maximising ROI, and strengthening your brand presence in the market.
We’re experts at paid ads. If figuring out your ad budget or managing ads isn’t your thing, consider hiring us to help
We love working with B2B SaaS companies who want to see revenue growth and are willing to invest in their paid ads to get there. One of our clients, Uplisting, has grown their revenue by 30x since we started working with them. While paid ads are only one element of this revenue growth, it’s still an important part of their overall growth strategy. We see this time and time again with our clients.
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