5 min to read
One of the questions we get asked most frequently as a digital marketing agency is “How much should I invest in digital media?”
Whether we’re talking about Facebook Ads, Native Ads, or Google Ads, the answer to this question is always the same: it depends.
This answer, or lack thereof, is unfortunately the only honest response to the question. There simply is no magic number that can be generically applied to every business.
If you want to build a vehicle that gets you to the moon, or one that just down the street, the resources needed are going to be wildly different.
The same concept applies for digital media. Digital media platforms like Facebook and Google, to the surprise of no one, don’t have a “maximum spending limit.” You can spend upwards of $1M / month on digital media. Many brands do, however that doesn’t mean that every brand should.
How much you should spend, therefore depends on where you’re trying to go.
So, in order to answer the question, “How Much Should I Invest in Digital Media,” you should first ask yourself “What Do I Want to Accomplish with my Digital Media Plan.”
Your Online Advertising spend (Google, Instagram, Facebook, YouTube, etc) should be calculated based on your objectives for a paid media strategy. To determine an adequate budget, it’s important to evaluate what you are trying to accomplish with that budget.
Most likely, your ultimate goal for investing in Paid Media channels is to increase leads or sales. But how many sales are you looking to generate per month? What percentage of your total revenue do you want to come from paid media channels? Try to make these goals as SMART as possible. Once you know what you are trying to achieve, you can reverse engineer a digital media plan to get you there.
Step 1: Determine your Target CPA
In marketing, we call the amount you’re willing to pay for a single sale the “Target Cost per Acquisition.” The Cost per Acquisition is the total cost of acquiring a new customer or lead a via specific platform or channel. CPA focuses on the cost for the business when the customer completes the journey from first contact to sale, and is one of the most important metrics for determining a budget.
It can be calculated as:
($) Total media spend / (#) new customers acquired via specific media channel = ($) Cost per acquisition
This is one of the best methods to track the efficiency of your campaigns, but it’s also an important business metric. If the cost per acquisition is higher than the cost per sale, then your business is going to be counting in a big loss. However, sometimes losses can be strategic in the long term.
Many businesses try to onboard as many customers as possible at any cost in the early phases of their brand as a way to accelerate growth. Also, if your business runs on a subscription model, the customer usually only becomes profitable in month two or month three. To know a good CPA for your business, you should consider the total Customer Lifetime Value and your product’s profit margins.
This number can be difficult to figure out, and it may evolve over time, but it’s important to start with a target in mind.
Step 2: Find your average CPC
Most Digital Advertising platforms run on a “Pay per Click” basis, meaning you only pay you’re your ad is actually clicked. Average Cost-per-Click is the average amount you pay for someone to click on your ad.
It can be calculated as:
($) Total media spend per channel / (#) total number of clicks = ($) average Cost per Click
This value will vary by campaign type (whether it’s a Display ad, Video ad, Search ad, etc.) and platform (Google Ads, Facebook Ads, Outbrain Ads, etc.).
CPCs will also vary depending on your brand’s industry. Since Pay-per-Click advertising run using an Auction, this number is indicative of the greater industry value and competition. For example, the CPC for a keyword like “Accident Lawyer” will be much higher than the CPC for “Bulk Cotton Socks.”
Here’s how you can find your average CPCs:
Historical Data: If you have historical data in your Ad accounts, you can extract this number easily. This method is going to give you the most accurate values because it’s based on your proprietary data, and not third-party data. However, that doesn’t mean that your CPCs are optimized (working with a digital marketing agency can help you pay less per click).
Benchmark Data: If you’ve never ran an ad campaign before and don’t have any historical metrics to pull from, you can use Benchmark data to determine the industry average CPC. Check out this article to find CPCs benchmarks for your brand’s sector.
Keyword Research: This is specific for Paid Search campaigns. As mentioned above, different keywords have different costs per clicks depending on how many advertisers are bidding on them, and how competitively. Keyword Research tools like Google Keyword Planner, Uber Suggest, or SEMRush can help you find out the average CPC for the keywords related to your brand. Check out this article for more help with this step.
Step 3: Find your average Conversion Rate
Conversion rate is the ratio of website visits from a specific channel (which, in the case of PPC campaigns, can also be measured as clicks) compared to conversions (purchases or lead submits).
It can be calculated as:
(#) Total number of clicks / (#) total number of conversions = (%) average Conversion Rate
Here’s how you can find your average Conversion Rate:
Historical Data: Take a look at your accounts historical performance and extract the average conversion rate of your campaigns. Once again, it does not mean that this value is necessarily optimized.
Pro Tip: Compare this number to benchmark data to understand if your conversion rate is within a healthy range for your industry, or if your campaigns are performing below average. A low conversion rate can be a result of any number of factors, such as incorrect audience targeting, poor product-market fit, low ad quality, or an underperforming website. Working with a digital marketing agency can help you diagnose the reason for a low conversion rate, and help you optimize your marketing strategy to increase this number.
Benchmark Data: In the same article we referenced before, you can also find the average conversion rate by channel and industry.
Step 4: Putting it all together
Now that you have your numbers, you need to put it all together. The entire equation will look something like this:
($) Investment X / ($) Average CPC = (#) Clicks
(#) Clicks * (%) Conversion Rate = (#) Sales
(#) Sales / ($) Investment X = ($) Average CPA
Fill in the blanks, and solve to find your Investment X.
Step 5: Comparing Your Projected Results to Your Goals
The first thing you should look at is your average CPA. Does this number fall within your target range? If your CPA is too high to be profitable, then the volume of sales is irrelevant. If this is your case, then you need to focus on optimizing your digital media strategy.
If your CPA is within acceptance range, take a look at the total volume of conversions. Are you generating enough sales to reach your targets? Perhaps you need to increase your investment to hit your targets, or maybe you can afford to scale back.
Not a numbers person? No problem! Download our Free Digital Marketing Plan Template to get started.
We love numbers, but we know that not everyone does. That’s why we created this Digital Marketing Plan Template. Here’s how you can get started:
Collect your CPC data according to the above
This template will do all the leg work of calculating the Projections from your Digital Media Mix (tab 3), as well as additional business metrics such as Profit and Return on Investment.
Remember: A Digital Media Budget is Not a Digital Marketing Strategy
Online Advertising is just one piece of the whole digital marketing puzzle. There are many other traffic channels and branding elements that you need to take into consideration if you want your business to succeed.
You could also check these ten chrome plugins for marketing.
Codedesign is a digital marketing agency helping to connect our clients with their audiences worldwide. We build borderless digital marketing strategies focused on driving qualified traffic, increasing leads, boosting sales, and scaling profits. Contact us to schedule a consultation with of our digital marketing experts.