- Budgeting for paid marketing
is always a significant challenge
with any new marketing initiative.
We tend to want to make long-term plans and forecasts,
but often have very limited information to do so.
And the reality is, long-term plans are rarely accurate.
Instead, I encourage you to be comfortable
taking an adaptable approach.
You'll develop a forecast, and then as you collect data,
you'll continue to revise your model
until it's more and more accurate.
Now, to be honest,
there's hundreds of methodologies
for budgeting your paid marketing spend.
So I'm just going to give you a starting place
when working within a cost-per-click model
and then you can build from here.
Let's say we run a hotel
and we're willing to pay up to $100
to get someone to book a stay.
This is our target cost-per-acquisition.
Now we can't set our maximum cost-per-click to $100
because then we would pay up to $100 for every click,
and we know that every click
is not going to result in a sale.
So we need to figure out how many clicks it takes
before someone will make a purchase.
So to start,
look at your current conversion rate
from your online traffic.
Loosely, you can take your total number of sales
from a particular channel, say direct website bookings,
and divide that by the total number of visitors
for the same period.
So let's say our hotel converts 8% of the traffic
that visits the website.
Now, truthfully,
pay-per-click advertising conversion rates
are typically lower than what you'd see from direct traffic.
So we'll cut that number in 1/2. Call it 4%.
Now, eventually you'll get real data on how your ads perform
and you can adjust your model,
but for now,
you have to make loose assumptions
to see if you can build a sustainable paid strategy.
We do a lot of experimenting in marketing
and you have to spend some money to get that data.
So let's start with an assumption
that 4% of the people who click our ad will make a purchase.
To arrive at our max cost-per-click,
take the maximum cost per acquisition
and multiply it by your estimated conversion rate.
In our case, that's $100 times 4%.
Which gives us $4 for our maximum cost-per-click.
When it comes to determining your overall budget,
you'll have to evaluate how much you're comfortable spending
and how many sales you need to achieve your goals.
To give you some perspective,
the average cost-per-acquisition with Google search is $60,
and a typical small business
will spend between four and $9,000
per month in paid advertising.
So don't be afraid to find a starting place,
test your campaigns, and adjust your model as you scale.