- [Instructor] Budgeting for paid marketing
is always a significant challenge.
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
in paid advertising.
Instead, I encourage you to be comfortable
taking an adaptable approach.
Develop a rough budget,
and then as you collect data,
you'll continue to revise your model
until it's more and more accurate.
Got to be honest.
There are hundreds of methodologies
for deciding how to set up your bids
for paid marketing spend.
So I'm just going to give you a starting place
when working in a cost per click model,
and then you can build from here.
So let's say we're running a hotel
and we're willing to pay up to $100
to get someone to book our stay.
We'll call this our target cost per acquisition.
Now a good place to start
is to set your target cost per acquisition
at one-third of your customer lifetime value.
Now we can't set our maximum cost per click to $100
because, well, then we'd pay $100 for every click,
and we know that every click will not result in a sale.
So we need to figure out how many clicks it takes
before someone will make a purchase.
To start, I encourage you to look at
your current conversion rate for your online traffic.
Loosely, you can take the total number of sales
from a particular channel, say direct website bookings,
and then divide that by the number
of total visitors for that same period.
And that'll get you your conversion rate.
Now let's say that our hotel converts 8%
of the traffic that visits the website.
Now realistically, pay per click advertising
conversion rates are typically much lower
than what you'll see from direct,
so we'll cut that number in half, call it 4%.
Eventually, you'll get real data on how your ads perform
and can adjust your model from there, but for now,
you'll have to make loose assumptions to see
if you can build a sustainable page strategy.
We do a lot of experimenting in marketing
and you have to spend money to get that data.
So let's start with that assumption that 4% of the people
who click our ad will make a purchase.
So to arrive at our maximum cost per click bid,
take your 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.
Now 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.
Now 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.