How to Create an Advertising Budget

How to Create an Advertising Budget Like a Pro

Whichever ads platform you choose, thinking through your advertising budget will help you obtain the results you want faster. 

Paid advertising is probably the fastest way to reach your audience, but conversions only come when ads are done right.  

Targeting and campaign tracking are of utmost importance, and sometimes you may want to hire a dedicated professional for that. But besides that, you also have to pay attention to your advertising budget

While it may look like a mix of science and art, knowing how to set and spend your advertising budget can bring you closer to success. 

What is an advertising budget?

First and foremost, money spent on advertising is an investment in building up a business.  

The advertising budget is a part of the overall marketing budget, and it represents the money you are willing to spend on paid ads that are supposed to reach your target audience. 

Thankfully, we don’t have to figure out on our own how to approach creating a budget because there are already many ways to do that. Here are the most popular methods: 

  • Percentage of sales 
  • Competitive parity 
  • Objective and task 
  • All available funds 
  • Affordable 

Percentage of sales

Allocating a percentage of each sale to your advertising budget is a popular approach, especially for small businesses. The percentage comes from past or future sales and grants a virtually infinite budget.  

The biggest weakness of this model is that it has a short-sighted approach. We do not live in an ideal world, so market fluctuations happen all the time. 

A drop in sales can bring the company using this approach into a ‘vicious circle.’  

Why? Because the moment your sales drop significantly, your ads budget will get proportionally tighter, further limiting your ability to sell.

Competitive parity

When entering into unknown territory, it’s wise to look at how others are doing. Knowing how much your competitors spend on advertising can help you set an advertising budget that may bring similar results.  

The greatest benefit of this approach comes with the historical data it brings. Through competitive parity, you know how another company in the same industry acts to get the desired results. However, not all companies are the same.  

Although you can analyze their strategy, the goals may differ significantly, and so may the market condition.

Objective and task

At the end of the day, we do ads to reach a goal.  

Therefore, the objective and task budgeting method proposes an approach in which you first define the objectives you want to accomplish through advertising and then estimate the cost of your activities. 

The major drawback is the complexity. You have to make a lot of estimations when calculating your budget.  

However, the advantage over other budgeting is that this method provides you with a more specific and accurate strategy.

All Available Funds

If you like power plays, then you may like this method. The all-available funds method is an approach in which you invest all available profits toward advertising.  

The strength of this approach is that you may leave a powerful impression on the market.  

However, such a strategy will require large amounts of money. And if a competitor can spend more than you do, then your campaign may not reach its purpose.

Affordable

In business, every dime counts. As the name suggests, the affordable method proposes you set up a budget based only on how much you can afford to spend. This method implies checking how much money is available after deducting operational costs and considering other budgets.  

The affordable approach can be helpful for companies on a tight budget. However, the advertising budget is at the bottom. Ads won’t perform very well, limiting growth in the long run. 

Ad budgeting, step by step

Some of the budgeting methods presented above are more systematic, and some are rather rough.  

We at Coinzilla believe that good planning brings better results. So, before deciding how to spend your money on ads, we recommend you look over these 5 steps to allocate your budget. 

Set advertising goals based on your company’s objectives.

Come up with relevant SMART goals that you have planned for this ads campaign. This way, you will have a clear idea of what you plan to achieve through advertising.

SIDENOTE. SMART is an acronym that guides the creation of better goals. It stands for Specific, Measurable, Achievable, Realistic, and Time-based.

Determine your most important activities.

When planning your budget, take into consideration that you may need designing and productionmedia planning, setting up, and maintenance. Additionally, you may have to create a landing page or make some modifications to your current website.

Prepare the components of the advertising budget.

Income – What money will you be granted for advertising?

Fixed expenses and flexible expenses – After you determine what activities you are to undertake, sort out what has a fixed price and what prices may vary. (e.g., The cost of designing a banner is fixed while customer acquisition cost may vary.)

Unplanned expenses – New regulations, policies, and sudden maintenance may require spending money to adapt to the new environment.  

Allocate funds for activities proposed under the advertisement plan.

Based on the customer persona and depending on your goals, one channel may be more effective than another. 

While covering every communication channel you have ever heard of may sound like the perfect way to reach as many people as possible, you should consider potential customers are reached better through specific channels.

Periodically monitor the expenses being incurred in the advertising process.

To some extent, it may overlap with campaign management. But when setting up the budget strategy, take into consideration that you should regularly look into the evolution of your advertising spending and be ready to adapt.

Budgeting for display Adds – Ad impressions, clicks, and conversions

Usually, display ad networks provide you with a platform where you set up a campaign and deliver your banners across numerous relevant websites with minimum effort. 

But more than that, they should offer you an in-depth report on ad spending.

What to take into consideration

While planning your budget, you should consider ad impressions, clicks, and conversions.

Impressions

Display and native ads prices on most platforms are calculated by the cost of a thousand impressions (CPM). They are calculated automatically and can vary according to competition.

Clicks

You can easily start calculating your budget by considering the general average CTR for this type of ads:

  • 0.05% for display ads;
  • 0.27% for native ads.

In our experience, a well-optimized display ad with a good banner can get an average CTR of 0.15%, while on native ads it can vary between 0.15% and 0.3%.

Conversions

The conversion rate (CR) is a pretty sensitive topic in every industry.

For example, the financial industry’s average conversion rate for display ads is 1.19%.

But, of course, your conversion rate will vary depending on your project type, your offering, and how well-optimized your landing page is.

Considering a 1.19% conversion rate, you need to establish how many leads you should statistically expect in your budget by solving this equation:

{[(Budget / CPM) * 1000] * CTR} * CR = Conversions

For example, if you have an advertising budget of $5,000, a CPM of $3, a CTR of 0.3%, and a CR of 3%, you should expect 150 conversions.

{[(5,000 / 3) * 1000] * 0.3%} * 3% = 150 Conversions

Many impressions, few conversions?

You may find yourself in a situation where you spend your advertising budget but get little to no conversion. In that case, you should take the following actions:

1. Timing your ads for efficient budgeting

Make sure your ads are being shown at the same time your target audience is most likely to be active. Maybe your audience is more receptive at night, and you’re spending your budget throughout the day.

2. Check your targeting

Although you may be looking for clients from Asia, you may find that the USA audience is more receptive to your English website.

3. Ad design, message, and user intention

As mentioned above, your ad design can improve your CTR as well as your brand image. However, take into consideration the user’s intention. If a user clicks through your ad with the intention of getting something for free, he is less likely to spend money on your website.

4. Reevaluate your landing page and offers.

Poor landing page experience is the #1 enemy of conversion. So make sure yours is neat. 

But if your landing page is at its best, maybe you can come up with a better offering or a promotion.

Key takeaways

  • The advertising budget is a part of the overall marketing budget, and it represents the money you are willing to spend on paid ads that are supposed to reach your target audience. 
  • There are several budgeting methods, and some of the most popular are ‘percentage of sales,’ ‘competitive parity,’ ‘objective and task,’ ‘all available funds,’ and ‘affordable.’ 
  • Whether you want to take a more or less systematic approach in planning your advertising budget, you should set advertising goals, determine the activities, prepare the components of the advertising budget, allocate funds, and periodically monitor the expenses. 
  • When establishing your advertising budget for a display ad network, this equation can help you greatly: {[(Budget / CPM) * 1000] * CTR} * CR = Conversions 
  • If your campaigns are not producing enough results, check the timing of your ads, the targeting, ad design, message, user intention, and reevaluate your landing page and offers.