That’s a great question and one I get asked regularly—and fortunately, there’s an easy formula for figuring out exactly how much money to set aside for your advertising budget.

With worldwide users spending an average of over 2 hours per day on social media, even brands who haven’t previously considered themselves very “social media savvy” have begun to look into buying social media ads to reach their target audience. Here’s four primary reasons why:

  1. Specific audience targeting
  2. Extremely cost effective
  3. Excellent ROI
  4. Complete tracking abilities

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“I’m doing maintenance on social media, but I need to advertise as well. How much should I spend on Facebook advertising each month?”

Social media advertising can be a fickle mistress but we can sum it up in a simple formula which I’ll go over below. Before I get into it, keep in mind that every business is, of course, unique. You should have a marketing budget for your quarter, preferably year. Within your marketing budget, you should have a digital marketing budget, which can be used to cover things like SEO, paid search ads, social media ads and even the management of it all, including maintenance. A social media budget will keep you on track and make marketing and advertising decisions simpler as your year unfolds.

There are different adaptations on how to budget for advertising—and there are definitely more complex versions, but what I’m about to tell you is an excellent marker for you to begin with. If you’re a seasoned business owner or marketing professional, you likely already know most of this.

Step 1:

Answer this: How much did you gross last year? Or, how much do you project to gross this year?

The formula is based on your gross (not net) annual revenue.

Remember that marketing is an investment into the growth of your business (and for the Canadian Revenue Agency, it’s a 100% write off!)

Step 2:

Decide what type of advertiser you are.

For the purposes of our social media ads budget formula, there are two types of advertisers:

  1. Advertisers with aggressive growth goals – you want some serious results, or you rely on Facebook to bring in a large portion of your business
  2. Advertisers who wish to maintain steady growth goals – You know you need additional exposure. You use social media to support other sales and marketing activities and you get reasonable activity from social media

Step 3:

Use this simple social media ads budget formula.

  • Businesses with aggressive growth goals should designate 5-7% of gross sales for advertising.
  • Businesses with steady growth goals should designate 3-5% of gross sales for advertising.

Depending on the advertising you’ve outlined in your marketing budget those percentages can be designated accordingly between print, digital and anything else you’re doing. This seems like a good time to point out, however, that digital advertising is usually much more effective and definitely easier to track than traditional methods (review the four primary reasons above).

More complex social media budgets

As we did more research on this topic, we found an article at entrepreneur.com that has a lengthier version for calculating an advertising budget, and it includes COGS and  margins. Our social ads budget is about as simple as it gets, but can be quite practical as it is straightforward to apply. You can get a little more complicated if you prefer to exclude your margins from your gross revenue.

 

Summary

Social media advertising can get complicated, but it doesn’t always have to be. Here at our digital marketing agency in Kelowna, we’ve found that the guidelines of about 3-7% of gross revenue is a reasonable starting place for crafting a social media ad campaign.

ProTip: It’s difficult to determine an appropriate budget that brings in an acceptable ROI, so test before setting your budget in stone. Get some data to support future decisions and your budget will get easier to do as you grow.

Next Steps

Establishing a social media budget is an important step—but it’s still the first of many. In a way, social media is a double-edged sword. While it provides powerful tools for marketers to target consumers based upon very specific behaviors, networks, locations, demographics, previous interaction with your brand (and much, much more), it also requires a higher level of familiarity with the tools in order to create truly effective social media advertising campaigns.

As a digital marketing agency, we specialize in planning, implementing, and optimizing social media ad campaigns (among other digital marketing services). We’re here to help you make social media work for your business—please don’t hesitate to ask your questions and get in touch!

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