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.
- Specific audience targeting
- Extremely cost effective
- Excellent ROI
- Complete tracking abilities
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:- Advertisers with aggressive growth goals – you want some serious results, or you rely on Facebook to bring in a large portion of your business
- 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.
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.
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!