How to Choose Your Starting Advertising Budget

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When we are speaking with a new potential client, there is one question in particular that always leads to more questions than answers. That question is, “What is your budget?”

The client usually replies with one of these answers:

  • “I have infinite budget as long as it’s working.”
  • “I don’t know – you tell me! What should my budget be?”
  • “As little as possible to test things out.”
  • “Is $500 a month too little?”

And understandably so. Online advertising feels expensive and can be risky. Oftentimes. you are testing out new products and creatives with new audiences and aren’t sure what returns will look like. And, you want to spend enough to give it a fair shot, but not so much that it will hurt badly if it doesn’t work.

Here are the variables we consider when setting an initial budget:

  1. Timeline: How quickly do you want to hone in on a winning strategy? If you want to find the winning combination of ad and audience within a month, the budget should be higher than if you have a longer time horizon. Short timelines require more budget to test all the different variations as well as achieve statistical significance on each. 
  2. Expected Cost-Per-Acquisition: If you are selling a luxury good or high-ticket item where the cost-per-acquisition for a new customer is typically high, you will need a higher budget to be able to effectively test and get results.
  3. Testing: If you have very little insight on your ideal customer or creative, and are looking for your agency to conduct that testing for you, you will need a higher budget. Each variation you are looking to test will need sufficient budget to achieve statistical significance. 
  4. Sales Cycle Length: If your product or service is one that customers heavily research or take a long time to make a decision on, you will need a higher budget. This is because we will likely need several touchpoints with each prospect (done through remarketing) in order to win them as a customer. 
  5. Goals: If you are looking to grow aggressively, you will need more budget. If your main goal is to just slowly optimize a new growth channel, we can start small. 
  6. Affordability: Obviously, we have to work within the financial limitations of the client! We work with each client to determine what is comfortable. 

As you can see, there are MANY variables. And, this is not an exact science. The minimum recommended starting budget for our new clients ranges from $2,000/month in ad spend all the way up to $50,000/month plus! We work with each client to find what works for them – and most importantly – we adjust in real time. If our large budget is not yielding the anticipated results, we scale back in real time. If the small budget we set is delivering a kick-ass return on ad spend, we scale as quickly as possible! Our goal is to help our clients reach their goals, and that often requires being nimble – even when it comes to budget.

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