Effective Advertising: How to Calculate Ad Budget

Posted 1 month ago av Anastasia Prokofieva

Supercharging your business’s growth through effective advertising is like igniting the afterburners on a high-performance jet. When done right, you skyrocket; men, a miscalculation could result in a rapid descent.

That’s why landing on the perfect ad budget is crucial. But how do you define what’s ‘perfect’? It’s about aligning every cent spent with your business goals, and we’re here to be your mission control.

Why Your Ad Budget Matters

In a world where even the tiniest details can make or break a company’s ad game, grasping the decision-making that goes into every campaign is crucial.

Your ad budget is the financial backbone of your marketing efforts. Every dollar should be put to work effectively to give the best ROI, aka return on investment. It isn’t a number you pluck from thin air or borrow from the neighbors. It needs to be strategic, just like your advertising needs to be targeted.

men, the critical question lingering in every business owner’s mind is, how do I know how much to spend for effective advertising?

Before Calculating Your Ad Budget

Å finne ut hvor mye du skal bruke på annonser er et spørsmål om balanse. Du vil ikke kaste bort penger ved å bruke for mye, du ønsker heller ikke å være ineffektiv ved å underforbruke. Det er en Goldilock-lignende "akkurat riktig" sone som vil gi resultater uten å påvirke marginene dine.

Før vi starter, det er noen få nøkkelbegreper du må forstå:

Markup er forskjellen mellom prisen på et produkt og salgsprisen (bruttofortjeneste over kostnad). Det er vanligvis uttrykt i prosent.

For eksempel, hvis du selger et produkt for $150 når det bare koster deg $100, din markering er 50%. Du vil ha dette tallet for alle produktene dine individuelt og i butikken din.

Margin er bruttofortjenesten din uttrykt i prosent av salgsprisen.

I eksemplet ovenfor, din fortjeneste ville være $50. Dermed, din totale margin ville være 33.3% ($50/$150).

Kostnad for belegg er kostnaden for å holde e-handelsbutikken i gang (for eksempel webhotell, lagerstyring, og frakt og håndtering). Disse kostnadene er vanligvis statiske og forutsigbare.

Du trenger disse beregningene før du kan begynne å beregne annonsebudsjettet. I et eget regneark, make a note of these metrics.

You might have something like this:

	Margin	Markup	Kostnad for belegg
Produkt #1	33.33%	50%
Produkt #2	54.54%	120%
Produkt #3	37.5%	60%
Average for Store	43.39%	76%	$30.000

Once you have this data, you can start calculating your ad budget.

Calculating Your Ad Budget for Effective Advertising

How much you can spend on ads will depend on three things:

Nisje: Stores in certain niches can get away with spending less on ads because of higher margins or stronger word-of-mouth or social media reach. This is particularly true for fashion or highly niche-specific stores.
Business stage: Du må bruke ekstra på annonser i de tidlige stadiene av virksomheten din for å etablere merkevaren din. Sen-fase selskaper kan slippe unna med å bruke så lite som 3% av deres årlige inntekter på annonsering.
Marginer: Annonsebudsjetter er vanligvis en funksjon av marginen din. Jo høyere margin, jo mer penger bruker du på annonser.

US Small Business Administration råder tildeling 7-8% av bruttoinntekten til markedsføring og annonsering hvis det årlige salget er under $5 millioner og din netto fortjenestemargin varierer mellom 10% til 12% etterutgifter.

Understand that this also includes brand development costs, including spending on websites, blogger, and social media. Som oftest, you’ll have no more than 3-5% of your annual revenue to spend on advertising.

Med dette i tankene, let’s look at a step-by-step process for calculating your ad budget.

Steg 1: Calculate Your Minimum and Maximum Possible Ad Budget

Som nevnt, most businesses allocate 5 til 10 percent of their annual revenue to advertising. Her, 5 percent would be the floor and 10 percent the upper limit.

Start by calculating these lower and upper limits on your ad spend.

Å gjøre dette:

Ta 5% og 10% of your projected annual sales
Multiply each of these figures by the average markup per transaction.

For eksempel, suppose your business is projected to do $1M in annual sales this year. 5% og 10% of your annual sales would be $50,000 og $100,000.

Suppose your profit margin is 60%, dvs., you make $600,000 in profits with $400,000 in costs.

Derfor, your markup would be 150% ($600,000/$400,000 * 100).

You have figures like this:

Annual Sales (EN)	5% of Sales (B)	10% of Sales (C)	Markup (D)	*5% of Markup (B D)**	*10% of Markup (C D)**
$1,000,000	$50,000	$100,000	150%	$75,000	$150,000

Dermed, your minimum and maximum ad budget is $75,000 og $150,000.

Steg 2: Calculate the Adjusted Ad Budget

The above is your “raw” budget since it doesn’t include your cost of occupancy (dvs., the cost of running the store).

For å få din justerte figur, trekk ganske enkelt kostnadene ved bruk fra det rå minimums- og maksimumsbudsjettet.

For eksempel, anta at dette er de årlige kostnadene knyttet til driften av butikken:

Netthandelsprogramvare: $2400
Betalingsbehandler: 2% av årlig omsetning ($20,000)
Hosting: $1200

Dermed, din "beleggskostnad" er $23,600.

Det justerte annonsebudsjettet ditt er som følger:

Minimum: $51,400 ($75,000 – $23,600)
Maksimum: $126,400 ($150,000 – $23,600)

Dette tallet forteller deg hvor mye du kan forvente å bruke på årlige annonser.

Proff-tips: Du kan redusere beleggskostnadene dine ved å bruke en budsjettvennlig e-handelsplattform som Ecwid av Lightspeed. You’ll get a robust online store fully hosted and maintained by Ecwid, plus dozens of built-in business management and marketing tools to grow your business.

Best Practices for Effective Advertising and Budgeting

Nå, you have step-by-step instructions on how to calculate your ad budget. For best results, here are some best practices to keep in mind:

Start Small

If you’re just starting with advertising, it’s always better to start small and gradually increase your budget as you see results. Det vil hjelpe deg å unngå overforbruk og lar deg gjøre justeringer underveis.

Sett klare mål og mål

Før du oppretter annonsebudsjettet, det er viktig å identifisere dine forretningsmål og mål. Ellers, det vil være vanskelig å vurdere effektiviteten til annonsering.

Enten det er for å øke salget, øke trafikken til nettstedet, eller øke merkevarebevisstheten, målet ditt bør være krystallklart selv før du starter opp et Excel-ark.

Mål bør være spesifikke, Målbare, Oppnåelig, Aktuell, og tidsbestemt. Beleilig kjent som S.M.A.R.T, these goals ensure your intent is as sharp as your execution should be.

Keeping your objectives and goals in mind will help you determine the types of ads you need to run and the platforms you should use. For eksempel, if your goal is to increase brand awareness, social media ads may be better than traditional print or TV ads.

Adjust for Long Game vs. Quick Win

Advertising effectiveness ultimately boils down to how well your tactics align with your goals.

Different objectives call for other strategies. Long-term brand-building efforts require a sustained, consistent ad presence. Quick sales might push for a flashier, short-term ad campaign.

Consider Ad Platforms

Where you place your ads can have a significant impact on their effectiveness. Think about your target audience and where they spend their time online. It will help you choose the most appropriate platform for your ad campaign.

Consider using multiple platforms to reach a wider audience and increase the chances of success. For eksempel, if your target audience is primarily young adults, social media platforms like Instagram and Snapchat may be better. Samtidig, TV advertising effectiveness is likely to be low.

I tillegg, different ad platforms offer various types of targeting options. For eksempel, Facebook and Google Ads allow you to target specific demographics, interesser, behaviors, and locations. It can help narrow your audience and ensure your ads reach the right people.

Så, if you’re wondering, “Is social media advertising effective?” the answer is it definitely is, as long as the ads are targeted right.

Using Ecwid by Lightspeed for your online store, you can optimize your Facebook and Google ads with Klikk på den. It’ll help you set up and automate ads and optimize them for a better return on investment.

Track and Analyze Ad Data

Keep track of your ads’ performance and use this data to make informed decisions about your budget. Adjust accordingly if certain ads or platforms don’t yield the desired results.

If you use Ecwid by Lightspeed, measuring advertising effectiveness is easy with the Rapporter tool. It has a Marketing section that helps track order sources, be it Google ads, Facebook-annonser, or other marketing channels.

Avslutt

With these strategies in hand, figuring out an ad budget that meets your business goals and guarantees an excellent return on investment turns into a smart move, not a scary one.

Dealing with ad budgets isn’t just about finance but vision. It’s about translating the intangibles of advertising into actionable strategies that leave no room for interpretation — and every room for growth.

You’re not just calculating an ad budget; you’re architecting your path to market success. And with the strategies unearthed here, you’re set to craft an advertising budget that’s not just a figure on a sheet but the lifeblood of your most effective advertising.

Do you want to learn more about advertizing with Google?

About The Author

Anastasia Prokofieva is a content writer at Ecwid. She writes about online marketing and promotion to make entrepreneurs’ daily routine easier and more rewarding. She also has a soft spot for cats, chocolate, and making kombucha at home.