We get it, you’re on a tight budget. But you can’t afford to not spend money on advertising—as the adage goes, it takes money to make money. It certainly works here, because for every $1.00 spent on Google Ads, you can generally earn an average revenue of $2.00.
How much should you spend on advertising? And how do you allocate ad spend to give you a respectable and reliable ROAS (return on ad spend) and ROI?
These are important questions regarding digital market budgets, especially looking at paid advertising and pay-per-click (PPC) in particular. So let’s get some solid answers! In the end, you should have a better holistic understanding of how much you should spend on these areas of advertising.
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Buckle your seatbelt, here we go!
How Much Should I Spend on Marketing in General?
With marketing, costs can be sky-high. Microsoft spent over $20 billion in 2021 alone, its highest ever. Walmart spends over $3 billion annually on advertising.
But how much should you spend on marketing, including SEO, content marketing, paid ads, et cetera? You may be expecting a complicated or generic answer, but we’re all about transparency here at Big Leap, so here’s the straightforward answer you need.
- Small businesses with less than $5 million in revenue should allocate 7–8% of it to marketing (assuming you have a profit margin of 10–15%).
- Small businesses with more than $5 million in revenue should consider allotting 12–20% of their gross revenue to marketing.
- Medium- to large-sized businesses with $500 million to $20+ billion in revenue typically spend ~10% of their revenue on marketing, but that’s expected to grow.
Specific numbers vary, so here are some examples of marketing spend per industry. Where do you fit?
- Manufacturing = 8%
- Finance/insurance = 8%
- Retail wholesale = 10%
- Service consulting = 12%
- Communications/media = 13%
- Consumer services = 15%
- Tech software/biotech = 15%
- Consumer packaged goods = 24%
For a more personalized calculation, use our custom digital marketing calculator to estimate the best budget for your business. We conducted extensive research to discover how to allocate budgets best according to your industry, annual revenue, and desired aggression level. With just these three inputs, we crunch the numbers and deliver a suggested budget that meets your criteria.
Budgeting for Paid Ads
Let’s move on to the nitty-gritty of paid ad budgets. Paid advertising comes in a few forms, such as:
- Paid search
- Paid social
Various types of ads can be bought within these forms, like display ads, native ads, and remarketing/retargeting ads.
Below we cover things to consider, setting a budget according to growth sales, and how to track costs and measure results.
Things to Consider
As you try to come up with your own budget for paid advertising, it can help to consider what others do. Marketers tend to spend 9% of their budget on paid search advertising, 14% on social media marketing, and 16% on paid display (with almost half of that focused on retargeting).
But there are other costs associated with paid advertising you may not have thought of yet. Paying for time strategizing and managing projects is one of them. Designing graphics and copywriting are others. Be sure to make room in your budget to account for these other necessary expenses.
Setting Budget According to Growth Goals
Before even considering your budget, you need to establish your goals, as these will guide your numbers.
Some questions to ask yourself are:
- What breadth of audience am I looking for?
- How many new leads per month do I want to get?
- How much revenue am I trying to make?
- How much traffic will help me reach my goals?
- How much more money do I need to spend to reach my goals?
How to Track Costs and Measure Results
After you set goals and implement a budget, it’s time to track and measure key metrics to gain insight into the effectiveness of your efforts. Otherwise, you’ll have no idea whether you’re heading in the right direction to achieve your goals or have gotten wildly off track.
To help track your costs and measure the results, here are some analytical tools to hook on your belt:
Don’t forget to also track phone calls, as these won’t show up automatically in your analytics.
How Much Does Pay-Per-Click Cost?
Moving on to PPC costs, how much are they anyway?
The average PPC cost across all industries is $2.32 for a Google Ads search results page. For a publisher’s display page, it’s about $0.58.
Broken down by industry, PPC cost averages are:
- B2B = $0.79–$3.33
- Consumer Services = $0.81–$6.40
- eCommerce = $0.45–$1.16
- Finance & Insurance = $0.86–$3.44
- Legal = $0.72–$6.75
- Real Estate = $0.75–$2.37
- Technology = $0.51–$3.80
- Travel & Hospitality = $0.44–$1.53
Calculating Proper PPC Costs for Your Business
If you have a budget of $1,500 per month and it costs an average of $5 per click in Google Ads for your targeted keywords, you can buy yourself 300 site visits. Out of these, it’s possible to convert 18 of them into new customers (using a 10% website conversion rate and 60% lead-to-customer conversion rate).
If you are looking to get more than that—let’s say you’re aiming for 48 new customers—the calculations work out to mean you’ll need to spend $4,000 per month to hit that goal.
Now, let’s see if that $4,000 spent on 48 new customers is worth it. If each customer represents an average revenue of $500, your ROAS is:
($500 average revenue per customer x 48 customers) / $4,000 money spent per month = 600% ROAS
We’d say that’s a sweet return!
But hold up…that’s only part of the picture. You’ve got to calculate your ROI to account for your other costs and profits. If it costs you $9,000 in labor/supplies to produce $24,000 in sales from your 48 new customers, you’re looking at a gross profit of $15,000. Subtract the $4,000 Google Ads expense, and you’ll be left with $11,000.
With these numbers, you can now calculate your ROI:
($15,000 gross profit – $4,000 Google Ads expense) / $4,000 Google Ads expense = 275% ROI
This is a healthy return on PPC costs, one that should entice you to continually make this investment.
We probably should’ve mentioned this earlier, but there’s an Advertising ROI Calculator you can use for free. You’re welcome.
Avoiding Costly PPC Mistakes
Avoid making costly PPC mistakes to optimize your marketing campaigns and get the results you’ve been working/hoping/asking for.
- Increase your budget too quickly trying to push for first position on the SERP (search engine results page).
- Use negative keywords that waste your budget.
- Write boring and unemotional ad copy that doesn’t entice your audience to act.
- Neglect your landing pages because long load times and irrelevant content won’t help you or your users.
- Let location targeting slip, since that’ll decrease local engagement.
- Forget ad extensions, since they increase CTRs, quality score, ad rank, etc.
- Be too broad by targeting everyone—it’s not effective.
- Neglect using ad schedules to display ads or change bids when customers are most active.
- Risk your brand name and budget by committing or being a victim of click fraud.
- Set and forget your campaign instead of continually collecting data, analyzing performance, and tracking success.
- Test the wrong metrics, but focus on aligning your ROI with your benchmarks and goals instead.
How to Get Help with Paid Advertising
We know, we covered a lot in this article and totally understand if you need to take a nap now—this writer does! When you wake up, don’t be shy about asking for help. That’s why we’re here. It’s our duty. It’s our passion. It’s our entire raison d’être.
But seriously, contact us today. We’re happy to help you set a paid advertising budget that brings in the bucks.
(And, please…go take a nap. Your mom’s right when she says it’ll do you some good.)