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How To Determine The Budget For Paid Ads Campaigns

One of the most discussed, yet misunderstood, aspects of launching a paid campaign is its budget. Not setting realistic projections for a marketing plan can destroy a business.

Imagine

A small e-commerce brand making $50k per month has the goal of scaling to $150k per month with paid advertising. The internal team runs with their gut feeling, believing they could achieve the additional $100k in revenue by spending $30k per month on ads.

However, had they referenced existing data to set an accurate projection, they would have discovered their average Return On Ad Spend (ROAS) was only 2x. In order to achieve an additional $100k in revenue from the planned $30k, they would have to build a plan to improve their marketing performance to achieve a 3.3x ROAS. Using historical averages, this revenue increase would require $50k instead of the original $30k projection.

By using historical averages, they gain the ability to better predict future outcomes. Once a brand understands its existing data, making a plan for growing and expanding is easier. We’ve observed many ways that brands determine the required investment for their marketing efforts, but today we’re going to dive into our own method to help you set accurate projections and set realistic KPIs.

Knowing Your Campaign and Industry Averages

If you’ve never run ads and are looking to start, then projecting your marketing performance can be difficult if you don’t know where to look. Thankfully, there are many resources available to provide you with some of the basics to have a window into how your campaigns could perform. To provide a window into how your campaigns could perform, we’ve created a graphic based on data we’ve gathered from third-parties and our clients’ performance over the past few years.

NOTE: To get the most out of the graphics below, use the data as an indicator of how average brands perform within particular industries. This will ensure you don’t set unrealistic expectations for your current product, content, offer, etc.

Average Cost Per Action (CPA) metrics by industry
Average Cost Per Click (CPC) metrics by industry
Average Click-Through Rate (CTR) metrics by industry
Average Conversion Rate (CVR) metrics by industry

Now let’s leverage this data to set growth projections and targets. Below is a list of metrics we’ll need to pull from industry data and our historical account averages:

  • Planned Monthly Budget
  • Cost Per 1k Impressions
  • Click-Through Rate
  • Website Conversion Rate (From Ads)
  • Average Cost Per Purchase
  • Required Return On Ad Spend
  • Average Order Value

Setting Goals And Understanding Your Data

The most common goals when growing a business are Gross Revenue and increasing the Average Order Value (AOV) of first-time customers. These goals can be directly influenced by paid marketing performance — especially with cold traffic targeting.

Cold traffic is the most expensive and difficult audience to convert. Improving the cost of turning cold traffic into revenue is one of the most powerful optimizations you can make to your ad campaigns.

To set these goals, start by determining your current averages and how much they’ve changed over the last few months, quarters, and/or years. Doing so will help you understand how your business is changing and where you can improve. 

You might find that your business is growing by 12% annually, but new executives want to aim for a 20% growth rate in the upcoming fiscal year. By comparing campaign performance to growth goals, you can begin to understand the difference between targets, realistic goals and what levers you need to pull to reach them.

Example

Let’s use the goal above as an example in our projections:

Current Averages

  • $50,000 Monthly Recurring Revenue (MRR)
  • $50 Average Order Value (AOV)
  • $12,000 Current Ad Spend

Growth Goals

If the company is looking to grow by 20%, then we have two levers we can play with to reach that goal:

  1. Improving the customers’ Average Order Value, which increases ROI on every customer engagement.
  2. Focus on reinvestment, increase spending, and convert more customers at the current rate.

Average Order Value Focus

In the example below is focused on the kind of performance targets that you’d set for a business if 

  • $60,000 MRR (20% increase in revenue)
  • $60 AOV (20% increase)
  • $12,000 (Maintain current ad spend)
  • The High-Level Breakdown:
    • 60k (MRR) / $60 (AOV) = 1000
    • $12,000 (ad spend) / 1000 (monthly orders) = $12 CPA
    • $60 AOV / $12 CPA = 5x ROAS

Ad Spend Scaling Focus

  • $60,000 MRR (20% increase in revenue)
  • $50 AOV (maintain current performance)
  • $14,400 (scaling ad spend by 20%)
  • The High Level Breakdown:
    • $60k (MRR) / $50 (AOV) = 1200
    • $14.4k (ad spend) / 1200 (monthly orders) = $12 CPA
    • $50 AOV / $12 CPA = 4.16x ROAS

Lead in copy into the option to focus on both

Average Order Value + Scaling Focus (Hybrid Model)

  • $60,000 MRR (20%+ increase in revenue)
  • $55 AOV (increase AOV by 10%)
  • $14,400 (scaling ad spend by 20%)
  • The Projection Breakdown:
    • $14,400 Ad Spend / $12 AVG CPA = $1200
    • 1200 monthly orders x $55 Average Order Value = $66000
    • $66,000 potential performance / $60,000 growth goal = 9.09% or a 29.09% increase in monthly income

There are many ways to use your campaign data and goals to ensure you have the right plan in place. In the example above, if we’re able to make just a few slight adjustments to our AOV and maintain performance as we scale our campaigns, we’ll outperform our internal goals. Even better, by making small adjustments to both levers, we greatly increase the likelihood of reaching the initial goal if the market changes.

Putting It All Together

Let’s take all of the metrics we’ve covered and run them through a calculator. Remember, the goal is to determine realistic projections for campaigns.

Example Metric Averages

  • Planned Monthly Budget = $25,030
  • Cost Per 1k Impressions = $14
  • Click-Through Rate = 2.54%
  • Website Conversion Rate (From Ads) = 4.43%
  • Average Cost Per Purchase = $16
  • Required Return On Ad Spend = 2x
  • Average Order Value = $35

Once we’ve received campaign data, we compare current performance to what we’d have if we could reach a goal metric — like seeing how much we’d increase sales by improving content quality that drives a higher CTR of 3.30% instead of 2.54%.

We use this calculator to project the performance of campaigns needed to reach our goals. For example, if our client’s looking to generate $600k from paid ads this year but doesn’t know the cost or projected profitability, using the calculator is a great place to start.

A visual representation

By using data from past campaign performance, we’re able to project our daily, monthly, and annual performance. While these numbers are never going to have 100% precision, they can help you determine if your goals are realistic.

So before you start a new campaign or try to meet an unchecked annual performance goal, be sure to create projections first using historical data. This will give you the clarity and confidence needed to make intelligent business decisions.

Try the calculator tool.

The 11 holidays to leverage for growing your e-commerce brand

Holidays are some of the best opportunities for brands to turn visitors into long term customers — unfortunately, most brands miss out because of a lack of planning. To help, we’ve outlined some of the most important US holidays to consider when creating a marketing plan, as well as a few tactics to best leverage these days.

Why Holiday Sales Are Great For Brands

People search for things to buy during the holidays. This creates a unique opportunity for your brand to connect with new users that are more open to trying new products. Even better: you can test different offers and angles on cold traffic to see which offers prove most enticing.

What Sales Should We Offer?

The best sales are straightforward; the most popular are sitewide sales and product bundles. If you offer a sitewide sale, A/B test callouts for specific percentages off and the total potential savings — you might find that your customers respond better to one.

Example 

Percentage Savings

“Save 20% site-wide through November 21st!”

Dollar Savings 

“Now through November 21st, save up to $75 on your order!”

What Holidays Should Have Sales?

Below are the top US holidays in 2021 we recommend including in your marketing plan to capture more sales, develop timeless brand awareness, and keep relevant with your customers. While this list isn’t exhaustive, it provides a foundation for your annual marketing plan to ensure you’re ready for the most popular holidays.

  1. New Year’s Day: January 1st
  2. Memorial Day: May 31st
  3. Independence Day: July 4th
  4. Labor Day: September 6th
  5. Veterans Day: November 11th
  6. Thanksgiving: November 25th
  7. Black Friday: November 26th
  8. Cyber Weekend: Nov 27-28th
  9. Cyber Monday: November 29th
  10. Christmas Day: December 25th
  11. New Year’s Eve: December 31st

Special holidays for your product or industry

In addition to the 11 national holidays we’ve listed, there are an ever-growing number of industry-specific holidays celebrated across social media: National Ice Cream Day, World Pharmacist Day, Houseplant Appreciation Day, Pie Day (not to be confused with Pi Day) — if there’s an industry for it, there’s probably a day for it.

These “holidays” can be especially effective because brands compete on a smaller scale — against other ice cream brands prepared with an advertising strategy, for instance. It can also be easier to get people excited about your product on an otherwise ordinary day.

In many instances, there can even be an opportunity to become an organizer or leader within a community/vertical for that given holiday — especially for small businesses.

Our recommendation: prepare an ad strategy for any “holidays” celebrating your products.

How expensive are paid ads during the holidays?

Year-end holidays are some of the most expensive times to run paid ads. While this shouldn’t deter you from continuing to grow, a 20-35% cost increase from historical averages is typical during November and December.

When you’re building your annual marketing plan, you’re identifying new ways to grow. Remember to look at the holidays that best relate to your brand and add them to the schedule. It might be the next best way for you to add a new stream to your brand’s annual revenue.

How to Scale Winning Paid Ads Campaigns

Imagine

You’ve been running ad campaigns for your brand for a couple of weeks to test for winning variations: and you’ve found them. Now it’s time to scale — to take your winning campaigns and push them to more people for a greater return. 

But how do you get there? Do you simply add more spend to the budget? Turn off non-performing variations?

What’s our winning process?

Historically, we’ve struggled with this answer. After a lot of trial and error and learning from the best consultants in the media buying space, we’ve developed a framework that helps our partners grow with paid ads.

Before we start scaling, we run our ad sets for 3-5 days for accurate average results — Facebook tends to show better results in the first few days of running ads. While it’s good to see ads converting, don’t let this fool you! This is often where scaling begins and ends for brands; they see initial growth, then watch their campaigns slowly decline or stagnate.

We follow this process:

  1. Increase the ad budget for the Top Of Funnel / Cold Traffic campaign by 20-30% — some suggest as much as 50%, but we wouldn’t go so far. This provides a baseline of data and the highest likelihood of consistent performance during initial growth stages.
  2. After 2-4 days at the new ad spend with consistent results, duplicate the ad set, and push the budget 100% higher than the original.
  3. When implementing higher budgets, leverage manual bidding, and test multiple ad sets with 1x, 2x, 3x, and 4x the target CPA.
  4. Within the campaign, create an ad set with 5-10x the original budget.
  5. Because Facebook auction fluctuates daily, we need to determine what kind of manual bidding works best for our ad sets.
  6. Finally… Test, Test, Test. scaling a winning campaign involves a lot of trial and error! However, with the right mindset and the right team, it is possible.

Ad Budget Breakdown

We’ve tested numerous strategies when it comes to managing the ad spend for maximum results. Over the years we’ve found that splitting the ad spend using a 70/30 model where 70% of the ad spend is directed towards cold traffic and the other 30% is devoted towards re-targeting and engaging our existing audience.

Cold Traffic / Top Of Funnel: 70% Of Ad Spend

Middle Of Funnel: 15 – 20% of Ad Spend

Bottom Of Funnel: 10% – 15% Of Ad Spend

Taking some time to outline a detailed strategy that can maximize your scaling potential is essential when setting up these campaigns. Make an effort to develop a thoughtful strategy rooted in specific goals. This will make your efforts focused, efficient, and set for success.

The Top Must-Haves For Any Kickass Marketing Plan

Must-Haves For Any Marketing Plan

Any company that wants to be successful must have a solid marketing plan to get their name out there, bring in leads, and close on a sale. While there seems to be more or less an unofficial system in place that most businesses can follow to design their marketing plan around, why is it that some businesses do so much better than others?

For starters, although all businesses may have a marketing plan in place, there’s a big difference between what’s considered a good marketing effort and what’s considered not-so-good. A good or a great marketing strategy one of the key differentiators that businesses need in order to grow, and although it takes a lot of effort, the guidelines are essentially the same across the board.

As long as you have these three things at your disposal, then carrying out an effective marketing strategy shouldn’t be too much of a challenge:

1) A Brand Persona

The first step in putting forth a great marketing effort is to establish a brand for yourself. When most people think of a brand, the first thing that comes to mind is a logo. While a logo is certainly important in the fluidity of your brand across your website, social media platforms, etc., it’s not really what defines a “brand.” In fact, a brand is actually defined as A type of product manufactured by a particular company under a particular name.” This means that when people come to learn about and understand your product (or services), they know that it’s directly connected to YOU.

That being said, developing a strong brand so that you can string it through all your marketing efforts takes a bit of an investment. And, in many cases, it also requires an expert that can walk you through the process. Sometimes, it helps to have an outsider help you understand what makes your business stand out from all the others. You may be selling a product that hundreds of other businesses are also selling, but for some reason, yours is unique. Tell them why. When you have the answer to that, then you know what your brand really is. Only afterward can come the creation of logos, signatures, visions, missions, mottos, and all those things that are generally tied to what people should be defining as a company’s brand persona.

2) A Buyer Persona

In addition to defining your company in terms of a brand persona, there also comes the other side of selling your products and services, and that’s establishing criteria for the people who will buy from you. Therefore, you must also have a buyer persona in order to put forth the best marketing effort possible.

According to Hubspot, a buyer persona is defined as “A representation of your ideal customer based on market research and real data about your existing customers.”

Customer data can include anything and everything from user behavior, demographics, and the needs and desires of your customer base. Until you gather this information — and you continue gathering it throughout the lifetime of your business — you won’t be able to define your buyer persona and really understand your audience.

But, once you do understand your audience, altering your marketing strategy so that it’s appropriate for your audience, will be a breeze. This can be done in a number of different ways, whether its analyzing information on trends of your buyers or taking a poll to find out more information on your leads.

3) A Plan and Basic Strategies

Finally, once you’ve got your brand persona and your buyer persona all taken care of, it’s time to come up with a plan as well as basic strategies to follow through on. This will allow you to measure the success and positive change that’s happening in your company over time. A great marketing effort comes from company leaders and their employees who work together to create the foundation that determines how things will work, in order to reach the final goal – making money.

It lays out a series of steps that are your best guarantee to finding success. And, once you go through this process, you’ll be able to go back, again and again, to analyze how you’ve done, so you can improve yourself for the next round.

Remember that a great marketing effort can only exist when a company continues to find areas where changes can be made so that you can come out with more profit, more customers, and more leads than the previous quarter. This plan, along with your basic strategies, will be different for each and every business, so it’s a good idea to meet with an expert to make sure that your plan and strategies are directly aligned with your end goal.

Don’t waste time playing around with a marketing strategy that just won’t work. Hire a marketing and branding expert to get you started on the right track from the very beginning. This way, you can be sure you have everything in place to create an outstanding marketing effort that will continue to bring in leads and drive in profit.

Looking To Get Your Buyer Personas In Order?

Check out this free guide!

 

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