Ad budget

Joran Hofman
April 3, 2021

What is an Ad Budget?

An advertising budget is the estimate of the expenses allocated for the promotion of a company in the course of a defined period. It is the money that the company is in a position to reserve and spend to achieve its marketing objectives for services and products.

Why is it Important To Do an Ad Budget?

When a company or business has excellent products and services, but these are unknown to the people, the chances of growth of the said company or business decreases dramatically; if the products and services are not sold, there will be no business.

This is the basis of the importance of studying and having a budget for the advertising of a company or business so that people know the products or services offered and the advantages or benefits of these, call and win customers, achieve a better brand location.

However, doing an advertising campaign is not just placing ads without any control. A detailed study must be done before, to avoid loss of resources and money by not meeting the goals and objectives, which in the end would translate into expenses and not investment, which is the approach you should have.

The objective of any advertising campaign is to achieve previously defined and established goals. These goals can be to gain more clients, more followers on the Internet, or more followers on popular social networks (Facebook, Twitter, YouTube) or simply increase the number of sales at the end of the year. This is why an advertising budget has to be designed based on previously established and defined purposes.

Suppose a company or business decides to invest in advertising and does not carry out a preliminary study. In that case it has a greater chance of wasting or allocating unnecessary amounts of money to achieve the objectives.

How Do You Calculate an Ad Budget?

There is no single method, formula, or manual to calculate an advertising budget; there are several methodologies and opinions in this regard; however, all of them have some points or aspects to consider in common, which will be named and briefly explained below:

The SBA recommends two formulas to help small businesses decide how much to spend on advertising:

How much money is needed to drive the sale of a designated product at a designated price? The example is that if you spend $ 20 on advertising the sale price of a product that costs $ 600, then you should be willing to spend $ 12,000 on advertising to sell 600 units and produce $ 360,000 in sales.

The other way is to save a fixed percentage of the total projected sales revenue for advertising. Therefore, if you plan to allocate 10 percent of your revenue and are estimated to produce $ 150,000 in sales that year, you would spend $ 15,000 on advertising.

Once you have calculated how much money you intend to budget for advertising, you have to define when that money should be used in the course of the next 12 months. Sample worksheets and templates are available at the SBA at no cost to help you budget for advertising.

Although this data can be time-consuming to design, it can help match actual sales against goals set when planning your advertising strategy. So you can make decisions about making changes.

If you want to take a more strategic approach to your marketing budget, you have to focus on two main statistics: cost per customer and conversion rates.

And if you want to optimize your annual marketing budget, your goal should be to budget using the marketing avenues that give the best results in two areas:

  • Increase conversion rates.
  • Lower the cost per potential customer.

How To Set the Budget for a Facebook Ad?

When an ad is created from a personal page, several parameters are chosen: 

  1. Creativity (the way the ad looks),
  2. The audience (the audience you want to reach) and
  3. The budget (the amount you want to pay for the Facebook ad).

 The amount established in the budget will never be exceeded.

 On Facebook, two types of estimates can be found:

  • Daily budget: it is the average amount that will be spent on an ad daily. As an example, if you set a daily budget of USD 10 over ten days, up to USD 100 in total will be charged.
  • Total budget: is the maximum amount that will be spent on an ad until the moment it stops running. For example, if you set a total budget of USD 50, only up to USD 50 will be charged.

The account is charged each time an ad is delivered to someone, even if the ad is not touched or activated. You have to be aware of the announcements as they are published. If you don't get the desired results, you may need to edit or start over with a new ad.

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