Smart Marketing: How to Adjust Your Ad Budget for Max ROI
It's well known that a company is only as strong as its marketing, which is why it's so important to allocate your advertising budget methodically. Determining where to distribute your revenue earnings across a marketing landscape can be challenging, especially for start-ups and small businesses with limited budgets.
While larger corporations can afford to experiment with different advertising methods, start-ups don't have this luxury. Therefore, ensuring that every dollar spent on marketing results in maximum ROI is crucial. In this blog, you will learn how to adjust your advertising budget so that it reaps maximum ROI and business growth potential.
What Factors Affect Budgeting?
Several factors determine how much top-line revenue a company should invest in marketing and advertising efforts. As a general rule of thumb, Forbes suggests that investing 5 to 10% of revenue should suffice to maintain the company's current position. However, investing 20% of sales is a better option if a business wants to see aggressive growth and is less established in their market.
Business location, size, marketing sector, and maturity are also factors in determining the right budget. While it's observed that digital advertising repeatedly shows greater ROI than traditional advertising for many businesses, that may not necessarily be the case in specific industries. For example, a local shop in a rural location may receive more attention from traditional advertisements than digital ones. Businesses with younger target audiences may need to shift their marketing spend more towards digital advertising as opposed to traditional.
The size and age of the business also play a vital role. If your company is new to the market, you will need to allocate your advertising spend more aggressively, says the Como Business Times.
Marketing and Advertising Spend vs. Capital Expenditures: What's the Difference?
Oftentimes, marketing or advertising is categorized under capital expenditure. Many business experts consider marketing and advertising costs an operating expense, meaning they are necessary expenses for running a business. While marketing and advertising expenditure have a long-term impact, campaigns are typically short-lived. Therefore, marketing and advertising should not be considered capital expenditure.
There are key differences between marketing and advertising as well. For example, website maintenance and infrastructure upgrades may support marketing efforts, but they are not considered advertising expenses.
How Strategic Allocation Changes for Multi-Service Businesses
The more locations and divisions a business has, the more complex budget allocation becomes. Businesses with locations throughout the nation not only need to consider geographical differences but also view the business as a single entity. This requires a strategic approach to consolidating financial data and analyzing regional and departmental nuances.
When allocating resources and making informed decisions for a multi-service business as a whole, it's important to consider variables such as:
- Regional economic differences
- Varying cost structures
- Geographically specific market conditions
Understanding the unique needs of each location while considering shared resources is crucial to successful allocation for multi-service businesses.
Factoring in Profit Margins and Platform Performance
Not all campaigns and platforms are considered equal. The results can vary depending on profit margins, acquisition costs, target audiences, and market trends.
- Profit margins uncover which marketing tactics the most resources should be allocated to. This ensures that every dollar spent on marketing campaigns results in the highest profitability.
- Acquisition costs give insight into how effective marketing and sales are. A lower acquisition cost indicates that marketing and sales efforts are profitable.
- Platform choice and marketing trends can affect how impactful a message is to your target audience. For example, YouTube results in strong video engagement and will tend to attract younger customer sectors.
How to Determine the Right Marketing Budget for Your Business
Now that you understand the factors that affect marketing spending, it's time to dive into determining the right budget for your business.
Defining Success Before Spending
Establishing KPIs and projected ROI can help set expectations for your marketing spend. Determine where your business is now and where you see it in the future. What are your goals? If your goal is to appeal to a new target audience, consider how you would have to adjust your marketing efforts to make an impact and open a new customer sector.
KPIs, or key performance indicators, provide insight into which areas of your marketing spending are driving sales and increasing new customer numbers.
Prioritizing High-Impact Channels
It's no mystery that a company's budget size can determine where and how effectively it competes in the market. Consider which channel your target audience is attracted to and the size of your business.
Established businesses tend to have larger budgets, allowing room for experimentation with different channels. New and smaller companies may have smaller budgets, which require strategic planning and increased competition among low-cost channels, such as social media marketing.
Budgeting for Execution, Not Just Exposure
Web Tech Fusion believes that measurement, production, and optimization are key components of a budget. While operational costs, such as marketing data analysis, may support marketing efforts, they do not advertise themselves. It is crucial to consider operational costs as a realistic percentage of the advertising and marketing budget.
Web Tech Fusion's Philosophy on Budgeting for Success
- Underinvesting in marketing is often one of the most common mistakes we observe businesses make. Businesses that are hesitant to increase marketing expenditure are at risk of staying complacent or "entry-level" status without scalable results.
- Adjusting your budget as you grow can help keep up with competitors. Businesses that fail to increase their marketing expenditure as revenue increases risk being outcompeted.
- Strategic planning can maximize marketing spending. Research and understand the ROI of certain ads before allocating your resources. A $1 per day advertising budget is better than nothing, but it is not very impactful. Even with a strong ROI of 3:1, which is only $90 in revenue, it hardly makes a difference in gaining traction for your business.
Take the Guesswork Out of Ad Spend
Determining the right-sized budget for your business' marketing needs can be challenging. Trial and error may not only be wasteful but can also be expensive. That is why it is ideal to get an expert opinion, especially if you are a small or developing business. If you need extra support in taking the guesswork out of how much to budget for your marketing needs, Web Tech Fusion can help. Contact us today for a comprehensive consultation, and we will ensure that every dollar spent on ads and marketing maximizes your customer reach and ROI potential.