Have you found yourself being tortured by this question each time you get to think of or/and discuss online marketing opportunities for your business’ promotion?  

In this article we will explore the points a business owner should consider when deciding to use the advertising budget she/he owns and specifically 

• WHERE to invest it, 
• HOW to invest it and 
• HOW MUCH to invest. 

So, we will assume that you have already concluded that you need to start advertising your business online and now you need to define how to proceed further.

First things first. Before specifying the amount of budget that you will use, you need to have a full picture of the advertising options you have. Your online advertisements can appear in several places on the Web and you, with the help of your trusted marketers, have to decide which may be the most promising in terms of value for your business. 

A couple of popular available online advertising channels are Google Search ads, Google Display ads, YouTube ads, Facebook & Instagram ads, LinkedIn ads, Twitter ads, Pinterest ads and the list goes on.

Picking a few channels and allocating your available budget according to the return you expect to get is a good starting strategy. With budget allocation to several channels you achieve diversification. 

If you wanted to invest in stocks, would you put all your money in one stock or would you rather allocate your money to various stocks building a portfolio that will be more secure? If one stock fails, the others can balance the loss. Something similar stands for advertising channels, too. The plus here (in contrast to investing in stocks) is that even if you do not get the return you expect from an advertising channel, your money was not spent worthlessly, since more people get to know your brand through your ads.

If the budget you can afford is tight, it is better to pick only one channel and invest your money on it only. If this channel does not prove profitable, then test the next channel on your channel priority list.

You can start prioritising the advertising channels in your mind when you come to think of your advertising target (which should be closely related to your business’ ultimate goal). 

• Is it retail sales? Then you might want to try Google search ads in order to attract people that are already searching for (similar to yours) products or services. 
• Is it awareness? If you just started your business and your brand is unknown to the public, Facebook ads and Google Display ads are more suitable in order for people to get to know you.
• Is it B2B collaborations? Maybe LinkedIn is the channel you are looking for.

Your marketing team will consult you regarding which channels better serve your business’ objectives.

Each channel has a different billing model and the money you spend for ads depend on various factors like the industry you are in, the existing competition, the seasonality trends, the settings specified when drafting the advertising campaigns and so it goes. Before calculating the amount of budget that is needed, you have to decide with what strategy of spending you will begin with. Will you be aggressive, deluging the Web with your ads, or conservative, showing ads to a limited audience of people?

In general, there are two basic strategies one can take when ready to spend the budget for a specific channel:

• The HARE approach with which you put forth a significant budget amount in the beginning, see which settings seem promising and scale down your budget later to fit these settings (refining).
• The TURTLE approach with which you spend less money in the start, try to tweak the campaigns’ settings and then progressively increase the budget towards the most profitable settings (opting).

The hare approach seems overwhelming at first, but achieves the following:

• Gives an image of the most promising campaign settings in a short time period.
• Offers the advertising algorithms enough budget to work on (to learn & optimize).
• Promising settings are easier to be spotted by the marketer.

The turtle approach prevents you from the heart attack of spending too much in too little time in the beginning of your advertising efforts, however this way is tricky for a number of reasons:

• The marketer has to test settings one by one which is time consuming.
• The advertising algorithms may underperform due to small amounts of invested budget.
• Promising settings may be missed due to low delivery of ads.

Usually digital marketing experts prefer to use the hare approach (us in Click-wise included). It gives us more flexibility to work with a strong budget at first in order to test and get to learn your business’ strengths and weaknesses in terms of advertising campaign settings in each channel. Do not be drafted by the popular fairy tale and tend towards the turtle approach by instinct. 

On the other hand keep in mind that preferring the hare approach is an advice. If you feel uncomfortable with it simply choose the turtle approach, communicate it to your marketing team and they should follow your wish.

Now that you have a better idea of where you want your budget to be invested on and how you want to invest it, you have to specify how much of it is needed for each channel. Remember that there is no “one solution fits all” answer to this topic. Also estimations need to be calculated in order to specify the “correct” amounts.

There is always a minimum that is required by each channel’s platform (tool used by the marketers to create campaigns, modify their settings and deliver ads).

From then on, it depends totally on the high-level assumptions the marketer will make. If there are historical data available, they should be taken into account in order to calculate estimations. If not, certain workarounds can be used.

If historical data are available, the marketer can use reporting tools like Google Analytics and study the historical metrics of your business. Traffic, cost and revenue data should be available and segmented by time, channels, devices, etc.

Having such data one can draft a high level marketing plan which will allow to allocate your budget based on rational assumptions among the desired digital channels.

For example, if you already have a high volume of users visiting your website. The marketer may focus the efforts on remarketing campaigns and also try to increase engagement via email marketing. If these users show increased bounce rate and low average session duration and the problem is your website’s UI/UX or mobile page speed timings, the budget may be shifted towards conversion rate optimization.

When historical data do not exist, the opposite route can be chosen. Starting from a low level perspective and building your way up to the budget you are willing to spend is challenging, but logical assumptions can do the job.

For example, if you needed to calculate the spending you will undertake on Google Search ads, a rational way to make such plan is:

1. first to decide which keywords you want to target
2. fetch relevant traffic metrics per keyword from certain tools (i.e. Google’s keyword planner gives away monthly search volume data for keywords)
3. assume the bidding you are willing to pay per click
4. assume an Industry rational Click-Through-Rate
5. do the calculations and come up with the final spending

An example by numbers.

• Let’s say that the keyword “laptop lenovo purchase” has an estimated monthly search volume equal to 15,000.
• We assume that the Click-Through-Rate of the tech retail industry is at 2%, which means that out of 100 people that search for this keyword and see a relevant Search Ad 2 click on this ad.
• We also assume that the price per ad click we are willing to bid on that keyword is at €0.06.
• So the monthly spending on that keyword will be 15,000 X (2/100) X €0.06 = €18.

Remember that both of the aforementioned calculation methods provide estimations. The real numbers when campaigns start delivering ads may differ. These estimations are a good starting point. While your ads are being delivered to people, the marketer observes the ongoing performance and adjusts the strategy accordingly.

The following flowchart sums up all the aforementioned steps in clear-to-understand figures and shapes.

Always remember that you can and must have a saying regarding the high level decisions of where to invest your budget and how much of it you are willing to invest. However, it is the marketer’s responsibility to do the granular work of optimising/refining the campaign settings of all the advertising efforts. As an expert she/he has the technical know-how to understand and choose the best available options provided via your advertising campaigns. Listen and trust your marketing team. 

When your advertising campaigns go live, give them some time for the advertising algorithms to start “getting to know your business” (deliver your ads and read signals from users in order to determine the best performing bidding patterns for your business). 

At the same time the marketing team observes the performance of your campaigns, monitors the ad delivery to avoid over- or under-spending and keeps notes of the proven good performing and bad performing settings.

After one to two weeks there will be sufficient data in order to evaluate the performance and try any changes to improve it. Adjusting the settings and testing again and again your campaigns is how the marketing team strives to bring optimal results and reach the maximum applicable performance.