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Planning Your Advertising Budget
Types of Online Advertising In coming up with an advertising budget, you first need to consider what exactly you will be budgeting for. When it comes to promoting your business online, you have numerous advertising options - which, for the sake of this tutorial, I have broken down into two categories: paid and free - or "mostly" free. (I am qualifying the free part because, in some cases, in order to get the most out of a particular type of promotion, it helps to invest a bit in a tool or service that will henceforth help to automate the task.) Paid Advertising Activities include:
"Mostly" Free Advertising Activities Include:
SIDEBAR: If you want to build a successful business, it's important to promote it offline, in the real world, as well as online, in the virtual world. Fact is, there are dozens of simple, highly effective (because they aren't over-used) techniques you can use to spread the word about your business offline. In my master course, Plan To Succeed Online, these options, including how best to use newspapers, magazines, TV and radio, direct mail, yellow pages, outdoor advertising and other FREE methods are covered in some detail. If you want to run a well-rounded promotional campaign, it would be well worth your while to look into these options as well.
How Much to Budget for Online Advertising The primary challenge of preparing an advertising budget is in determining how to spread or stretch your available dollars in order to achieve your sales objectives. The best way to determine how much you need to spend for advertising is to determine your sales objectives and then work backwards, using some educated guesses. For example, let’s say that you have created a nifty software tool and it’s your aim to sell 2000 copies of this software from your website over the next 12 months. How much will you have to spend on online advertising to achieve this result? To answer this question, you’ll need - once again - to know your website's all important metrics, specifically your... 1. Customer Conversion Rate or CR: the percentage of your site visitors who actually make a purchase. This typically varies from 0.5% to 5%, depending upon a number of factors. A safe “guestimate,” if you have no track record, is 1%. 2. Click-Through Rate or CTR: the percentage of ad impressions or exposures that elicit a response. Here are some ballpark rates for various kinds of online ads.
NOTE: When estimating advertising costs, it’s always best to err on the side of caution. Once you’ve figured out or estimated the above two rates, you use the following formula to calculate the number of ad impressions needed to achieve your desired sales volume. (CR x CTR) As an example, let’s assume a 1% CR (conversion rate) and a 2% CTR (click-through rate) for your software ads (were assuming your using primarily e-zine or opt-in email list advertising). Your goal is to sell 2000 units of your software in 12 months. Here’s how too determine the number of ads you’ll need to reach your goal: = 1000 ad impressions Once you know the number of ad impressions you need to sell your goal of 2000 units of your software product (1000) you can begin to set a budget. Let’s say that it costs you an average of $5 per 100 ad impressions. (I’m really shooting from the hip here.) If you need 1000 ad impressions to reach your target software sales of 2000, you will need to divide 1000 by 100 and then multiply that result by $5.
If your software sells for $75 - $100 and it costs you $50 to make each sale, then you can expect to clear a profit of $25 - $50 per sale. If, on the other hand, you are charging only $39.95 for your software, and you are spending $50 on advertising to make each sale, then you’d better go back to the drawing board and reconfigure your ad budget dramatically or reduce you advertising cost per unit.
Ways to Decrease Your Advertising Cost per Unit When you analyze the above formulas, you find three variables - CTR, CR and CPM (Cost Per Thousand). So, in order to decrease your ad cost per unit you need to either raise the Click-Through Rate and/or the Conversion Rate, or reduce the Cost Per Thousand of advertising impressions. Raising the CTR: You can do this by improving your banner ad, writing a more effective text ad or finding more targeted locations in which to place your ad. Doubling your CTR will cut your advertising costs in half! Raising the CR: The conversion rate on a new web site can usually be improved dramatically just by following the advice and examples of experts. Along these lines you might want to take a look at Ken Evoy’s Make Your Site Sell or Ralph Wilson’s 12 Ways to Give Your Webstore a Sales Boost. Doubling your conversion rate will also reduce your advertising costs by half! Lowering the CPM: If you’re focusing primarily on ezines and email, you might want to explore more inexpensive traffic building methods, such as pop-up or pop-under traffic generating programs or banner impressions - or try some free methods like reciprocal link exchanges, search engine optimization, news releases or the best alternative of all - set about building your own email list! As most of us learn the hard way, although the internet offers a wide variety of advertising venues, making the best use of these venues takes considerable time and effort and the results are not always what you hope for, which brings us to the question of whether or not you should pay for specialized help in promoting your website. To quote Magic City's Bob Massa, one of the Net's premier authorities on website advertising & search engine placement, on this subject: "Without setting your goals and developing a plan, you will be simply chasing traffic and never even know when you've found it. Once you have your plan, you can better determine whether or not you need need specialized help. There aren't many "free" engines to submit to and there are very few "free" places to advertise. You can easily find yourself spending far more on mistakes than you would on a qualified professional. Remember the old saying, we pay for our mistakes? Well, that is true and the fewer mistakes you make, the greater the opportunity for success."
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