How much should you spend on social media

ads?

"It depends" is the common answer from marketers regarding how much

you should spend on social media ads. They will then often ask what your

budget is so they can maximize spend and their own fee. But I'd like to

normalize a consistent amount so business owners can bank on an average

dollar amount to spend on ads. This mathematical formula is based on best

practices to give a consistent benchmark.

Note, there are exceptions to every rule, so do speak with a social media

marketer if you have further questions on how much you should spend on your ads.

The formula for how much to put into social media Campaign ASpend (CAS) is:

CAS = (        ) x .06

c x e

a

Sound confusing? Understandably so. Let me explain.

We say campaign ad spend because a campaign is a series of ads used to achieve a goal, and most digital marketers will agree you'll need more than one ad to achieve a goal. Two or more ads make up a campaign.

The c in the equation refers to the reasonable number of conversions you'll get from your ad. This is arguably the only grey zone of this equation, but I'd argue to aim just below average. If you've run ads before, or know someone in your industry who's run ads, go based on how many conversions occurred in those cases.

The e in the equation refers to the estimated lifetime value of the customer. To get this number, we multiply

The average $ amount of a transaction you get in your business

x

How many times a person will buy from you in their lifetime.

A key belief here is that good business occurs when we have a relationship that will bring multiple transactions, that there are multiple times when someone would consume your product or service. This number will change based on your industry. For example, a simple home buyer may only buy 2 houses in their life time, so 2 would be a low number compared to number of cell phones someone may buy in their life which will be between 7 and 10. This belief also provides a healthier, long range view of the relationship and can assist with financial forecasting in the future. Planning for the lifetime value of a customer is always good business.

The a in the equation refers to the number of ads run in your campaign. Remember we're splitting these dollars among smaller, more targeted efforts towards a cohesive whole.

Finally is the .06, which actually refers to 6%. Many business consultants agree a small business should spend between 7%-8% of their revenue on marketing. I have taken the liberty of lowering this to 6% as it's just social media marketing, and we don't know when a person will become a customer (it may happen in a day, a month, a year or a decade).

With this, let's tackle 2 examples.

EXAMPLE 1: Life Coach

Let's say a life coach who's been in business for 4 years offers 3 hour packages for $450. Last time their friend ran an ad, they got 2 new clients. So far this life coach has had clients come back on average once a year for 2 years. The life coach doesn't know much about social media campaigns, so is going to try and do this with just one ad. How much money should they spend on a campaign to get two new clients?

We remember the formula:

So here we know:

 c = 2, a reasonable number of conversions that can happen from the ad (and also happens to be how many     new clients we're trying to get)

 e = $900, because we know a package is $450 and the life coach's estimated (this is key) lifetime purchases is

 only 2, the estimated lifetime value is $900.

 a = 1, because in this example the life coach is running a single ad hoping it works.

So we plug in the numbers:

         CAS = (2 x 900) x .06

                           1

         

         CAS = 1800 x .06

         CAS = $108

EXAMPLE 2: Real Estate Agent

Let's say a realtor who's been in business for 23 years would make 2% commission on the sale of a home, and the average home they sell is $500,000. The average seller will sell twice in their lifetime. Last time their friend ran an ad, they got 3 new clients. Let's say this real estate agent is so good at relationship building that clients always sell multiple times with them. The realtor knows multiple ads help, so will run three within a campaign. How much money should they spend on a campaign and the ads to get two new clients?

So here we know:

 c = 3, a reasonable number of conversions that can happen from the ad.

 e = $20,000, because we know 2% of 500,000 is 10,000  and clients tend to sell twice with this realtor in their 

 lifetime.

 a = 3, because our realtor is going to run 3 ads within this campaign.

So we plug in the numbers:

         CAS = (3 x 20,000) x .06

                           3

         

         CAS = 60,000 x .06

                         3

     

         CAS = $20,000 x .06

         CAS = 1200

The second, minor equation for finding how much total over a campaign you should spend is just reversing the operations from above. To find Total Campaign ASpend (or tCAS) we will go

      tCAS = CAS x a

So for the realtor above, we found CAS = $1200, and we had previous decided they would run their campaign over 3 ads. This means we go

     tCAS = 1200 x 3

     tCAS = 3600

:. We know our realtor should be prepared to spend $3600 on the total ad.

CAS = (        ) x .06

c x e

a

:. We know our life coach should spend around $108 for one campaign with one ad for two new clients.

:. We know our realtor should be prepared to spend $1200 on each ad.

How do we find total campaign spend?

© 2020 by Tim Campbell

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