How much to spend on digital advertising campaigns? …and be profitable!

This is a loaded question as digital advertising can be broken down into multiple groups or channels. The simple answer is to expect around 12-18% of your revenue. Depending on everything from the digital marketing channel to the Good(s) and/or Service(s), to profit margins, and more. Over two decades and hundreds of marketing campaigns, we have seen anything from 5% to up and over 45% of the revenue, used as profitable advertising spends. Here is how you can scale a profitable digital campaign and learn how to calculate the amount should you spend on marketing & advertising efforts.

Scaling Profitable Marketing Campaigns

There are so many factors that can go into making any marketing or advertising strategy profitable. It starts with you, the business model, and the objectives of the company. Suppose this is a company with VC funding, looking to scale quickly. In that case, some of the sections of this outline are taken with different weights than for others. An entrepreneur launching a new business, or even an established business that has been slow through progression, will have different weights on marketing factors.

Timing is a Major Factor

The next major factor involved, with profitability on ad spend in this is timing. For example, ramp-ups for a new business are much more time-consuming than for an established business, or product. There is a go-to-market time exchange for new products vs. marketing a good or service that already exists, or perhaps something is getting rebranded. Additionally, VC-backed companies might put more weight on scaling over greater profitability margins or CAC Payback schedule. (I will discuss this later).

In each case your digital advertising campaigns will differ, and so will the ad spend. For example, if this is a go-to-market launch, where there is no competition, it seems quick and easy. Yet, people might not be looking for, or have knowledge of, that product or service. You will probably have very low competition and low ad spend, because there isn’t a market, searching, or it …yet. How you use the ad spend initially needs to be heavily structured around bringing awareness to the product. Alternatively, going after an established market, you will have to fight harder for positioning. To do so means you must convey various value propositions, and set your products apart from the competition. You must also understand where you truly generate leads, for your ideal customer.

Who’s being Targeted Controls the Final Outcome

Successful organizations can define the difference between a customer and their ideal customer. Your ideal customers will bring the most value, long after acquisition. I have seen multiple companies turn over an ad campaign, that got a lot of traffic, clicks, and even purchases, but to the wrong market. This dragged down the CLV and increased churn rates, as a result, companies lowered (or even stopped) ad spending. It wasn’t effective or profitable. Unless you have high profit margins or an Amazon marketplace (with a focus on reviews), most companies aren’t looking to spend much money on “one and done” customers.

Know your CAC and CAC Payback

This brings me back to knowing your customer lifecycle and clearly defining and accounting for your CAC Payback. This metric is vital to every business and vital to scaling a profitable marketing campaign. If you are not using it you have to implement this today! CAC Payback accounts for your Customer Acquisition Cost over a time period to break even, on that investment. Outline all inbound and outbound sales and marketing efforts using this metric so that you can understand the individual channels and the scalability of each, from an investment viewpoint.

Once you have the CAC, CAC Payback, and a few other metrics, you can begin to align those with your company’s goals and objectives.

Set Objectives & Key Results then Track Progress

This is digital marketing, there is no defined date of how quickly Google makes an adjustment to rankings. Some metrics or results may be harder to stand firm to than others. However having those 1, 3, and 5-year objectives, and key results for those, are absolutely necessary to the outcome of your marketing initiatives. While you can’t track your long-term objectives for 5 years out on a monthly scale to accuracy, you can develop smaller chunks to ensure you are on target. Remember that there are no “straight line statistics” in marketing, as there are no reoccurring conditions. So expect quarterly or smaller chuck metrics to not be exactly on track, especially in the beginning.

Assess the Marketing and Advertising Budget

Once you have a defined ROI, CAC Payback, cash flow or pro forma projections, and business objectives you can now define a profitable digital marketing campaign and budget. You can not only do this marketing as a whole. Break down this budget into smaller scopes, of marketing channels, such as paid advertising/PPC, organic SEO, social media, Amazon/3rd Party Marketplaces, and more.

Your Profitable Marketing Campaign

You have now been able to define, not only your digital ad spending and marketing strategy while outlining expenses, to keep your campaigns profitable. You will have to periodically adjust campaigns, budgets, expenses, etc… hopefully lowering CAC, shorting CAC Payback, and all-around improving ROI.

Utilizing these methods will continue to keep you on track for scaling a profitable digital campaign.

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