The digital landscape is growing at a never-seen-before rate. While it’s opening opportunities for businesses to create their brand, it is also becoming tougher to be everywhere that their target customer is. The only thing that remains constant is the internet user’s behavior to use the search engine. But advertising there is equally tough. No matter what your advertising budget allocation looks like, it can never be enough!

But when you’re running a small or medium-sized business, you want to keep your media spend optimized. Too much will drain you of the resources you need to run other aspects of your business and too little may not be enough to even drive quality traffic to your site.

For this post, we dug into successful campaigns run by small and medium-sized businesses on optimized budgets. We’re going to share everything you need to know about advertising budget allocation and why too small a budget is actually harmful. But more importantly, we’re going to tell you how to set an advertising budget.

What is an advertising budget?

An advertising budget is an estimate of how much a business wants to spend on promotional activities over a defined period of time. It is the budget that is used to accomplish a business’s marketing objectives – brand awareness, driving traffic to the site, generating leads and more.

When creating an advertising budget, a business has to weigh the value of spending an advertising dollar against the value of that spend as recognized revenue. Simply put, it is the amount a company is willing to spend based on how much revenue they can generate out of it!

This is where most small and medium-sized businesses go wrong.

In most cases, they set aside a small budget for advertising and all it results in, is a disaster. They don’t just end up with an underperforming campaign, but also losing a budget they could have used elsewhere with a little optimization.

Why a small advertising budget is harmful

A budget of $150 per month is considered as the minimum advertising spend for businesses. For most businesses to reach their audience, it should be higher. Here’s why setting a low budget is actually harmful to a business:

1. You won’t be able to A/B test and optimize campaigns

When you have a lower advertising budget, you end up restricting yourself.

Take, for instance, your target audience is looking for solutions on the search engine with different intents.

While some of them are looking at informational content, there will be others who tend to interact better with display ads. In this case, you need to segment this audience and target them both.

Now if you have $150 as your advertising budget, you’ll most likely split it into half to be on both the platforms.

If your target keyword’s CPC is $3, you’ll probably end up with a bare minimum reach on each of your search ads. Not getting enough clicks either!

So you’re basically not able to even A/B test different types of campaigns effectively with a limited advertising budget. How would you then optimize these campaigns to drive results?

2. Going with one advertising channel will limit your reach

To counter the above challenge, we see a lot of businesses go with one advertising channel instead. They take a look at their competitors and what their target audience’s general demographic looks like and decide to advertise on one of the platforms. Purely based on an assumption that if it worked for a similar business, it will for them as well!

That’s where these businesses go wrong.

Advertising on one channel may not be the wrong strategy. But it sure does limit your reach.

For example, a yoga studio could be running Facebook ads to get attention. But they may not have a campaign on the search engine – which is usually the first place a customer looks for ‘yoga studios near me’.

If you blindly followed the yoga studio you’re competing, you would be up against their ad campaign on Facebook. If the studio is a little more established than you are, you can’t compete with a limited budget.

Now if you had set up a search ad campaign instead, you would have still gotten results on the same limited budget. Because you’re not competing with that yoga studio there!

Simply put, blindly choosing one platform to advertise your business on, limits your reach.

3. It becomes harder to bid for competitive and relevant keywords

Continuing on our example of a yoga studio. Now if you want people who are close to the studio to join the classes because you offer only early morning sessions, ‘yoga studios in <street name>’ is a super relevant keyword for you.

But the other studio that is more established, offers more time slots than you do and they’re targeting customers from the entire city.

In short, if you’re both running search ads, the competition for this relevant keyword will be much higher.

Higher the competition, the higher the bid you have to place. With a limited budget, you’ll automatically bid lower than the competitor and your campaign will reach lesser people!

As a matter of fact, search and shopping ad campaigns require higher budgets than display/YouTube ads. With a low advertising budget, you can’t even consider running promotional campaigns on some channels due to the CPC differences.

With so many opportunities to lose, it is important that businesses set aside the right advertising budget for promotions. But how do you do that? Fret not, we got some tips.

How to choose an advertising budget

When you’re running a business, there’s a lot on your plate. The last thing you want to go wrong with is your advertising budget. Here are a few considerations to keep in mind when estimating your advertising budget – be it on a weekly, monthly or on a yearly basis.

1. Know who you’re targeting

The first step to setting the right advertising budget is to know who you’re targeting. Having details on their general demographic profile, their purchase behavior, their previous interaction with your business and more can help you understand how you can target them.

Knowing how to target them and where, will help you also draw up an estimate on the advertising budget.

The best way to do this is to create an audience persona beforehand. CoSchedule has created a complete guide on finding your target audience.

2. Identify the type of media suited for your target customer

You know who your target customer is, how they interact with businesses and how they consume information. Now based on that data, identify the media that you need to target them with using advertising campaigns.

For example, are they looking for blogs to first educate themselves about a product or a service? Are they more active on Facebook and purchase-ready? While one segment may convert on text ads, the others may consider interacting with your business on seeing a video ad.

Your ad format has a core part to play in deciding an advertising budget for your business – right from creating the media asset you need to create and the advertising platform you choose.

3. Strategize your approach to the target customer

Depending on who your target consumer is, what stage they are at, what platform you choose to reach them out on and what media format you’re using, create an advertising strategy.

The strategy should appeal to the consumer’s emotions and walk them through the brand journey – right from brand awareness to consideration and evaluation, to converting with your business.

Your strategy also has an impact on the advertising budget.

For example, if you’re a new business in the area. You will need to initially set up brand awareness campaigns and then a few promotions to generate leads. You clearly need enough advertising budget to run both the campaigns for a considerable period of time to get results.

4. Decide on your optimization approach

No campaign performs well when you set it and forget about it.

The consumer market is constantly changing. The way they look for products and services to how they look for them changes almost on a daily basis. So why would a campaign targeting the same keyword over a month perform well for you?

That’s why no matter what platform you choose to advertise on, you need to know how you’ll keep the campaign optimized.

Most businesses choose to do this manually. But they often end up not being able to keep up with the changes, missing out on opportunities.

That’s where automation comes in.

With smart advertising platforms like Instaon, you can get started with your campaign in minutes. Based on your business goals, the platform extracts the most relevant keywords and auto-creates your ad campaign. It then improves the campaigns on a daily basis to increase campaign visibility and deliver results.

5. Estimate the expected profit from every dollar spent

Once you have the data on who you’re targeting, what platform you’re going to use and how you’re going to make sure your campaign remains optimized, calculate an estimate.

This calculation should give you a rough idea of how much profit your business gets for every dollar spent on the ad. It may be the most confusing and time-consuming step, but it is important.

Getting an estimate also helps you plan out your other marketing activities.

Conclusion

There is no one-budget-fits-all number when it comes to setting aside an advertising budget. What works for one business may not be right or enough for yours. The reason being that the campaign goal and expected target consumer behavior on them vary from business to business.

You have to spend enough time on understanding your target market, what your goal from the advertising campaign is and how you will be measuring performance. If you’re starting with a low advertising budget to play safely in the digital landscape, that’s okay too – all you need is a strategy.

And we’ve got you covered. We’re working on sharing tips on how to make low budget campaigns successful, getting inputs from all the data we have gathered over the years. So don’t forget to subscribe to our blog, to get the next steps in your inbox!

Getting started with advertising or want to improve your campaign performance? 
Try the Instaon advertising platform today!