Budget Allocation in Paid Media

If you run digital advertising campaigns in a number of different channels or even a handful of different campaigns or advertising types within a single channel, one of the things that you’re probably doing on a pretty frequent basis is making sure that you have your budget allocated correctly.

Now all advertisers are in this so that we can make more money. So it’s important that we put our advertising budget behind the tactics and strategies that are generating the most output. We have lots of clients that ask us what the right budget allocation mix is across all of our different channels, and the problem is that answer is different for every single account.

So in this video, we’re going to go through a number of different budget allocation considerations to hopefully help you figure out what the right mix is for your account. As we’re going through these considerations, I do want to call out that there are going to effectively be three groups of them, and that’s going to be anybody who is starting a new account and hasn’t had anything running yet and is just starting from scratch.

Some of them are going to focus a little bit more on accounts that have been running for quite a while or at least have been running for some amount of time. They’re not brand new. And some of the other considerations are just overall marketing strategy related.

It doesn’t really have any impact whether your accounts are brand new if they’ve been running for a while. It really just comes down to the math of the whole thing. As we’re going through each of these considerations, they’re kind of in order going down the list here of new to long-standing to just overall marketing strategy, but not necessarily.

Each of these considerations can impact pretty much any business at any point, although we’ll go through them in sort of a linear fashion, don’t tune any of them out if you’ve had accounts running for a while or if you’re brand new to them just because they can always be applicable to your account in any given situation.

So the first thing we need to do is determine the top-line budget. And I included this in a budget allocation video because I’d estimate that about half the time, clients come to us and ask about budget allocation in general. They also end up asking what the PPC budget should be in general, just as a whole.

And in some ways, we can help do that, and we’ll talk about how we can help in just a second. But the first thing comes down to how much can you actually spend on PPC, right? What are you able to spend? What is your business able to afford? And that brings in a number of different pieces here.

So the first is just going to be business financial data. If you are a small business and you only have maybe an additional $1,000 a month to allocate to any sort of marketing efforts, then $1,000 a month is your top-line budget. Maybe you have less than that; maybe you have more than that. But in situations where your business finances are determining how much you can spend, it’s really important to pay attention to that.

I’d pretty much never suggest that any business spends more than they can afford on advertising because that just leads down a really slippery slope of trying to get extra performance out of a budget, and that leads to a lot of different stressful conversations. Additionally, you need to think about what your goals are and what your profitability is.

In some instances, businesses come to us and say, I want to increase my revenue by X amount. So then we have to utilize just basic math to figure out how much budget it should take to do that. Let’s assume that every time you make a sale, you make $100, and your goal is to increase your monthly revenue by $1,000.

So pretty easily, we’re able to say we need to make ten sales a month to increase our revenue, the amount that we want, and then we need to know what the reasonable conversion metrics are and how much it’s going to take to actually get ten sales.

So simply reverse engineering your profitability, volume, conversion performance is going to give you kind of what a top-line budget should be to hit the goals that you have. Additionally, you need to make sure that you don’t forget any added costs like agency or tech fees.

Are you going to be the one rolling out these changes, or do you have an agency that’s going to do it? And depending on whether you have an agency or you’re doing it yourself, or somebody on your team is, are there any associated tech fees with the paid media that you’re running that you need to incorporate into that top-line budget consideration?

The next stage of budget allocation is to determine how many efforts you can reasonably afford. As I go through this video, I’m going to use a number of different terms interchangeably. In this moment, efforts can mean anything from different channels like Facebook versus Google.

It can mean different targeting types like search versus display. It can mean different campaigns like brand versus non-brand. It can mean different geographies, maybe the US versus Europe, something along those lines. We need to determine effectively how many line items we need to allocate budget for, and there are going to be different considerations to determine how much you can actually afford.

The first is, what is your top-line budget? We already talked about trying to calculate that or at least come up with some sort of a number, and that number will be an indicator as to how many efforts you can afford. If you have a relatively small budget, you’re only going to be able to afford a small number of efforts. But if you’ve got a really big budget, you’ve got a little bit more room to play with.

Similarly, what are your conversion and goal KPIs? What are you trying to drive toward? And what do you need to allocate the budget to make sure that you’re hitting those specific goals as opposed to just having lots of different efforts running just for the sake of doing it?

For example, let’s say that you make a lot of revenue on any given customer that comes through your enterprise software business, so you can afford to pay $500 per lead. So if your cost per lead goal is $500, it probably doesn’t make sense for you to have an average monthly budget on a channel of $250.

It probably doesn’t make sense for you to have an average budget of $500. It probably needs to be considerably more than that to make sure that you see enough volume coming through to warrant the effort that goes into it. So depending on what those KPIs are, that can also help you determine how many efforts you can afford as well.

Next is going to be around coverage goals. And I already alluded to one of these a little bit in the geographic area. There’s a very big difference between trying to target the entire United States versus just the state of New York versus just the city of San Francisco.

Depending on your geographic scale, you may or may not have enough budget to expand into a number of different efforts. Maybe on a national scale, you can only run a brand and a display campaign. But if you were targeting a much narrower area, you might be able to run brand display, maybe some Facebook ads, maybe you even want to mix Microsoft and LinkedIn into the mix.

You get a little bit more wiggle room when you’ve got a smaller geographic area to target. The same types of things are true for devices and ad schedules. If you’re going to be running 24 hours a day on all devices, that’s going to eat up a bit more budget to make sure you have more coverage, as opposed to a smaller section where you might only run your ads from eight to five.

And then you can afford to expand into other platforms because there simply isn’t as much volume coming through because you’re running on less than 50% of the day. Lastly, what’s the size of your audience? There are a number of different tactics here. Are you trying to go after a really large audience and have a big share of the voice? Are you trying to find somebody really specific to go after?

And that kind of leads into the last piece that I have here, competition. How much will it take you to actually be competitive in those spaces? It’s one thing to have five different efforts running and kind of scratch the surface, but it’s another completely to maybe focus your budget on one or two and have a really good saturation and be really competitive within that space.

People on Google Search might need to have only a small portion of the budget allocated. If their product is really niche and people don’t really look for it very often, they might have the luxury of being able to afford Google Search and prospecting campaigns on Facebook and LinkedIn.

But other companies, maybe something in the medical space or the legal space, might need to allocate all of their budget into Google Search just to be competitive because it’s that expensive. So what type of competition are you dealing with? And can you afford to have things allocated across multiple different spaces? Or can you really only afford to be competitive in that one spot?

And the unfortunate truth is, almost always, you can’t really afford to be everywhere that you want. There’s almost never enough budget to go around. There’s always a new channel to test. There’s always a new tactic to look at. But you really need to be smart about what you’re doing.

So when you don’t have enough budget to be able to allocate it across all of the different tactics you want, we do advocate for a phased approach. So pick the tactic that you think is the most likely to perform well, and then set it up, let it run, and give it a reasonable time to perform. We’ve talked in the past and other videos about how one day or one week does not make a trend.

And depending on your buyer cycle and how long it takes people to go from awareness to conversion, you might need to let your campaigns run for two weeks, a month, two months, maybe a quarter, or six months to see if it’s viable. But once you’ve given it a reasonable amount of time, you can review your insights. You can either decide to optimize the platform as it is and keep your budget there.

You can determine that it’s not the right fit, and you can shift the budget away, or you can take that newly increased revenue that you’ve got from this new platform and utilize that to launch a new effort in a different channel, a different campaign type, what have you. But the biggest thing about this is just to make sure that you’re actually giving everything a fair shot.

Going back to the idea of how many efforts you can afford, I encourage you to only launch new phased rollouts if you can afford them. There’s nothing worse than setting up a campaign with a suboptimal budget, getting stressed out that it doesn’t convert right away, and then turning it off. This has no added benefit to anything.

You’ve spent your money, you haven’t gotten any returns, and you’ve decided that that channel or tactic won’t work for you. But it’s not because it actually won’t work. It’s because you didn’t give it a fair shot. Maybe over time, it could work for you. Maybe over time, it couldn’t. But you didn’t give it a fair shot.

And now you’ve ruled that out of your marketing strategy, and it’s a very short-sighted approach. Once you do have a number of tactics running, it’s important to make sure that you’re allocating the budget accordingly. So the first question is, what’s even performing best? Which accounts campaigns are the most efficient? Where are you seeing the highest ROAS or lead quality across all these different efforts?

I’ll take this time to make a small public service announcement that if you don’t know what’s driving your ROAS performance or that has the best lead quality, you need to stop and figure that out before you do anything else because those types of indicators are going to be major players in how you allocate your budget.

Making sure that conversion tracking, revenue tracking is accurate is highly important for proper budget allocation. But additionally, you need to do this on a pretty regular basis. Just because something has worked well in the past or is the historical best performer doesn’t mean that it’s always going to be doing the best in the moment.

For all the accounts that I run, any given month, we might see the best performance from Google search. In other months, we might see the best performance from Facebook, yet another month we might see the best performance from LinkedIn. I personally do this type of reallocation just about once a week when I run any sort of projections, making sure that we’re pacing properly for the KPIs and the budget that each account I manage has for the month.

That weekly check-in gives me the opportunity to maybe decide that I’m going to take just a little bit of budget away from Google and give it to Facebook or vice versa, based on the performance that we’ve seen for the recent week. Now, that doesn’t mean that I’m going to just completely turn off Google and ship shift all the budget to Facebook.

It’ll be a small percentage, but we’re kind of leaning into what’s performing best in the moment and leaning away from what’s not doing as well, knowing that if performance comes back in those Google campaigns, we can just as easily shift budget right back to where it was.

The other thing I want you to think about is, are you gaining any other benefits other than conversions and sales. A lot of companies that we talk to are only using PPC to drive as much revenue or as many high-quality leads as possible.

And while I’m certainly not advocating for you to spend your entire budget on things that are unprofitable, we need to also make sure that we’re not being short-sighted and pay attention to other benefits that we’re getting outside of just those sales. The biggest one being that we don’t always want to rob the bottom of the funnel.

Brand and retargeting campaigns are wonderful. They are people who already know who you are. They’ve already been to the site, they pretty much always have the highest returns, they have the highest lead quality, but they don’t drive new users to your business.

You’re only taking a small portion of people out there and squeezing as much profitability out of them as you can. Now, while I think that’s a good thing, you still need to drive additional users to your business. So allocate some funds to brand and retargeting.

It might even be upwards of half or maybe 75% of your budget. But don’t forget that you need to also have prospecting in mind. The goal here is for long-term profitability, not just making sure that you’re eking out an additional five or 10% incremental increase on your row ads month over month.

We need to build businesses that will last a while. And getting your brand out in front of new people with prospecting campaigns is only going to help fuel those brand and retargeting campaigns. For you to have people searching for your brand and to have people in your retargeting audiences, you have to have people who know what your brand name is, and you have to have people who’ve been to your site.

Prospecting is how you build those lists. So don’t only allocate funds to the bottom of the funnel. Now, I’m going to close out by talking about some overall best practices for budget allocation, aside from some of the stuff that we’ve talked about, and some of it is a little bit of a rehashing, but hopefully, all this will be beneficial for you.

The first is to always make sure that you know your KPIs and you do the math. This can be for any different call to action, any different channel, anything like that. Make sure that the math adds up so that when you’re actually developing your budgets, you’re not developing unreasonable expectations and setting yourself up for failure.

In the future, you can leverage the targeting research and planning tools to understand the potential costs on a number of different platforms. The Google Keyword Planner, which we have a video for that you can check out at the top of the screen right now, will give you estimates of volume, cost per click, the click volume that you could see coming from those keywords.

And while it might not be perfect, it does give you some sense of how different keywords are going to perform to help you come up with a reasonable budget expectation. The same is true on other platforms like LinkedIn. You can go in and start to create a campaign, get all of your targeting settings in place. Then LinkedIn will tell you how big that audience is and then the estimated click-through rate that you might see and the estimated cost per click that you might see from that audience.

So there are a number of tools that might not be perfect, but you can at least be in the ballpark of knowing what a reasonable budget would be like. We just talked about don’t be short-sighted on bottom of funnel channels and campaigns. You need to make sure that you’re always generating new eyeballs, and you should always have a budget allocated to those types of campaigns.

If your goal is to grow your business and constantly have more people searching for your brand and in your retargeting audiences moving forward, determine a channel minimum and only expand when you have the budget to do it utilizing those planning tools.

Knowing your different KPIs, maybe you can reverse engineer and say that LinkedIn as a platform might not be a viable channel for you unless you have $2,500 a month to spend on it. So, in that case, until you have $2,500, don’t allocate anything to LinkedIn.

Again, if you start allocating things and you only have a $1,000 budget, you could easily waste that $1,000 without getting any insights or any performance and then write LinkedIn off as a failed effort, even if it could have been viable if you had just waited until you had the full $2,500 budget. Regularly review your channel and effort performance and reallocate based on that recent performance.

As I mentioned, I do this once a week for the in-channel conversion performance. But I also work with a lot of lead generation campaigns, and the sales cycles can be pretty long for those. So on a monthly, quarterly, semiannual basis, I’ll also take a look at the cost per customer or revenue return from those efforts and then work on reallocating the budget based on the actual profitability, not just the in-channel conversion performance.

That can then help me set up some guidelines for the next test period that we’re running until I’m able to look at that lead quality data again. Now, one hesitation I hear from people with this allocating your budget and being flexible is sometimes the finance department is who determines what the budgets are. They say we have $10,000 for Google, we have $5,000 for Facebook, and we have $2,000 for LinkedIn.

That is always a battle that I’m going to fight. If the data suggests that that shouldn’t be the budget allocation, you might be surprised to hear this, but financial budget allocation can also change. It might take cutting through a little bit more red tape than you’re used to.

People might get frustrated with you. But when you can point out in the data why you need to reallocate the budget and why things will be more profitable if you do it that way, any financial person worth their salt will be willing to listen and work with you on developing a timescale of how long you can have budgets reallocated and try and get a little bit more flexible across all the different efforts that you’re trying to run.

And lastly, if you can always keep some budget allocated for testing, this isn’t always feasible for all businesses, depending on how crunched you are for cash. But if you can, it’s almost always valuable to keep testing different efforts within a channel, within new channels. Maybe different calls to action, but always be testing something new and keep some budget allocated for that so that you’re not always just running the same thing over and over and over again.

I think the good news is that budget allocation is sort of a living, breathing process. It’s always going to be changing depending on what performance is, what you’re seeing as new tactics that you can roll out whenever a channel launches something new. So there’s not going to be one perfect allocation that you can set today that will make sense in ten years from now, five years from now, even one year from now. It might not make sense.

So while that might be a little bit daunting to some of you who want to have rigid boundaries in place, I think that’s really helpful to know that even if you don’t have your budget allocated perfectly right now, you can always change it moving forward. And make sure that you’re spending your money on the things that are making you the most in return.

If you have any other questions on budget allocation that I didn’t cover in this video, I’d be more than happy to try to answer it in the comments below.

Written by Michelle Morgan