Q&A: How Much Should I Spend on Social Media Ads?
The most common question we get from businesses we train in Facebook and online advertising is, “How much should I spend on social media ads?”.
When you’re first getting started in the online advertising world, it can be difficult to gauge what an appropriate social media ads budget is. Should you be spending hundreds of dollars, or thousands? If budgets are tight, what is the absolute minimum you can allocate to social media and still produce great results?
In true marketer fashion, our most common answer to this question is: it depends.
As much as we would love to give you a magic number that you can rely on for your social ads planning, the budget required really does depend on a number of factors that are unique to your business.
What we can teach you though, are the methods for working out social media ad spend for yourself. In this blog we will focus solely on social media ads budget planning, but you can take the same approach to other channels, such as Google Ads.
There are two main ways to work out your ideal social media ads spend:
- Start with what other businesses are spending, and adjust accordingly.
- Use audience size, campaign objective, and industry performance benchmarks.
Let’s talk through each of these.
What are other businesses spending on social ads?
The easiest way to estimate your social media ad spend is to research what others like you are spending. Social media advertising is such a popular channel, there are plenty of studies online sharing stats for spending averages, with some broken down by industry.
According to the most recent Yellow Social Media Report, the average annual SMB spend for Australian businesses on social media advertising is $7,586. This works out to just $632 per month, on average.
However, the same report states that medium-sized businesses spend almost three times as much as small businesses, so for these, the average annual budget is more likely to be around the $22,500 mark ($1,875 per month).
The first question to ask yourself then, is whether you’re a small or medium-sized business and whether the figures above seem reasonable based on your total marketing budget.
Next, you can take a look at typical marketing budgets as a percentage of revenue, and how much of the total budget is usually allocated to social media by other businesses.
Gartner’s annual CMO Spend and Strategy Survey for 2022 found average marketing spend is 9.5% of company revenue across most industries. However, there are noticeable variances for some industries, including ‘Travel and Hospitality’ which has a lower average percentage of revenue at 8.4%.
Of course, these figures are for marketing budgets as a whole, not solely social media advertising. The question remains, how much of the total marketing budget should go into social ads?
The same Gartner study found online channels take approximately 56% of the total marketing budget and that social advertising is the top online channel for spend.
So, from a quick bit of online research into what others are doing, we know:
- Australian SMBs are spending an average of $7,586 on social media advertising.
- Medium-sized businesses are spending more, around $22,500 annually.
- Most businesses allocate 9.5% of revenue to their marketing budget.
- Online channels generally receive 56% of the total marketing budget.
- Social media advertising is the top online channel for ad spend.
As a marketer working out a starting point for your own social media advertising budget, you can use these figures to plan a number that works for you by answering the following:
- Are we a small or medium-sized business?
- What is our annual revenue?
- What is 9.5% of our annual revenue (= total marketing budget)?
- What is 56% of the total marketing budget?
- If I were to allocate x% of the online marketing budget to social, would it align with what others are spending?
Now, a caveat, this method is probably the least accurate in terms of understanding the results you can expect to receive from your ad spend. It’s simply a starting point for allocating an annual budget and should be adjusted as you run campaigns and learn more about your own activity.
The second method for calculating how much to spend on social media ads is more mathematical (stick with me) and allows you to forecast results, too.
Audience size, campaign objective & industry benchmarks
If you know who you want to target with your ads and the desired outcome, but you’re unsure of the budget to allocate this is the best way to figure it out. We’ll spell out the calculations below to manually work out your budget, but to save you time you can also get access to our free social media ad spend calculator to make life easier in the long-run!
Start with your audience size
Firstly, head to Meta’s ‘Audiences’ section in your Business Suite or Manager account. Once there, create your target audience, whether it’s a Saved, Custom, or Lookalike audience. This will allow you to see the estimated audience size.
Make a note of the estimated audience size.
Know your campaign objective
When creating a social media advertising campaign in Meta’s Ads Manager, you’ll select a single objective based on Awareness, Consideration, or Conversion.
Because of what you’re trying to achieve, these objectives have different metrics for when you are charged i.e. Brand Awareness is charged by ‘Impressions’ achieved, whereas Traffic campaigns can be charged on either ‘Impressions’ or ‘Link Clicks (CPC)’. ‘Impression’ means we are charged each time our ad is shown to a user, whereas CPC (cost per click) means we are charged each time a user clicks on our ad to visit the link.
Make a note of your campaign objective and the metric you will be charged by.
So far you should have noted down:
- Estimated audience size
- Campaign objective
- Single metric to be charged by
Find the benchmarks for your industry
Again, we’re assuming this campaign is the first you have ever run and therefore, you have no historical data to work with. In which case, we’re going to use industry benchmarks to guide expectations and allow you to set a campaign budget.
The next step is to hop on Google and find the most recent industry benchmarks for your advertising channel and chosen metric and, ideally, by country and industry too. Wordstream is a reliable source that updates its social media benchmark stats yearly.
As an example, let’s say we are a finance company and;
- our campaign will run on Facebook only
- our objective is Traffic
- our chosen metric is Link Clicks (CPC)
We want to find the average CPC (cost per click) for finance companies in Australia, advertising on Facebook. This will tell us what other businesses in our sector are usually paying per click.
However, we also need to know the average click-through rate for advertisers in our sector so we can understand how many times we’ll likely be charged. So, let’s add that to our example:
- We are a finance company
- Our campaign will run on Facebook only
- Our objective is Traffic
- We will be charged by Link Clicks (CPC)
- We’ll know how many link clicks to expect by finding the average CTR for the finance industry
Using the benchmark answers to the above information, we can complete the following formula:
Expected click-through rate of audience size = expected number of link clicks
i.e. 0.56% (average finance CTR) of 1,100,000 (audience size) = 6,160 link clicks
Expected CPC x number of clicks = ideal budget required
i.e. $3.77 (average finance CPC) x 6,160 link clicks = $23,223
For this example, the ideal social media ad spend to achieve maximum link clicks is $23,223.
However, we can now tinker with this ad spend by reducing it to a level that fits within our available marketing budget and doing the maths to figure out how this will affect the volume of link clicks we could receive. For example, if the maximum we have available to spend is $6,000 this is approximately a quarter of the ideal spend and our link clicks would likely reduce to around 1,540.
Taking it one step further, we can use our website analytics to understand what link clicks to the site means for the estimated number of conversions and revenue, and from here, we can work out projected return on ad spend.
Expected conversion rate of link clicks = number of leads or sales
i.e. 1% (typical website conversion rate) of 6,160 = 61.6 online sales
Average lead or sales value x number of leads or sales = pipeline or revenue
i.e. $500 average online sales value x 61.6 = $30,800 revenue
Pipeline or revenue – ad spend = projected return on ad spend
i.e. $30,800 online sales – $23,223 ad spend = $7,577 return on ad spend
All of this works as a way to set initial budgets and as you run campaigns and learn your own benchmarks, you may see different results and can adjust accordingly. Your own click-through rate may be much higher than the industry average, for example, or your CPC lower.
Free Access: Social Media Ads Spend Calculator
Perhaps maths is not your strong point, or you simply don’t have the time to sit and manually work out the equation shown in this blog post. Either way, you’ll be relieved to know that we’ve created a simple calculator you can use as a shortcut to work out your social ad budget.
Simply come armed with your industry benchmarks and estimated audience size, enter these into the calculator and immediately forecast the number of link clicks and ideal budget recommended! It works for both Traffic campaigns and those using ‘Impressions’ as the metric to be charged by.
You can access the calculator for free by filling out the form below:
Have questions about using it, or would like personalised training in the topic of social media advertising? Get in touch!