How much money should I spend on digital marketing?
Likely one of the most common questions I get asked. My answer is pretty straight forward, “spend as much money as you can as long as the numbers work”.
Let me explain.
Facebook Ads, Facebook Pixel, Google Ads and Google Analytics, are tools we use every day to send the right message, to the right person, at the right time.
We’ve seen some amazing results with digital marketing in the alcohol industry.
To play the digital marketing game you need to understand how much money you can afford to acquire a customer, otherwise known as CPA.
Cost per acquisition
Cost per acquisition/action (CPA) is fancy marketing speak for how much it costs you to get a sale. This is a primary metric for several of our clients and is something that is worth spending time to figure out. You don’t need to get too fancy with this, as it can get very complicated if you let it, but knowing how much you can spend to get a sale is incredibly valuable.
Understand your business, make a plan and start experimenting.
Generally speaking if you are trying to sign up a wine club member your CPA could be between $50 to $100.
Figuring out how much a customer is worth to you can be tricky if you don’t have a lot of historical sales information. Dig into your sales data and see if you can extrapolate some statistics.
How long does a customer buy from you (one time only, or over several months or years), and how much do they spend in their lifetime (LTV – lifetime value)?
If a customer spends $1000 with you does $100 CPA make sense? Depends on your margins, but I’m guessing it does.
Here’s a fancy visual from Wordstream showcasing CPAs across different industries for comparison:
Return on Ad Spend
Return on Ad Spend (ROAS) is another important metric to be comfortable with in order to optimize your spend and accounts properly. Simply put, ROAS is the money you make from your ads; for every $1 you spend on advertising, you make $x back in sales.
A good starting place for this is a 5:1 return-on-ad spend. There might be product mixes where less is still ok, but for us, 500% return on ad spend is a healthy starting place (spend $1000 get $5000 in sales). We’ve had clients get this as high as 2000% with campaigns we’ve run (spent $1000 get $20,000 in sales). Do these numbers work for your business?
How do you start taking advantage of this?
A traditional sales funnel consists of different phases a prospective customer will travel through. These phases consist of awareness, consideration and finally purchase.
Ultimately every business is unique, but with the tools available today you can fine tune your efforts over the course of a few weeks using digital marketing. Digital marketing is a completely different ball-game compared to traditional advertising; there isn’t a pay and pray attitude. When you pay for digital marketing ads, you can start to see the results immediately.
Facebook helps with brand awareness. Google helps people find what they are looking for. Instagram is weird and expensive. However, when you put all these together you can calculate a blended CPA and figure out how to make your ad-spend work.
Make the basics work.
We’re currently living in a world where you can target specific advertisements to specific people at specific times depending on their interactions with your brand. Remarketing, retargeting and geolocation/geofencing are at the cutting edge of what you can do once you have the basics in motion.
You should be spending as much as possible on your digital marketing efforts, as long as the numbers work.