How to budget for paid advertising: Best practices

Paid advertising can be a game-changer for small businesses, as a way to reach potential customers and drive growth.

But for many founders, diving into paid advertising can feel daunting, especially when working with limited resources.

• How much should you spend?

• Where should you allocate your budget?

• How do you make sure you get a return on your investment?

This blog sets out some down-to-earth, actionable guidance for establishing and managing your paid advertising budget, even on a modest scale.

What paid advertising costs

Paid advertising is promoting your business on sites such as Google Ads, Facebook, Instagram and LinkedIn, where you pay to show your content to targeted groups of people.

Each site is different in the way they charge, so here are the essentials:

• Pay-per-click (PPC): You pay only when someone clicks your ad. That's the norm for Google Ads and search engine advertising.

• Cost-per-impression (CPM): You pay according to the number of times your ad is shown, usually per thousand impressions.

• Cost-per-action (CPA): You're charged when someone performs a particular action, like buying something or subscribing to your newsletter.

For small businesses, the secret of success lies in keeping costs in line while getting the biggest possible returns.

If you don't have a set budget, it isn't difficult to overspend or overlook the need to monitor your results.

Your advertising budget and objectives

First, take a moment to establish your goals and review your resources. This will ensure your campaigns match with what you're trying to get out of your paid ads.

Set definitive goals

Decide what you want to get of your paid ads. Here are some typical objectives:

• Lead generation: Attracting potential customers interested in your products or services.

• Sales: Prompting purchases directly through your ads.

• Brand awareness: Building recognition for your company and services.

Evaluate your available resources

Ask yourself:

• How much time can I commit to designing and overseeing ads?

• Am I familiar with online ad platforms, or will I have to learn or outsource?

• How much can I spend on paid campaigns without straining other business needs?

Work out your metrics for success

To measure if your ads are working, set performance metrics like these:

• Conversion rate: The rate at which ad viewers perform the action you're hoping they'll take, such as buying something.

• Click-through rate (CTR): The proportion of clicks to impressions, which gauges how compelling your advertisement is.

• Customer acquisition cost (CAC): The amount spent to get a new customer via your advertising campaigns.

Planning your advertising spend

When you have clear goals and an idea of your resources, you're ready to budget.

Start small, think big

If you're new to paid ads, it's a good idea to begin with a low budget, like £50 or £100. This way, you'll be able to:

• test campaigns

• see what works for your business in terms of platforms and approach

• reduce any risk

Once you gain the experience, then you can increase spending.

Invest intelligently across sites

Not all platforms are equal. Do your research on where your target market is hanging out and concentrate there. For instance:

• B2C (business-to-consumer) companies tend to be successful on social media websites such as Facebook, Instagram and TikTok

• B2B (business-to-business) businesses can perform more effectively with LinkedIn or Google Ads

Account for hidden fees

Beyond the cost of placing ads, there are other expenses to consider:

• Creative assets: Employing designers, photographers or copywriters to create engaging ad content.

• Tools: Using analytics tools or campaign management software to make ads perform to their fullest.

VIDEO: How to use PPC and paid social to grow your business

PPC expert Henry Marshall answers questions on bidding, keywords and beating companies with larger budgets:

Paid advertising budgeting tips

Estimate the value of a customer

To prevent overspending, calculate how much a single customer is worth to your business. This is sometimes called customer lifetime value (CLV).

If you have this amount, you know how much you'd like to spend to get a new customer without losing profit.

Impose a monthly limit

Set a monthly budget cap to make sure you don't overspend. Most ad platforms let you define daily or monthly limits, which guard against any spending you hadn't anticipated.

Use optimisation tools

Take advantage of tools like:

• Google Ads Keyword Planner: For discovering affordable keywords for your campaigns.

• Meta Ads Manager (formerly Facebook Ad Manager): For managing and monitoring ad performance on Facebook and Instagram.

Handling paid ads costs efficiently

Getting the best out of your advertising budget takes management and constant tweaking.

Continue to optimise your campaigns

Track your performance metrics regularly to identify which ads are working and which aren't.

Pause underperforming campaigns to avoid wasting money and focus your budget on high-performing ads.

Test and iterate

A/B testing is a great way to determine which variations of ads are your highest-performing.

Experiment with various headlines, images and calls-to-action (CTAs) to find out which combinations yield the greatest results.

Refresh your ad content regularly to avoid ad fatigue, which is where when viewers no longer interact with your advertisements.

Be adaptable

Paid advertising is not a set-it-and-forget-it affair. Be ready to shift budget allotments according to:

• seasonality

• how your campaigns are performing

• changes in your target audience's behaviour

Common mistakes to avoid

Despite a good strategy, it's simple to commit expensive errors when you're beginning with paid advertising. Steer clear of these traps:

Setting unrealistic expectations

Paid advertising can work wonderfully but it's not a silver bullet. It does take time to be successful, so in the early days be realistic about what return on investment (ROI) you're expecting.

Ignoring data

Analytics is your best friend when it comes to paid advertising. Use the data provided to optimise your campaigns, recognise trends and make educated decisions.

Targeting too wide an audience

Though it might be tempting to reach as many individuals as possible, casting your net too wide usually results in wasted budget. Prioritise accurate targeting to reach people who have the highest chances of converting.

Key takeaways

Intelligent budgeting, ongoing optimisation and a keenness to learn are fundamental to getting paid advertising to deliver for a small business such as yours.

With a low initial budget, definite objectives and regular monitoring, even companies with modest means can get significant results.

Keep in mind, paid advertising is a tool – not a one-size-fits-all solution. Begin with small steps, test and calibrate your strategy as you learn.

With persistence and careful planning, you'll be able to unleash the power of paid advertising to build your business.

Relevant resources

• What is paid advertising? A brief guide

• How to set up a paid advertising campaign

• Lunch and Learn: How to plan your social media advertising

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