How Much Should Shopify Merchants Spend On Online Advertising?

How to spend budget properly on marketing channels and digital media platforms is still a headache for Shopify merchants. They have to allocate their marketing budget appropriately across social media channels to boost the conversion rate. Online ads for Shopify stores are various, ranging from Facebook ads, Instagram ads to Google ads. You will feel confused about which platforms are the most effective, and how much money you should invest in each kind of advertisement. HappyPoints will give you valuable tips and advice regarding your online marketing advertising budget in this blog post.

How much is an appropriate marketing budget for online advertising?

rule of thumb to manage your marketing budget for any businesses

When it comes to effective spending on marketing activities, a general percentage rule is applied. Companies that have the desire to maintain their current position should spend about 5% of their total revenue on marketing. Meanwhile, new stores or start-ups looking for a larger share in the market should invest a higher percentage, often around 10%. 

Obviously, the percentage rule is varied according to different industries and corporations. For instance, in competitive fields such as fashion, food & beverage, beauty & cosmetics, companies usually spend approximately 20% to 50% of their revenue on advertising and marketing. Customer products and service companies should invest a higher percentage than business-to-business firms.  

Below is how you can calculate your marketing budget, based on the percentage rule and your company’s total revenue:

  • If your goal is to maintain your current position: Total revenue x 5% 
  • If your goal is to gain a bigger market share and grow more significantly: Total revenue x 10%

Bear in mind that these rules are suitable for firms that earn six-figure revenue at a minimum. Start-ups or companies that earn less will have to allocate their marketing budget based on that of their competitors. In this case, they have to estimate and guess the rough numbers, because their competitors are not likely to share information easily. 

This is only a general rule for any businesses to apply. You should focus more on the allocation of marketing budget according to your industry and service.

Tips to deploy online marketing activities

As there are a huge number of digital channels, it is important for business owners to take serious consideration. Below are several tips for you to follow:

#Tip 1: Choose the online platforms that suit your industry and products

Explore each social media channels and determine which will work best for your business. Take into account the following factors: your field of occupation, your main products and services, your available human resources and financial budget at your disposal.

#Tip 2: Don’t sign up for every social platform

Remember that your time and money are very valuable. Do select channels that are the most profitable ones and most suitable for your company. It is necessary for you to be an expert at two or three channels, rather than being an apprentice at five or six.

#Tip 3: Work out a detailed plan first

If you have no plan to follow, you are likely to wander around with no focus or main motivation. Implement a plan regarding your goal and your current budget. Then considering the best-suited digital platforms with your plan.

#Tip 4: Stick with your plan

Do not give up when your ads are not working effectively. Social media ads take time to master. You will need a sustained period to achieve results that meet your expectations. 

There are 3 popular online channels that most businesses utilize to deploy advertisement for their companies: Facebook, Instagram, and Google. Each platform has particular features, therefore the budget spent on each one is not the same.

Ways to properly allocate your budget on each online platform

Marketing and promotion are obviously crucial for every business. With the convenience that the Internet creates, modern companies intend to spend a considerable portion of their marketing budget on digital and social channels. Overlook the online market will lead to business owners cutting themselves off from a global audience. 

As the importance of advertising online is clear, allocating a marketing budget appropriately on each online platform is not an easy task. Do not waste your money and time by signing up for every social media channel. Choose your 2 or 3 main ones and focus on them. Putting advertisement on 3 social media platforms: Facebook, Instagram, and Google is considered the most common and effective way to promote products or services.  Managing your budget on these channels properly and your business will achieve successful results. 

Facebook Marketing Budget

For new businesses that want to have sales, a dollar per day – the minimum that you can spend on Facebook Ads, is what all new stores should begin testing with. A good starting point here is to spend $1 for every 100 website visitors you get each month. As you know, Facebook has the remarketing and retargeting functions that are really useful. That means if you generate 100 website visitors, Facebook will allow you to retarget them. At $1 for every 100 website visitors, it is ideal for you to set aside $120 per month for conversion remarketing on Facebook. 

As a new store owner, you might start out by boosting posts. Then, find out which posts deliver decent performance based on the reach and engagement of your posts. Typically, one in five posts tends to perform better than others. If your posts are good enough, perhaps you can extend your budget on post boosting to $10, $50 or even $200 per day. Overall, the amount of money you spend on boosting depends on how many posts you have to boost their performance and the time you intend to boost them.

Start by boosting your posts

Besides, new businesses can calculate their Facebook Ad budget based on the markup percentage. Markup is the difference between the selling price of a product and its cost. For example, if you sell a product for $125, and it costs only $50, your markup is 75%. Your profit would be $75, and your gross profit (margin) would be 60% ($75/$125). The higher your markup percentage, the more money you will spend on Facebook Ads. Most businesses often spend around 3-5% of their revenue on Facebook Ads. 

For established stores that want to increase sales, it depends on the sales goal and the percentage needed to spend on Facebook advertising. This percentage will be based on a particular industry and its revenue. Generally, most of the industries allocate around 10% of their budget for marketing activities, according to a 2018 CMO survey. Industries such as retailing that usually generate more than $5 billion in revenue often spend more.  

Instagram Marketing Budget

Instagram Ads often have 10 times the engagement of Facebook ads, which means they can lead to higher conversion rate. Because of that reason, Instagram Ads often charge a higher cost than those of Facebook. An average cost of CPC (cost-per-click) on Instagram is about $0.70, compared to $0.50 on Facebook. However, as Instagram is owned by Facebook, it can also have access to Facebook advertising tools. Business owners can promote their posts by using the Instagram app or the Ad Creation Tool in Facebook Ads Manager. 

How to calculate the Instagram marketing budget is a common question that many shop owners have in mind. There are several ways to make it less difficult for you to set an appropriate Instagram Ads budget. 

For both new stores and established businesses, the goal and the return of a campaign should be taken into serious account. Your Instagram Ad budget should allow you to make a profit. Keeping your marketing funnel in mind is a quick way to determine the ROI that is generated from your ads. Below are some basic calculations for you to set your ads budget in order to have profit:

  • Revenue / Ad spend = ROI
  • Pay per click (PPC) * Number of Clicks = Ad Spend
  • Number of clicks * Conversion Rate = Number of customers
  • Number of customers * Customer Value = Revenue
Budget for Instagram Ads varies based on the resources and priorities of each business

There is no such thing as one-size-fits-all budget for Instagram ads. It varies based on the resources and priorities of one company. In general, 2-5% of revenue is spent on Instagram advertising by B2B corporations, while 5-10% is spent by B2C firms (Business Development Bank of Canada). In fact, new and small businesses often use less than $10,000 for advertising. This number accounts for more than 30% of small or new brands. Established firms will invest more money in advertising because they own a bigger budget. 

Therefore, business owners should consider their financial resources first, then come up with a suitable plan for allocating budget on Instagram Ads in order to make a profit. 

Google Marketing Budget

For new and small businesses, $1,000 per month for Google Ads is a good starting point. Obviously, the budget you need to set up depends on a number of different factors, such as an average CPC cost and the number of keywords. If you are in an industry that has a low CPC cost (like E-commerce), you can start smaller. With a high-cost industry, you will have to spend a larger budget. As for new businesses, $1,000 per month is good to begin with. With this budget, you can get 100 to 1,000 clicks during your first month. The number of clicks is clearly based on plenty of factors like your ads content, your keywords, and description. Therefore, pay attention to those factors in order to increase the number of clicks and the conversion rate.

Budget for Google Ads depends on the particular industry

For local and established companies, it depends on each industry. Some industries have really high CPC for keywords. For example, financial services, locksmiths and pest control spend around $50-$60 per click for some keywords. If you spend only $1,000 per month, you are not likely to see the result of your Google ad and its performance. Different industries will need to have a different ideal budget. For some services, such as Electricians and Dentistry, the necessary budget daily will vary from more than $100 to $250, according to White Shark Media. E-commerce will have lower CPC cost (around $2 depends on each industry). Ideal monthly budget for E-commerce Fashion industry will be around $200. 

Overall, you should consider your marketing budget for online advertising carefully. Choose only two or three main channels to focus on and take care of. In general, how much businesses should spend on online marketing depends on their goals, revenues, and available resources. However, to make it less difficult, you can freely refer to the advice above provided by HappyPoints.

If you have any other problems related to your E-commerce stores, contact HappyPoints to receive advice and immediate solutions from our experts!

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