Every small business owner on the planet wants to know this secret. Heck, some big businesses want to know it too. They ask for this all through their marketing plans. What is the best way to plan for advertising costs? What is the average cost on a per ad basis? I’m going to tell you exactly how to get this number and more importantly tell you what you should do with it.
Average advertising costs for startup businesses – If you are thinking of starting a small business, then you will need to ensure that you have the best working budget. Like every other small business owner, you would probably start off in your home with just your computer and table serving as your office space. Naturally, your advertising costs in the initial stages would be low since in most cases you would be spending out of pocket on just a few things. However, as you grow into a bigger business and expand into more locations, then your average advertising costs for startup businesses begins to rise considerably just as a result of increased operating costs resulting from the expenses of opening one or more branches.
Do you know how much your small business advertising costs? If you’re like most business owners, you probably aren’t sure. Or maybe you think it will cost thousands of dollars when in fact there is a way to get started for free.
As you’re planning your advertising strategy, today’s post is for you! I will share with you the average advertising costs for small businesses.
Fisrtly, it is important to take into account what other small businesses spend on advertising. But also consider factors specific to your business, such as:
- Past experience — what has worked in your business before?
- Your marketing objectives — what are the forms of media and places to advertise that meet your objectives, and what will it cost to drive results there?
- Size and stage of your business — if your business is a startup with just $200,000 in revenue, you may decide to spend 10 percent of your revenue during the first six months. You consider it an investment to jumpstart more sales.
- The competitive landscape — where do your competitors advertise and how much will it take to stand out from the competition?
The best way to make sure you are spending wisely is to have a well-thought out plan. Plan out your marketing. As part of your marketing plan, identify where you want your message seen or heard and what you want to accomplish with it. Then stick to your plan.
How to budget for advertising?
A marketing budget typically covers costs for advertising, promotion and public relations. Each amount varies based on the size of the business, its annual sales and how much the competition is advertising. Depending on the industry, marketing budgets can range from as low as 1% of sales to over 30%. New companies may spend as much as 50% of sales for introductory marketing programs in the first year. Smaller business may just try to match the spending of their direct competitors.
The overall marketing budget should include:
- print and broadcast advertising
- design and printing costs for all print materials, such as newsletters, brochures and press releases, direct mail costs
- Web site development
- public relations
- trade shows
- any other special events needed
Determine a dollar amount for each of the above categories. Keep in mind, it is usually easier to begin with a base amount for the entire marketing budget, and then divide it into subcategories. Although each business’s marketing budget will differ, below are four common methods used to allocate funds:
Allocating a specified percentage of sales revenue is one of the most popular methods for developing a marketing budget. The average allocation usually ranges between 9-12% of the annual budget, while the smallest businesses may go as low as 2%. If a business is launching a new product or service, advertising and publicity needs are greater, so the percentage will increase. The main advantage to using a percentage of sales is that the marketing budget will increase, or decrease, with the sales revenue of the company. The marketing budget will never spin out of control and deplete sales revenue.
For example, if you operate a consumer services business such as pest control, then you may decide to spend considerably more than 1% on pay-per-click ads such as AdWords. In fact, in competitive industries, the cost per click may be through the roof. You may have to pay more just to get results. But you also may see measurable ROI in the form of immediate sales. By tracking costs and conversions, you know that by spending $X in pay-per-click ads you can get $Y in sales each month. You might have built these pay-per-click costs into your pricing and be perfectly comfortable spending five percent of your revenue on advertising.
Here’s a quick summary of our guide to online advertising costs:
- The average cost of an advertisement on Google Ads (AdWords) is $2.32 per click on the search network. The average cost per click of an ad on the Display Network is under $0.58.
- The average cost per action (CPA) in a Google advertising search campaign is $59.18.
- The most expensive keywords in Google advertising and Bing Ads cost $50 or more per click. These are generally highly competitive keywords in industries that have high customer lifetime values, like law and insurance.
- The average small business using Google advertising spends between $9,000 and $10,000 per month on their online advertising campaigns. That’s $100,000 to $120,000 per year.
- The average cost per click of an online Facebook ad is $1.72. The average cost per action on Facebook Ads is $18.68.
- The typical CPM on Facebook Ads is around $10.
- The typical CPM for an Instagram ad is closer to $5, but Instagram ad costs are rising as the platforms gains in popularity.
| Small Businesses Spend on AdvertisingSource: Sageworks Data – 12 months ending 8/31/2017 | |
| Advertising To Sales | Industry |
| 4.44% | – Furniture Stores |
| 4.16% | – Jewelry, Luggage, and Leather Goods Stores |
| 3.84% | – Offices of Real Estate Agents and Brokers |
| 2.87% | – Other Schools and Instruction |
| 2.73% | – Beverage Manufacturing |
| 2.18% | – Other Amusement and Recreation Industries |
| 2.16% | – Home Furnishings Stores |
| 1.99% | – Personal Care Services |
| 1.93% | – Restaurants and Other Eating Places |
| 1.88% | – Specialty Food Stores |
| 1.85% | – Agencies, Brokerages, and Other Insurance Related Activities |
| 1.83% | – Death Care Services |
| 1.08% | All industries |
Conclusion
As a small business owner, knowing the various small business advertising costs is essential because you get to choose the one in your budget range.
There’s no doubt Google Adwords is the largest online ad platform for advertisers but it’s not as straight forward as subscribing to a plan to buy ads or Facebook Ads.
Google AdWords is also expensive for small businesses (well depending on the industry you are in) but can help you get to a larger audience quickly. Facebook doesn’t really show as much intent to buy like AdWords but can get you potential customers who in the future may purchase your product.