By Lenny Ventimiglia, Atlas Digital

Advertising is one of the most crucial aspects of growing your business. While any company would love to have a fantastic advertising campaign that is always driving in new customers, many business owners have no idea how much they should be spending.  

While advertising is certainly an experiment through trial and error, there is a way to take most of the guesswork out of setting your advertising budget. If you take the time to properly track your sales and marketing metrics, the answer to how much you should be spending should reveal itself.

What Is Your Goal?

The most important thing going into an advertising campaign is to have a clear objective or goal in mind. How many new sales do you want to make? For the sake of this exercise, we will use an imaginary business that has a goal of making 10 new sales per month. If we want to find out exactly how much money they should be spending on their advertising campaign in order to make 10 new sales each month, then we will need to understand a few terms and metrics. Many of these are straightforward and pretty easy to figure out, but tracking them consistently can be a game-changer.

Cost Per Lead (CPL)

Assuming you’ve done any kind of advertising previously, you should have an idea of this number. Simply take the amount of money you’ve spent on advertising and divide it by the number of leads the campaign generated. If you spent $1,000 and got 10 leads, then your CPL was $100.

Appointment Booking Percentage

This is simply knowing how many of your leads booked an appointment or a consultation. If you had 10 leads and five of them booked an appointment, then your booking percentage is 50%.

Show-No-Show Ratio

Out of all of the new consultations you had booked for the month, how many people showed up? If you had 20 consultations and 10 of them showed up, then your show-no-show percentage is right at 50%.

Sales Percentage

How many people who showed up for a consultation ended up purchasing your product or service? If 10 people showed up and five people bought, then your sales percentage is 50%. I think you get the point by now.

So let’s say our company wants to make 10 new sales. By knowing all of the metrics listed above for this company, we can get a very good idea of how much they would need to spend in advertising to accomplish that. To make this simple, let’s assume all of the percentages are 50%.

Let’s Do The Math …

If your sales percentage is at 50%, you will need about 20 consultations to make 10 new sales.

If 50% of your consultations show up, you will need to book about 40 appointments to have
20 consultations.

If 50% of your leads book appointments, then you will need about 80 leads to book 40 appointments.

Finally, if your cost per lead is $50 per lead, we can find out exactly how much we should spend in order to make 10 new sales this month — 80 leads at $50 per lead equals $4,000.

Obviously, these numbers are always changing, and this is not an exact science.  But if you properly track all of your sales and marketing metrics, you can fine-tune your advertising budget specifically to reach your company’s goals.