How do you set your advertising budget?
It's a question we're frequently asked, particularly by entrepreneurs. Indeed, it is all the more pressing in the circumstances of a leap into the unknown. By definition, a start-up has no specific KPIs on which to estimate the leverage effect of advertising on its future business. Conversely, established companies, even if they have no experience of digital advertising, at least have experience of communication and possibly offline advertising.
The question of assessing the "right advertising budget" to invest on the Internet to launch a business or a product/service is a recurring question. In fact, it's often a source of anxiety for business start-ups with no experience or training in digital marketing. But this anxiety is not totally unjustified, as estimating the advertising budget that should be invested when start-up can be so high that the business plan can be turned upside down. This cost item at the launch of a business, and before it becomes a leverage point for profit, is very often neglected or underestimated in the construction of the business plan and the calculation of the breakeven point. As a result, taking this reality into account, which sometimes comes late in the entrepreneur's thinking process, can be destabilizing. It can even call into question the financing structure of the business company's own financing structure when it has not been sufficiently anticipated. For example, when some start-ups think they're financing their start-up with their own funds, the realization that they need to invest to generate significant revenue traction may lead them to open up their capital or resort to borrowing.
When a company has existed for years and begins to integrate digital into its strategic thinking, the evaluation of the appropriate marketing budget to invest online is no less delicate. The notable difference with a startup is probably the pre-existence of a marketing or communication budget established in the company’s accounts. This budget is often renewed more or less identically every year and self-financed. It therefore allows to have a framework in which the digital investment will have to fit, which already represents a first way of evaluating the budget to invest. We will come back to this point. For this type of company, the main challenge of digital marketing is the change of reference. It is about moving from a world with known benchmarks (cost of media buying, buying methods, KPIs, ROI measurement, etc) to a universe in which these constants are entirely new and multiple. In addition, the digital ecosystem is so much more complex than that of offline advertising buying, that it is difficult to know all its opportunities… and its pitfalls. This domain, in which abound tools, concepts and other “buzz words” (big data, machine learning, growth hacking, etc), is also that of digital gurus whose talent is very variable, when it is not purely bluff.
One of the difficulties in estimating one’s advertising budget is also due to the very wide range of options. The proposals from advertising networks, digital agencies, freelancers, infopreneurs, etc are so numerous and varied that the advertiser can quickly find himself disoriented and default to the best seller. He will simply have had the merit of convincing but nothing guarantees that he will have proposed the best solution from his client’s problem. This is also the point where a consulting agency is particularly relevant because it does not base its remuneration on a commission received on the advertising budget but on independent fees of the suggested solution.
Why is the advertising budget critical?
In our experience, start-ups often tend to focus their investments on promoting their through their website or mobile application. As a result, a significant budget is often allocated to the development of the showcase or, in the case of an e-commerce site, the store. perfectly thought-out and executed, it will, on the whole, ensure market traction on its own. market traction. It's not uncommon, then, for the entrepreneur to imagine that with a little PR, solid SEO and a few posts on social networks, the "pump" will start pumping. In short, it's all about the intrinsic quality of the offer, the genius of the concept and the appetite it will naturally generate. With the with the exception of a few genuine strokes of genius - often originating in Silicon Valley Valley - it has to be admitted that, for most start-ups, the road to growth will be a little longer and more tortuous. and tortuous. The best shop window or e-commerce site cannot stand alone in an ecosystem ecosystem occupied by millions of sites and apps. What's essential for a shop window, whether digital or real or real, is to generate visits. This is where the notion of audience comes into play, a notion often miscalibrated by advertisers. by advertisers.
The audience of a digital campaign is measured by the number of useful prospects actually reached, as opposed to the audience of an offline campaign whose size is largely theoretical and empirical. In the case of a digital campaign, audience size can be measured to the nearest unit, i.e. to the nearest prospect.However, as we'll come back to later, the constants of a digital campaign (click-through rate in particular) often lead us to aim for a large audience in terms of volume, for modest results in terms of visits. This is why, in most B2C digital campaigns, audiences are counted in the hundreds of thousands or even millions of useful contacts.
The success of a digital project therefore depends on the size of the audience to which it will be exposed. It goes without saying that targeting is also critical, but it affects effectiveness, not volume. In most cases, however, we're looking to achieve both.
So what to do? In the B2C sector, we recommend reserving at least 80% of the marketing budget for advertising. This means that only 20% of the total marketing budget should be set aside for website or mobile app development. This realization often leads entrepreneurs to revise their ambitions with regard to the sophistication of their site. In fact, we recommend phasing the sizing of the site as much as possible the company's growth. In this case, we frequently recommend the launch of an MVP (Minimum Viable Product), in order to test the market at a lower cost as the company or project matures. This allows you to keep a significant budget for digital marketing, and thus the means to reach the audience mentioned above. It is this audience that will provide the feedback needed for successive iterations of the site, as well as the revenue to finance further development.
What media or advertising leverage should you choose for your project?
When it comes to customer acquisition, digital marketing consists mainly of two levers: inbound marketing and outbound marketing. Inbound marketing is typically the king of lead generation. It involves bringing customers to you. The latter take voluntary action by actively seeking out the products and services offered by the advertiser. The second approach, which is the subject of this article, is to promote your offer to your target audience. This is the domain of advertising. Through outbound marketing, the advertiser goes to its audience and not the other way around. This implies that a medium is the vehicle for the advertising message to its audience.
As with offline advertising, digital advertising involves buying space through one or more media. While there are many options, there are a few tried-and-tested "mainstreans". By this I mean platforms such as Google Ads, Facebook for Business, Amazon Advertising, etc as well as digital marketing disciplines such as Search Engine Advertising (SEA), display, Social Media Advertising Advertising and affiliation.
These media and techniques are mainly used in B2C sectors, but they are also increasingly proving their worth in B2B. B2B sectors. Today, the vast majority of advertising spend is unsurprisingly concentrated on Google and Facebook, which attract around 75% of budgets. We may regret the dominant position of the GAFAMs, but we also have to admit that their success is no accident and the presence of the vast majority of advertisers on these platforms is proof of their effectiveness.
As a result, we frequently recommend these media in our recommendations. Generally speaking, the level of sophistication of the main media buying platforms, including DSP, linked to the programmatic display ecosystem, and the size of the audiences available through them, more than justify their use in the world's leading markets. Only China, Russia and, to a lesser extent, Japan can justify alternatives because their advertising ecosystems are markedly different, especially in China.
In the majority of cases, therefore, it is logical and appropriate to choose these "mainstream" media to reach target audience. On the other hand, the multiplicity and sophistication of these tools must lead to very different tactical choices, depending on the products or services sold by the advertiser.
How do you calculate the ideal advertising budget?
This crucial question is trickier than it sounds, and many professionals are at a loss to answer it with anything other than a pithy formula: "the ideal budget is the one you can invest". Without being totally wrong, this approach is obviously reductive. With experience and in-depth knowledge experience and in-depth knowledge of digital marketing, it's possible to propose a more rational approach based on calculations.
Schematically speaking, we at BeOnPerf propose two distinct approaches, depending on the sensitivity and personal culture of the entrepreneur or marketing director:
- the budget constraint approach.
- the goal-oriented approach.
In the first case, we start with a defined budget, an unsurpassable envelope corresponding to the maximum financial resources available to the company, irrespective of sales achieved. This is a strictly financial approach, fueled by a vision of the marketing budget as primarily a cost center, a condition of success, seen more as a constraint than an opportunity. As you can see, this is not the approach that we most readily recommend, but it does have the merit of enabling better planning of investments and advance knowledge of the maximum load to be assumed over a given financial year. From a technical technical point of view, this methodology involves estimating forecast sales on the basis of the available budget envelope and applying average constants (ratios) obtained from hundreds of similar past campaigns. This enables sales forecasts to be calculated. This is a complex simulation exercise, weighted by numerous factors. The aim? To accurately anticipate the effect of an advertising campaign on the target audience and, ultimately, its translation into revenue.
In the second case, we start with the sales target set by the advertiser, and apply the same mathematical constants to determine the level of investment required. The calculations are virtually identical, but instead of starting from an arbitrarily fixed budget ceiling, we reconstitute based on the objectives to be achieved. This method is more virtuous from the point of view of business efficiency, since it sets a rational level of investment to achieve the financial KPIs the company has set itself over a given timeframe. It does, however, have one drawback for some decision-makers. It can sometimes be disconcerting for the entrepreneur, given the scale of the budget to be invested. It is then up to the entrepreneur to adapt his business plan to the reality of the simulation, either by scaling back his ambitions, or by seeking new sources of financing. On the other hand, this approach is much healthier than the previous one, as it allows you to anticipate expenses in line with expected income, and therefore anticipate a breakeven much more accurately. Indeed, beyond the breakeven point, advertising will be self-financing, since the company's activity will be profitable thanks to the inclusion of the advertising budget in the calculation of its breakeven point. This calculation method enables decision-makers to anticipate the financial KPIs of their business much more accurately, and to manage it more effectively.
Once these two methodologies have been explained, it remains to consider the mathematical constants to be applied to the simulation equation. Some of these can be identified from the literature on the Internet but there is no complete and sufficiently detailed source. This is where the expertise of an agency like BeOnPerf comes in. We have over 20 years' experience in the digital sector, and have been able to build calculation tables enabling us to carry out realistic simulations according to the target market. We would be delighted to help if you have a digital campaign project in mind. Besides, we offer free of charge a simulation tool enabling you to access a first level of calculation to be refined together. This tool lets you play with numerous parameters and simulate your performance based on several scenarios.