How do I plan my Internet advertising budget for my startup?

QUESTION:

Can you please tell me how to plan an Internet advertising budget for my startup?  Should it be a certain percentage of revenue?

ANSWER:

by Naomi Kokubo, Cofounder of Founders Space

First of all, your advertising budget should be determined by your goals.   Is your goal to brand your product? Drive users to your website?  Drive awareness?  Drive sales?   Also, how much money do you have to invest in advertising?   It usually takes a while to optimize an advertising campaign and figure out exactly what works and what doesn’t.

We’ve seen numerous startups spend huge sums of money only to discover that the clicks they were buying didn’t translate into paying users.   My recommendation is to start small.  Take a few hundred dollars and begin experimenting with various online ad platforms to see whether or not your ad compaigns move you towards your ultimate goal.

As for planning your budget, you need to look at the results you want to achieve and how much it will cost to achieve them.   Here’s a brief outline of how to get started:

1. Budget by goals.   For example, if your goal is to build a community of half a million users, then you need to figure out how much it will cost to get 500,000 users to stick on your site.
2. You also need to look at the different advertising options, including Google Adwords, sponsoring websites, banner ad networks, link exchanges, in-game adverting, mobile web advertising, etc.  Each advertising opportunity has its own advantages and its own costs, and they will impact your budget planning.
3. Getting visitors to your site is only the first step.  Next you need to figure out what you want those visitors to do on your site and whether or not the traffic you’re getting translates into your goals.  How much time do they spend on your site?  Can you monetize them?   Are they the right users?  Where will these users come from and how much does it cost to reach them?
4. Price out your options.   Research all the different ways you can advertise online and determine which ones will deliver you the best results.  You might pay $2 per user from Site A and $0.10 per user from Site B, but Site B’s users never stick, so they may be worthless to you.  In other words, paying less for traffic doesn’t always make sense.
5. It also pays to look at where your competitors are advertising and what they are spending.  This can provide you with a good idea of what you’ll have to spend and where you’ll get the best results.
6. Once you get an idea of what it will cost to achieve your goals, you have to ask yourself if you can afford this, or if you have to raise more capital before you even begin advertising.
7. If your budget is limited, you may not be able to use advertising effectively.  In order to optimize an ad campaign and get real value out of it, you need to have thousands of dollars.  It takes time to test out an ad network, measure the results, and determine if any of the traffic is translating into users who actually pay for your products or servcies.
8. Once you know your goals, the costs for driving quality traffic to your site, and your budget, you can ramp up your advertising.  I highly recommend starting with a limited trial to prove out your assumptions.  If you find the quality of traffic you’re getting is good, you can increase spending.  Otherwise, you may need to rethink your ad campaign strategy or scrap the idea of advertising altogether and look for other ways to market your product or service.

It may also pay to hire a marketing expert to sit down with you, examine your business, and lay out the options available.  This might cost more up front, but it could save you a lot of time and money in the long run.

I hope this helps!