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How much should I spend on paid ads?

You all know that advertisements help grow awareness and therefore also your business. But, how much should you spend on paid ads?

Yin Chu Rijnaard
September 13, 2019

Bob: Today's burning question is how much should I spend on paid ads if I'm a new startup? So Audrey, what are your initial thoughts on this?

Audrey: Well, I think first things first, we need to define what startup means, right, because many people have different definitions of what startup is, so for this context, I think we should say that it's a new business and obviously this business wants to make money so that it can pay everyone, right? So, I think when it comes to a new business, definitely you have no benchmark yet and obviously you don't know how much you should be spending on paid advertising, but I always believe that you should start off with having a sum of money which you are going to be using then to learn, learn about your market, learn about your product, learn about your advertising and your marketing messages.

Bob: Cool, so being a startup, one of the challenges as well is no one really knows about your brand.

Audrey: Yeah, very true.

Bob: So, one of the things that sometimes I advise startups do is they need to allocate some money to actually spend on brand awareness, so whether it's very top funnel, like buying a billboard or sponsoring some ads on Facebook or wherever. So, you need to have a mix, so you're gonna need to have awareness ads, and of course if you want to wrap up profits in the short term, then you need a lot of ads that are conversion ads that are closer to the bottom of the funnel to get you new customers. So anything else too?

Audrey: I think as a start you need to always remember how much are you willing to spend? And then to spend it wisely. So it's always good, when you're spending with digital marketing- one good thing about digital marketing is that you don't need to have a lot of money to do amazing digital marketing. This is one very crucial thing that you need to remember. And you can- and for you, if you're doing digital marketing, if things do not work out, you can off that immediately. And that is the benefit that you have compared to a lot of traditional marketing. So when you're doing this, know how much you can spend, know how much money you're willing to put in. Have this learning phase, where you put out to different campaigns and on different campaigns, try out different target markets, try out different messages. From there, start monitoring the ROI, right? If you realize that, oh wow, the cost per lead for this ad is very high, it's three times higher than the cost per lead of another ad, and in that case you already know that obviously you're going to off the expensive one and you just take a look at the ones that are generating you leads, the ones that are generating you purchases and you know that they are working. You put in more money and more budget to expand the campaign, make the campaign bigger and let them reach out to more people. What do you think?

Bob: Right, so as a startup as well, like Audrey says, it's some part of growth hacking where you identify what is the most efficient channel to get you the best results, but also as most of the tech startups or software companies or SaaS, whatever, how they define how much they're going to spend, also is they define the lifetime value of the customers. So if your customer, one customer, who gives you let's say 100,000 dollars in the lifetime of your customer-

Audrey: In five years time, for example.

Bob: And you think, like one click is 100 dollars, so it's very expensive, but you need to know what value that click brings to you. It might bring a customer that has 100,000 dollars. So be aware of how much is your lifetime value for customers. But if you're selling, let's say Ramly Burgers, so each Ramly Burger is five ringgits, so don't spend three ringgits on ads to get a five ringgits customer. So define the lifetime value so that you'll know what is the ceiling or the limit of your advertising spend.

Audrey: Very true. I think the big example would be Grab, right? You think about how much Grab actually spend on acquiring the customer, and you're thinking about it like, oh wow, they are spending so much on promotions, on getting a new person on board, but by the end of the day when Grab dominates a market, in ten years' time, you'll be using Grab quite a lot, right? And I tell you, they will start seeing a lot of ROI over there. So yeah, you have anything else to add?

Bob: That's it.

Audrey: That's great. Okay guys, if you have any questions you want to ask us about digital marketing, feel free to ask us on NEXT Digital Marketing Lab. See you next time!

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