Shopify Ecosystem

Expert tips from leading agencies: How much to spend on paid ads?

expert-tips-from-leading-agencies:-how-much-to-spend-on-paid-ads?

SmartSites

Michael Melen, Co-Founder of SmartSites:

The smartest companies are no longer setting a cost-per-click strategy. They are now doing something like a target return on ad spend. Let’s say that, as long as you give me a 200 percent return, you still set a budget limit but… but really it’s like what’s in your bank account right now.

You don’t want to overspend the credit card or maybe there’s inventory limits, whatever the case may be, but otherwise, there shouldn’t be a limit. It’s maximum, you know, it’s limitless.

As long as you could give Google a power and get two dollars back, why would you set a limit on how much money you make, right?

Marketing should not be a proportion of revenue. That’s just the wrong approach altogether.

You come into Google, you give us a target ROAS and say: Hey, I’m going to give you as much money as you want as long as you make the two dollars for every one dollar I spend.

And that is the modern way to grow an ecommerce business.

Mindful Marketing

Jordan West, Found of Mindful Marketing:

It’s a matter of knowing when you’re actually profitable running ads and what you can afford to acquire a customer at, because it’s not about making money necessarily just on the first sale. It’s about knowing how many more times that customer is going to come back and what their average lifetime value is.

So if you can afford to acquire customers at break even, because you know that they’re going to purchase three times more than their first purchase value, then that’s how much you can spend on your Facebook ads. So it really depends on what your cost of goods actually is and what your margins are.

The whole idea with Facebook ads is to acquire new customers and then not having to spend another 100 dollars to acquire them again.

What we do at Mindful Marketing, our agency and the brand that we own, Little & Lively, is we try and get people off of Facebook ads by actually acquiring customers into owned channels like Messenger marketing, SMS, an app, or an email list.

For people who have purchased and now you want them to become part of your VIP list, running ads to that retention audience is incredibly valuable. Getting them onto your Facebook VIP group, getting them into your SMS list. If you have an app, potentially getting them to download the app at that point and giving them some sort of incentive to do that.

So, for every one of our clients at Mindful Marketing, we’re running ads to get people onto their owned lists.

JUICE

Michael Lisovetsky, Co-Founder of JUICE:

The best way to determine a budget is to break it down into two parts. You want to create a “core” budget, which should be 80% of the total and the last 20% should be “test”.

Tests are initiatives that you’re not necessarily sure about – it could be a new creative, or some kind of new angle as long as it has not been attempted before. Your core budget is how you break out campaigns that you’re confident in because they work and you’ve seen some kind of prior evidence of it working.

In terms of backing into a budget, it is really important to take your cost per acquisition (CPA) to figure out your unit economics. To do this for eCommerce transactions, you need to figure out how much you can spend and still come out of that transaction profitably.

Once you have that, you take your CPA and you multiply it by 10 so that your target is ten times your CPA in daily spend. That becomes your 80% budget. The next step is to beef that up with your testing budget, so anywhere from 0-20%.

Your goal is to get it to the point where it’s at least 10xCPA per day on your core campaigns, and the additional 10-20% is allocated for testing purposes. Testing consists of trying out new ad ideas and giving yourself the opportunity to see if they work without putting all of your budget into unknowns.

Special thanks to our friends at Recart for their insights on this topic.