Understand Advertising Cost Metrics
Two types of calculations have traditionally been used to determine advertising costs: customer acquisition cost and cost per sale. If you have implemented offline advertising campaigns, such as print or radio, you are probably already familiar with these metrics. If not, you'll need to do some educated guesswork. Either way, your total banner ad budget will depend on customer acquisition cost and cost per sale.
Understand Customer Acquisition Cost
Do you know how much your business spends to acquire one customer? If your company has a financial history, take a look at any given fiscal year (ideally the most recent or the most typical one) and simply divide the amount of money you spent on advertising and marketing by the number of new customers you gained that year. You may decide that this metric is sufficient to determine your budget (especially if customer acquisition is your primary goal). However, you'll probably want to view it as just one key factor in preparing your budget.
Understand Cost per Sale
This is simply the number of dollars your business spends to promote the sale of a given item at a given price. For many businesses, calculating the actual cost of securing a purchase is the most effective way to estimate future ad expenditures. You can adjust your analysis of the numbers that you used to arrive at cost per visitor to determine your cost per sale (CPS). Does it cost you $1 or $5 or $100 to promote ? and ultimately sell ? an item? Consider this example: You can calculate that you've generated $90,000 by selling 300 refrigerators at $300 each. If you know that you spent $3,000 on ads to specifically promote those refrigerators, you know your advertising cost per refrigerator sale was $10 ($3,000 divided by 300). Once you've determined your ad CPS for a few key products, you can use those figures to help set budget guidelines for all your ad campaigns.
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