Determining Your Online Ad Budget

Posted on: 2005-11-13 14:01:10
Author: Donny Lowy

Every Internet business needs to spend money advertising. Advertising can be done through pay per click campaigns with Google Ad Words, or Overture, it can be done through e-zine ads, banner ads, or press releases.

But at the core of every successful online business is a steady base of advertising.

Advertising is the life blood of Internet businesses because it is the only way that customers will know that the site exists.

While a brick and mortar business can rely on, or at least benefit from, drive by traffic, an online business does not have this ability.

In order for customers to see a web site it has to be advertised in one form or another.

The question that arises at this point is how much should an online business spend on advertising.

It is easy to spend a random amount of money which is affordable. But this strategy is not either business savvy, or sustainable.

When it comes to advertising, the only gage should be the performance of your advertising and the results that it produces.

Your ad campaign should be measured by the degree of sales it produces compared to the cost of the actual advertising.

As long as a campaign is profitable it can be duplicated and increased proportionally, but the moment the advertising produces diminishing returns it must be scaled back.

The key is to closely gage the actual sales produced by the advertising and the net profit margin it produces minus the advertising expense.

You can measure this by the day, by the week, or month. But what is more important is to take into account the sales cycle of your customers.

If you cut off your ad campaign too fast, you might not realize that customers can take a week or a month to make their buying decisions.

Therefore your calculations need to take into account the time line of your customer's buying schedule.