How Much Should My Company Spend on Social Media Advertising?

Social media isn’t just for Millennials and Gen Zers, and it hasn’t been for some time. A recent study found that 72% of Americans use some form of social media, with the most rapid growth occurring in adults over 65. The average user spends almost 2.5 hours on social media each day, and social media scrolling accounts for more than half of all mobile phone use.

If you associate paid social media advertising with athleisure brands or organic meal delivery services, you may be surprised to learn that even retail businesses who don’t have an owned ecommerce presence can benefit tremendously from social media marketing.

For retail brands, the prevalence of social media marketing continues to grow rapidly. But is the return on your investment worth Facebook and Instagram’s advertising cost? Most importantly, what strategies can you implement to ensure that your company gets the best possible value for this piece of your overall marketing budget?

How much of my business’s marketing budget should go toward social media advertising?

According to the 2019 CMO Survey, retail businesses typically spend around 20% of their total marketing expenditure advertising to customers on social media. However, the most strategic budget breakdown will depend heavily on your company’s goals and your ad campaign’s CTR and conversion rate (more on that later).  

New businesses looking to grow rapidly and build brand awareness may want to pour more funds into social media marketing than established brands with a sizable existing audience. Along those same lines, companies that are in the process of rebranding or introducing new promotions or products may benefit from increasing their social media ad spend.

How does social media advertising work?

How much does it cost to advertise on Instagram, Facebook, Snapchat and TikTok? The answer is ultimately based on the performance of your ad and how far your marketing dollars extend once users interact with your content. The algorithms that social media platforms use to prioritize ads are complex, but the metrics that measure retailers’ success are relatively simple. 

The secret to winning the social media marketing game is ensuring that the return on ad spend (ROAS) is greater than the combined cost of goods sold and marketing dollars spent. In other words, you should aim to keep the cost of acquiring a customer well below the retail value of the products they purchase from your business. As you can imagine, brands that sell high-dollar products will need to approach this challenge differently than brands that rely on a high volume of low-dollar sales.

What is CTR?

One of the key metrics that Facebook and Instagram use to measure the effectiveness of ad creative is CTR, or Click Through Rate. An ad’s CTR is calculated by dividing the number of times the ad was clicked by the number of times the ad was served (the number of impressions), then multiplying that number by 100. For example, an ad that appeared in users’ social media feeds 500 times and received five clicks would have a CTR of 1%. 

Why is CTR important? Social media algorithms prioritize ads that targeted users engage with over those they ignore, because they want to create an optimal user experience – and they want advertisers to be happy with their results. A higher CTR will result in more visibility of your ad, with more frequent placements among the content your target audience is viewing, and often at a more efficient cost.

CPC vs. CPM: Which is best?

There are several objectives you can choose from when you launch your social media advertising campaign. Some strategies are focused on driving engagements or conversions, while others are all about reach or brand awareness. Your social media marketing budget will be applied differently depending on your brand’s objectives.

CPC stands for “cost per click.” As the name suggests, businesses that use CPC advertising gauge campaign efficacy based on the cost associated with a user clicking on their content. 

CPM stands for “cost per mille.” With this marketing strategy, businesses pay per thousand impressions, whether social media users engage with the ad or not. The lower your Facebook CPM or Instagram CPM, the lower your social media advertising cost is per view–a sound strategy if reach or brand awareness is your ultimate goal.

Currently, cross-industry average Facebook advertising costs are around $0.97 per click and $7.19 per thousand impressions. In much the same way that the pros and cons of search and display ads depend on your product category and business goals, one strategy may prove to be more cost effective for your brand than the other. 

Fortunately, social media marketing channels provide robust analytics that can help guide your approach. 

How to get the most from your social media marketing budget

1. Be specific

Ubiquity is a tempting strategy for businesses new to social media advertising, but resist the urge to try to be all things to all people. 

Narrowing the funnel can pay off big time, and it all starts with knowing your target audience. Investing in a segmentation study will help you focus your efforts on the users who are most likely to be receptive to your brand or product offering.

Know your prime prospect. Don’t spread your social media marketing budget across all women 18-35 if you know you want to target health-conscious new moms. 

Social media platforms have detailed information about their users’ interests, behaviors and habits. Advertisers can tap into this information to set up targeting parameters that go well beyond typical demographic information. Potential targeting parameters include (among many others):

  • Location, age, gender, life events 
  • Existing connections to your brand (from people who like your page to your off-channel customer lists)
  • Interests and likes
  • People who have clicked on the CTA button “Shop Now” in the past week
  • Users who have already interacted with your brand

2. Be consistent

It’s easy to lose momentum (and the following you’ve already built) if you don’t maintain your social media presence. Performance data can inform the best strategy for allocating your social media marketing budget - but without regular activity, your brand will quickly drop out of sight.

Keep in mind: quality wins over quantity, and oversaturation is a recipe for ad fatigue (read: the point at which your ad gets ignored). Ensure your ad offers value to your audience and periodically change up offers, ad copy and visual elements to continue to build awareness and drive engagement.

3. Invest in quality ad content

Remember CTR and how the relevance and quality of your ads help you get more clicks and make your campaigns more cost-effective? 

When it comes to social media marketing, high-quality, strategic content isn’t just about showcasing your brand in the best possible light - it’s the price of admission. 

Social platforms are committed to providing a quality user experience, and a large part of that philosophy involves only featuring advertisements that add value. Ads that are widely ignored or spread across an unnecessarily vague target audience will be identified as such by algorithms.

Is social media advertising right for my company?

The bottom line: social media advertising can both broaden your reach, give your brand unprecedented targeting advantages, provide direct calls to action (e.g., Shop Now) and expedite users down the path to purchase. It is a wise marketing investment, even for businesses without an ecommerce presence, because of its tremendous potential for building brand awareness in a high-engagement environment. Make it work for you by studying your target audience and marketing to it with specificity and intention.

Interested in learning more about social media advertising?

Interested in learning more about social media advertising?

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