How To Determine A Web Marketing Budget And How To Evaluate It

One of the things that advertisers often ask us is, “How much should we prepare for our web marketing budget?”

Many people may not know how to think and decide even if they are suddenly told about the budget. It is also difficult for me to evaluate whether the budget I decided was appropriate.

This article explains how to determine your web marketing budget and how to evaluate it.

Concept of optimal budget

What is the appropriate budget for web marketing? We call the appropriate budget “optimal budget”.

The optimal budget is the “expense necessary to achieve the purpose” in web marketing.

For example, if you need 100,000 yen to achieve it, 100,000 yen is the best. If you need 1 million yen, 1 million yen is appropriate.

So the optimal budget is not more or less, it depends on what you want to do. First of all, it is necessary to clearly define what you want to achieve and what the purpose of web marketing is.

5 purposes of web marketing

The goals of web marketing can be divided into five main categories:

1. Content billing

This includes membership registration and app installation. For example, after installing a free app, you can charge in-app to purchase and view content.

We also have monthly memberships. The so-called subscription service, which allows unlimited viewing of videos and music for 1,000 yen per month, also applies.

2. purchase

This applies to purchases made through EC sites such as Rakuten, Amazon, and Yahoo! Shopping.

3. Sales Promotion

The purpose is to encourage actions to promote actual sales, such as requesting materials and estimates.

For example, a model that asks for materials on the web, visits the store and signs a contract is applicable. Other than that, there are things like notifying the implementation of campaigns.

Four. Induction of visits

The purpose is to guide customers to a physical store by visiting the site or using the app.

Five. branding

The purpose is to have people remember the name of the brand and raise awareness by having them look at the advertisement.

In this way, the purpose of advertising falls under one of these five.

Depending on what you are aiming for, the indicators and budgets you should set will vary greatly. First, make sure you know exactly what you want to achieve.

Read Also: What Is Customer Engagement?

Targeted advertising effectiveness metrics

We will work on web marketing including advertising according to the purpose. The important thing in that case is the indicator of advertising effectiveness.

Let’s take a look at each of the indicators to set according to the purpose.

Impression effect

In order to gain so-called recognition, the goal is to have many people see and know. Therefore, the indicators to look at are the number of impressions and CPM (cost per 1,000 impressions).

traffic effect

The purpose is to direct visitors to the website. It is important how many numbers were actually induced. Therefore, the metrics to look at are the number of clicks and CPC (cost per click, cost per click).

response effect

For example, the number of so-called conversions such as product purchases, document requests, and applications, and CPA (cost per conversion) are indicators to look at.

The indicators you should look at will change depending on what you are looking for in advertising effectiveness. Also, how to set the budget will change depending on the effect you expect from the advertisement, so let’s take a look.

Budget setting according to advertising effect

Let’s start with the impression effect.

Cost for Impression Effectiveness

It’s based on how many ads you actually want to show. The effect you get depends on how much you display it.

It is recommended to show a sense of numerical value instead of the vague idea that it is good to simply put out an advertisement because it is branding.

The cost can be calculated by multiplying the target number of impressions by the CPM. (CPM is the cost you pay for 1,000 ad impressions, so divide by 1,000.)

Cost for Traffic Effectiveness

In the same way, you have to clarify how much you want to induce.

You can calculate the cost by multiplying the cost per click. If you use the estimation tool for each medium to calculate the CPC, you can get a rough estimate.

Typical estimation tools are Google Ads Keyword Planner and Yahoo! Ads Keyword Advice Tool. Both can be used by anyone with an account.

Cost for the purpose of response effect

We will clarify the number of conversions (number of acquisitions) that you want to lead to the final goal. That’s why you need to implement conversion measurement.

You can also calculate your budget by multiplying your target number of conversions by CPA (cost per conversion).

In this way, the index changes depending on the effect you want, and the cost is determined by how much you can spend on it.

CPA calculation method

Now let’s talk about how CPA is calculated.

This time, let’s focus on two business models and learn how to calculate CPA.

Purchasing model CPA calculation method

We will broadly classify the breakdown of the sales unit price of one product into three categories.

The first is “cost”. It is the cost of purchasing and manufacturing.

Next is “selling and administrative expenses.” This includes server fees.

Finally, at the top of the table is profit. In fact, CPA is included as advertising expenses in this “sales and administrative expenses”.

Target CPA = unit selling price – cost – SG&A expenses excluding advertising expenses – desired profit

In other words, in the case of mail order, the target CPA must be derived from the price structure of the product in order to keep a profit.

CPA calculation method for promotion model

Next, let’s take a look at how CPA is calculated in the promotion model.

You need to work backwards from your final goal. For example, if you want to win 15 orders in a month, you need 30 business negotiations per month considering the sales closing rate. In order to obtain the number of business negotiations, it is necessary to request materials for 100 prefectures per month by calculating backward from the business negotiation rate. In addition, the number of visitors to the required website can be calculated by counting back from the conversion rate of the document request.

CPA can also be calculated from the final goal in the same way. For example, if a CPA of 100,000 yen is required to receive an order, a document request must be made within a CPA of 15,000 yen.

If you don’t know the business negotiation rate clearly, let’s set it temporarily by referring to last month’s or past figures. If you don’t define this, you won’t be able to verify which numbers are bad or if you misread.

Let’s understand the purchase model and sales promotion model introduced this time, and how to calculate these two representative CPA, and calculate how much the actual CPA is.

Points to note when conducting web marketing

We’ve looked at how to calculate CPA, but I would like you to pay attention to one thing.

That is, “Don’t get attached to the immediate CPA.”

Let’s take a look at some bad examples of being too obsessed with target CPA.

Bad example of sticking too hard to target CPA #1

The number of clicks is 100, the CPC is 120 yen, the cost is 12,000 yen, and one conversion has a CPA of 12,000 yen. I also stopped because I exceeded my target CPA.

However, if there is one more conversion, the CPA will be half the price of 6000 yen.

Bad example of sticking too hard to target CPA #2

In this case, the target CPA is 10,000 yen, but the cost is 15,000 yen, so the advertisement is stopped. The problem with this case is that the number of clicks is still low and the ad is stopped even though there is room for verification.

If you get even one conversion, your conversion rate is 2%. If the initial estimate was that much, the high CPC may be the reason for the high cost. Any room for improvement needs to be verified.

You need to think about whether you are making a decision even though the number of parameters is still small.

What is common to both examples is that “a certain degree of parameter is necessary” if improvement is assumed. If you get too caught up in the short-term CPA and stop immediately, you won’t be able to verify it at all.

Without verification, there is no improvement. The good thing about online advertising is that you get instant results. Therefore, it is necessary to proceed on the premise of improvement.

Successful decision to stop based on target CPA

It was 300 yen for 50 clicks and 15,000 yen for 15,000 yen, and there was no conversion. After that, the delivery continued and I was able to get 300 clicks. However, even if there is a conversion, the conversion rate is very low at less than 0.3%.

If we are not moving forward while making improvements after firmly securing parameters, it means that there is still room for verification.

Now, I will introduce the idea of ​​how many parameters are necessary and the guideline values ​​for each index.

If it is the number of clicks, we will calculate backward from CVR. If you simply assume 1%, then at least 100 clicks are required. 2% requires at least 50 clicks. 0.5% is 200 clicks.

Please be patient until you have enough parameters for verification. If it is the number of CVs, you will need dozens, at least 10.

In this way, we will determine the budget and verify it, but it will require a certain number of parameters, so I would like you to collect the necessary parameters and verify it before operating it properly.

Summary

This time, I talked about how to decide the budget for web marketing and its evaluation. There is no absolute correct answer for the budget, but I would like you to decide with some logic.

Have a solid technique to verify each, and use it as a guideline.

And I would be very happy if you could make more and more improvements and use the budget more and more to increase sales.