I’ve talked to business owners who are disappointed in their experience with online ads because they were expecting it to be a really inexpensive way to get sales. For any number of reasons, it ended up costing them a lot more than they thought.
I’ve also talked to business owners who aren’t advertising online because they think it’s way too expensive. They’re missing out on perhaps the best ROI option they have for promoting their business.
Let’s clear up all these misconceptions and get a realistic estimate of what advertising your business online could cost and the ROI you might expect.
Here’s the 4-step process to estimate how much you’ll need to spend on ads to reach your sales goal.
Step 1: How much do you want to sell?
We’re going to start at the end by deciding how much revenue you want to generate from your sales. This can be sales over some time period, like weekly or monthly sales. It could be sales for a specific event or launch. Or it could be sales from a specific campaign.
Whichever way you decide to measure sales, write down the total revenue you want to earn. Also, write down the size of the average sale. If you’re doing this calculation for a single offer or launch, the average sale is most likely just going to be the price of the offer.
Finally, divide the total sales revenue you want by the average sale to get the number of sales you’ll need to make.
Total Sales Desired:
Number of Sales Needed:
(Total Sales / Average Sale)
Step 2: How many prospects do you need?
The next thing you need to do is figure out how many sales conversations you’ll need to have to get the number of sales you want. To calculate that, we’ll need two pieces of information:
Your sales call conversion rate - how many of the people you have a sales call with end up buying? If you’ve been doing sales calls for a while, use your actual conversion rate. If you haven’t, the typical conversion rate for sales calls is between 20% and 50%. The less experienced you are at selling, the lower on that range you should use for these calculations.
The show rate - how many of the people who book a sales call actually show up? The hard truth is that not everyone who books a call with you is going to show up. You need to account for that to know how many calls you’ll need to book. Use your actual show rate if you have one. If not, use 60% as a starting point. There are a ton of factors that influence the show rate. While 60% may seem high to you, it’s realistic but a little on the conservative side.
We’ll use these two numbers to calculate how many calls we need to have and how many we need to schedule.
Sales Call Conversion Rate:
Number of Sales Calls Needed:
(Number of sales from step 1 / Sales Call Conversion Rate)
Number of Booked Calls Needed:
(Number of Sales Calls Needed / Show Rate)
Step 3: How many opt-ins will you need?
If you’re selling a high-ticket product or service, chances are getting a cold audience to book a sales call isn’t going to work very well. So, you’ll need to have some sort of funnel to warm the prospects up. This could be a lead magnet, a webinar, a quiz, a video sales letter, or any other thing you can offer your audience in exchange for an opt-in.
The two things you need to know (or estimate) are:
The percentage of people who see the opt-in offer who convert
The percentage of the people who opt-in who ultimately book a call
If you have data of your own, use the actual results you’ve been getting. If not, typical minimum benchmarks for these are 20% will opt-in, and 5% of the opt-ins will book a call.
% of Opt-ins Who Book a Call:
Number of Opt-ins Needed:
(Number of booked calls from step 2 / % of Opt-ins Who Book a Call)
% of Opt-ins to Offer:
Number of Visitors to Opt-in Page Needed:
(Number of Opt-ins Needed / % of Opt-ins to Offer)
Step 4: How much do I have to spend to get those opt-in page visits?
The final step is to estimate what it will cost to drive the amount of traffic you need to your opt-in page. This all comes down to your cost per click.
Many factors come into play when it comes to the cost per click you will pay.
- The audience you’re advertising to
- Where you’re advertising
- The competitiveness of the market you’re targeting
- The quality of your ads
In general, a successful ad campaign will probably cost between $1 and $10 for a click. Broader, less competitive, B2C audiences will tend to the lower end of the range. Competitive, niche, B2B audiences will tend to the higher end of the range. This range is a generalization that will be true for many markets. There are certainly some very competitive niche markets where the going rate is much, much higher. As with the other numbers, use your own data if you have it. Use the estimates if you don’t.
Cost per Click:
Total Ad Spend Needed:
(Cost per Click / Number of Visitors to Opt-in Page from Step 3)
Number of Sales Needed:
(Total Sales / Average Sale)
Now you have a realistic estimate for what you’d need to spend on ads to get the level of sales you’re looking for. So, go ahead and run that online ad campaign with confidence.
Get a Handy Ad Cost Calculator
Download a free copy of a calculator to do all the steps in this article, plus the steps for two other common online advertising funnels. The calculator also includes typical conversion rates for each step.