How to Determine Online Advertising Costs for Your Business?

Launching ad campaigns often requires a lot of knowledge and marketing efforts. Many factors can influence whether or not the campaign would end up successful, but most of them usually depend on one key thing — your advertising campaign budget.

In this post, we are going to take a closer look at online advertising costs for different channels and ad campaigns; we’ll share some insights on online advertising strategy as well.

Online advertising costs: what you need to know about it

Digital marketing is actively developing. Online advertising covers many possibilities, including contextual advertising, social media, search engine optimization, email marketing, Google search ads, Facebook ads, Instagram ads, content marketing, online marketing, display network, and more. Each of these channels includes different price patterns and ranges.

Sometimes small businesses don't spend money on internet marketing at all. At the same time, other companies can spend vast amounts of money on Facebook ads, Instagram ads, Google search ads, etc.

Of course, most companies fall somewhere in between these extremes. And small business owners also understand that digital marketing needs money.

However, if you start to plan your online advertising campaigns, you will want to know the online advertising cost. What then should small businesses do if they want to start developing their digital marketing more actively?

First, learn basic information about advertising online, and social media advertising costs (for example, Facebook ads and Instagram ads). And then determine your digital marketing budget (for example, daily or weekly budget), create highly relevant ads, and launch campaigns.

Online advertising costs: what’s considered a norm?

The first thing to remember about your web advertising costs is that the budget depends a lot on the specific needs of the business online, so the precise numbers will vary from case to case.

We can still get some general vision by analyzing and comparing the average online advertising costs, which you can then apply to your ad campaigns based on your specific goals and available resources.

The most general metrics are the monthly advertising budget or ad spend.

Depending on the marketing strategy, some find it more convenient to count on a weekly, daily, or annual basis for a more general picture.

According to a recent survey, middle and small business advertising spending reaches around $750-$2500 per month for both digital and offline channels. With this, the limited budget appears to be the biggest roadblock.

The online ads cost can vary greatly depending on many factors, such as your marketing goals, the current state of your business, and what kind of specialists you have on board.

5 Factors That Affect the Cost of Google Ads

With search ads that appear in search engines, Google displays ad content that matches users' search queries, helping to drive better traffic to the advertiser's website. These ads appear directly on the search engine results page. The main difference between search vs. display network ads is that search ads are normally running based on the CPC model.

The average advertising cost on Google's search network can range from $1 (for e-commerce) to $6 (for legal services). For comparison — the average cost with Display Network will be around $0.4. Display ads appear on Google's Display Network directly on websites. Campaigns are normally launched on Google ads (formerly known as Google Adwords).

Industry

The cost of Google Ads is affected by your business industry. The fact is that some businesses are more competitive. What does it mean? They will have higher spending on paid Google ads. Why? It's simple, these companies in their niches earn more money, which means they can spend more on online advertising.

For example, you can compare the niches of retail and e-commerce with the legal industry. For the former, online advertising will be lower because they need to get more clients to earn the same as a law firm on one client.

Country

The Google search Ads cost is also affected by the country where the advertiser is targeting their ad campaign. Advertisers run campaigns internationally, which means CPCs vary by target country.

For example, targeting US advertising costs more than targeting India. And this is logical because the overall cost of living in the United States is higher than in India.

In addition, the purchasing power of people is higher, which is why Google puts a higher cost on online advertising.

Level of quality

Google uses this metric to measure the relevance and quality of an ad and the landing page for a keyword. In addition, it calculates the CPC of a keyword as well as the Ad Rank.

If an ad gets a high-Quality Score, then the Ad Rank increases, which means the cost of Google Ads drops every time a user clicks on the ad.

The higher the Quality Score, the lower your cost per click (CPC) will be. If you have a great Quality Score, your ad may be placed in the top position even if your max bid is low, whereas someone with a lower Quality Score may have to raise their max bid significantly to get a decent place for the ad.

Trends

The cost of Google advertising also depends on current trends. Take, for example, the Covid-19 pandemic. It has affected different industries in various ways.

For example, the tourism industry had a negative impact. But, for instance, in the apparel industry, it helped increase conversions over the same period. Therefore, online advertising costs them different.

Keywords

Keywords also affect the cost of Google ads. The point is that some keywords are more expensive than others. For example, main keywords are cheaper than those with commercial intent.

In addition, the business sector is also affected here. For example, the cost will be higher in competitive niches (such as law or accounting).

Four factors that affect the Facebook ads costs

Advertising quality and relevance

The quality and relevance of ads to the audience directly affect the Facebook ads costs. Why? The fact is that Facebook ads evaluate various factors: for example, placement, target audience, text, and images.

In addition, the ad must be relevant for Facebook to evaluate its effectiveness well at the delivery time. How does the social network know relevance?

Positive and negative responses of the audience to the online advertising campaign help here. These dialogs are interpreted through clicks, conversions, comments, and click-through rates.

The higher the engagement rate, the higher the ad's relevance scores. And this, in turn, reduces average advertising costs when using Facebook ads. And the less engagement, the more expensive advertising will become.

The audience

Your target audience can also influence the cost of advertising. Who you target and how many Facebook advertisers are also targeting the same group are directly related to the value of your ads.

How can the audience affect online advertising costs? For example, an advertiser is fighting for an audience in a niche with high competition. This means that this audience is popular and expensive.

However, this does not mean you need to focus on a broad audience and not use filters. Indeed, in this case, the relevance of advertising will fall, and the advertiser will still have to pay more for advertising, but at the same time, there will be fewer potential customers.

Advertising rates

Facebook does not have specific average advertising costs because the social network uses a bidding system. The cost of all advertisements depends on several different factors. An advertiser can set a bid, that is, the amount he is willing to pay for an ad.

Facebook itself also helps to calculate average advertising costs.

Through the bidding system, you can choose the ads with the best quality and relevance, as well as the estimated frequency of action.

Advertising placement

Facebook allows advertisers to choose different places to show ads. For example, it can be Facebook News Feed for PC, Facebook Right Column for PC, Audience Network, Messenger, Mobile News Feed, and Instagram.

Advertisers need to test options and see which one is best for them.

Facebook and Instagram ads costs in 2022

Social media platforms are popular online advertising platforms.

Facebook ads

It makes sense that Facebook has made such a big splash in the online advertising world. People are using Facebook to search for products and services more than ever. For example, Facebook offers sophisticated targeting options for businesses using Facebook ads, making it a great online advertising platform for small businesses.

Facebook ads pricing model is very similar to Google's PPC ads. Companies that advertise on Facebook create a daily or weekly PPC ads budget for their ad campaign, and when that budget is exhausted, ads are paused.

Instagram ads

The study found that over 1 million accounts advertise on Instagram.

There are various Instagram ad formats such as photo ads, video ads, story ads, carousel ads, collection ads, explore ads, IGTV ads, and Instagram shopping ads.

How to reduce Instagram advertising costs? Manage ad spending on Instagram the same way you manage it on Facebook: set budgets that work for you.

You can even manage Instagram ad costs from the same place since Facebook acquired Instagram.

The fastest way to reduce your Instagram ad costs spend is to make your ads as relevant as possible (for example, writing highly relevant ads). In addition, consistently rank high in the ad auction while maintaining a low-cost pay-per-click ad.

How much do online ads cost? Google and paid social

Online advertising generates the majority of Google's revenue each year. With Google Ads (formerly Google AdWords) Pricing Model you can run two types of GoogleAd campaigns: Search and Display Network.

Some of the most widely used ad channels include Google, YouTube, Facebook, and other social media platform, so let’s start with exploring online advertising rates within these platforms.

Your ad position and CPC are determined in part by the competition, your maximum bid (the maximum amount you are willing to pay for each click), and your Quality Score.

Note: There are lots of bidding models used to calculate the advertising costs, such as CPC, PPC, CPM, CPI, CPA (set a target CPA and pay when your ad leads to conversion), and CPL. Among these, the two most commonly used models include cost-per-mille (cost per thousand impressions, CPM advertising) and cost-per-click (CPC). For example, offer different cost-per-click (CPC) and CPM depending on your business vertical and types of ads.

Google Ads

The average CPC on Search Network ranges from $1 to $6 and is generally more expensive compared to Google's Display Network with $0.4 for Travel & Hospitality and almost $1.5 for Dating & Personals business categories.

While there is no universal solution for every business, some estimates show that the average monthly budget for Google ad network can go up to $10,000.

Ads on the Google Display Network tend to have lower click-through rates than ads on the Google search engine. However, attractive targeting options and remarketing opportunities allow you to take advantage of this. Attracting site visitors through advertising can be faster than improving organic search engine results.

Facebook Ads

Facebook's pricing model will depend on the business vertical, but their minimum daily budget is $1 for impressions, $5 for clicks, views, and likes, and $40 for app installs and offer claims.

The average cost per Facebook ad is slightly higher though, with an average CPM being $7.19 and an average CPC — $0.97.

Even more, for Instagram ads, CPM can be expected at the price of $7.91 and CPC — $3.56.

Monthly ad spending for Instagram ads and Facebook ads can vary from $200 to $1500, and the additional advertising costs can be taken by campaign management.

YouTube Ads

YouTube Ads has a minimum budget of $10 per day, other advertising costs are also slightly higher for this online advertising platform. An average CPM is $9.68 and the average CPC is $3.21.

Another important metric for YouTube specifically is CPV, cost-per-view, which is calculated every time a user watches an ad for 30 seconds or until the end.

An average CPV for YouTube varies from $0.1 to $0.3 per view. Monthly ads cost can also get as high as $1500, so it is important to note that such an investment will be only worth it if you have high-quality videos to promote your products or services.

Other platforms

Other popular platforms include TikTok with $10 CPM and $500 minimum ad spend per campaign, LinkedIn with $5.26 average CPC and $6.59 CPM, and Twitter with $0.38 CPC and $6.46 CPM.

How much does it cost to advertise programmatically?

Things are much more flexible with programmatic advertising as the ad auction determines the average cost. While there may be a minimum daily spend at your demand-side platform, CPM can vary greatly depending on lots of factors, such as your audience’s geo, average CPM rates by industry, quality of ad space, page views, business vertical, and many others.

This gives you lots of flexibility and potentially allows you to make your campaigns much more affordable.

Your web ad cost can also depend on the chosen formats and channels — video ads (average CPM — $11-17) are usually more expensive than native, and native ads (CPM — $4-10) will cost more than online display advertising or mobile (CPM — $1-6).

Careful consideration of these factors and adjusting them for your specific business will make your programmatic budget precise and cost-effective.

Things to keep in mind before ad budget planning

So with all this in mind, let us now review some of the most essential practices for budgeting your programmatic campaigns.

Key questions to consider include, but are not limited to:

• What is your customer's lifetime value? Depending on your retention rates and the amount of money each customer brings to your business in the long-term perspective, you can determine how much you afford to pay for acquiring new customers;
• What are your conversion process and cost-per-acquisition? Make sure you have a precise strategy for getting new customers — what tools and channels you are going to use for each step of the funnel? How much does it usually cost you to advertise online with these tools? Remember that your customer lifetime value should cover these average advertising costs;
• What is the percentage of your budget that you can spend on marketing? The average number for mid-sized companies is 8-10%, but it is always up to you to stretch this number one or another way as long as it covers your business needs.

How to set your programmatic ad budget?

All these questions are easy to answer once you have all the necessary data from your previous marketing campaigns.

If you are only starting out, it is important to take your time to experiment and get a clear picture of what works best for your business.

Our recommendation is to start with $1000 — this would cover the optimal payment and give you some space for testing your first campaigns.

You can then adjust even and timely budget distribution, and set spending limits either in $ or the number of impressions on SmartyAds demand-side platform.

Conclusions

Although budgeting your advertising might seem like a complicated issue, the nature of programmatic advertising allows you to be quite flexible.

The more you understand the specifics of your business niche, the easier it will be for you to predict the sufficient cost of online advertising essential for reaching your goal.

If you don’t know your audience well enough yet, start with $1000, and set up several campaigns: experiment with creatives, targeting options, and campaign controls until you pinpoint which budget brings you the best results.

Launch your first CPM ad campaign with SmartyAds to keep your ad budget effective and flexible!