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Growth

Calculating Paid Media Spend: A Full-Funnel, Customer-First Approach

Jim Babb
Jim Babb

How much should you spend on paid media? It’s a great question, but I’m not going to pretend there’s a magic number. Instead, I’ll walk you through a process that will help you think through your budget, from overall strategy to the nitty-gritty of modeling numbers. 

Center your customer in paid media planning

Clients often begin paid media conversations by pulling out spreadsheets. But before we look at data, we need to think about your customer, aka the reason we’re doing this in the first place. Who are they? Where do they spend their time? When are their mindsets aligned with your product or service?

You can take a broad approach to answering these questions. Looking at past data is helpful, just don’t stop there. Use common sense and consider what you know from social media, reviews, word-of-mouth, earned media, and more. Most important: Put yourself in the customer’s shoes, and use their POV as your starting point. The more specific you can be about the relationship between your products and your customers, the more effective your paid media spending will be.

Full-funnel strategy: create demand, then capture it

The top of the funnel is all about creating demand. That’s where you let people know you exist and why you’re different. At the bottom of the funnel, your mission is to create a reason to buy. This can be done with new product releases and strong value propositions, as well as sales and offers. Seal the deal by reducing friction and removing any barriers that might turn people away.

It’s tempting to focus spending on the bottom of the funnel. After all, this is where you have the most concrete insight—it’s right there in your monthly sales report. But you have to create demand before you can capture it, and in order to grow, you need to reach beyond your existing audience. Tools like branded search help capture demand, but won’t create new customers. 

Yes, this process is more complicated now that retargeting and tracking have been scrambled post-ATT. Don’t be daunted. Look at it this way: You can create demand on other platforms, then capture that demand by pushing people to your owned platforms.

Modeling paid media spend

OK, now it’s time to fire up those spreadsheets. The Part and Sum team has created four unique models for determining paid media spend. Each model has pros and cons, and which one you choose is up to you, depending on your overall goals and strategy. Heck, you can even run all four models and then use the average of those results. Here’s an example of how that might look.


Using historical data in these models will maximize accuracy. You can find paid traffic via Google Analytics, and paid orders via Google Analytics + Ads Manager + post-purchase surveys like Enquire. (Relying on Google Analytics alone will miss view through attribution.)

If you don’t have enough past data, there is a workaround. You can use platform/vertical benchmarks, which can be sourced directly from platform reps. Over time, as you gather more of your own data, return to these models and run them again with actual numbers.

One final note before we dive in: With these models, we’re looking at quarterly figures. But you should anticipate that the rate of year-over-year cost increases will remain steady, or even go up. So, if CPM/CPC rose 10% YoY in Q4 2021, assume that Q4 2022 will see another increase of at least 10%.

Target paid traffic x assumed CPC

What to know

This is a reliable way to model the amount of qualified traffic you will need to project revenue using last click sessions x CVR x AOV. The CPC component is reasonably easy to model for businesses without historical data, but the CVR and AOV components are more relevant for established businesses.

Pros
Cons

Target paid orders x assumed CPA (on platform)

What to know

This is another straightforward method for planning spend and modeling revenue using the amount of paid orders you need to hit your goals and investing enough to achieve them by focusing on the estimated cost per paid order. The downside to this method is that CPA is often modeled post-ATT, so it's not as accurate as it once was.

Pros
Cons

Target paid sales ($)  x assumed ROAS

What to know

We don't recommend using ROAS as a metric, but if you use a top-level (not channel-specific) estimate, it could be an easier approach for your business.

Pros
Cons

Target new customers x assumed CAC

What to know

This method focuses on the estimated cost to acquire new customers and the amount of new customers you plan to bring in. Using this method can be difficult if you don’t have historical data.

Pros
Cons

Bottom line

Paid media can be highly effective, but it is just one piece of the marketing picture. Think of it holistically, within the context of your big-picture strategy, and plan to make adjustments to your spending as you go. Even if performance isn’t guaranteed, learning can be. By constantly analyzing results, you’ll develop insights to refine future budgeting—and hone your understanding of your customers’ behavior across the marketing funnel.