How much can a small business spend on its first ad test?
The figures in the example are fictional and only illustrate the calculation. Use your own figures to set a budget.
There is no single right budget for everyone. The answer depends on what is left from each sale and on how much test spending you can afford.
1. Start with what is left from each sale
Subtract the cost of the product, the shipping you cover and transaction fees from the sale price. Use what is left as a reference when deciding how much you can spend to acquire a customer and how much you want to keep from each sale. Include any other variable costs that apply.
Fictional example: the sale price is RM100, the product costs RM40, and fees and shipping total RM10. That leaves RM50 before the cost of acquiring the customer. Spending exactly RM50 to acquire that customer leaves nothing from the first sale after the listed costs; spending more makes the balance negative in this example. Other costs and net profit are not known.
2. Choose a test budget you can afford
Your first test may bring in no sales. Choose an amount you can afford to spend even then, without affecting your other business expenses. Treat test spending as the cost of evaluating the ads.
3. Set a test period and a review date
Set a spending limit and a review date before the ads start. Write down the start date, the review date and the maximum you will spend. Track what you actually spend, not an estimate.
4. Decide what to check before you start
If the test ends with too few sales to estimate the cost of acquiring a customer, do not simply add budget. First check how clear the offer is, whether the page works on a phone and how long it takes to answer enquiries. See how to find which step to check before a booking.
5. Review the evidence before raising the budget
Consider raising the budget gradually when you have enough sales to assess acquisition cost and that cost is below what is left from each sale. Check how much you need to keep from each sale, and review costs and results again after the change. Do not judge performance on one good day. Read when to review, change or pause ads.
A reminder
No budget guarantees sales. A budget sets your spending limit; what you can learn depends on how you design the test and what data you collect.
Next step
Would you like to work out a test budget for your business? Request an online session.
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