How Much Should Your Company Spend on Video Advertising?

You’ve put so much into creating the perfect brand video and now, it’s finally ready! You’re stoked to dive right into advertising so your video can reach all the people it should.

But wait – before you dive in headfirst, it’s important to dummy check yourself. Is everything ready to go? You should have already created a marketing strategy, already invested in affordable, high-quality video production from pre-pro to post, and already educated yourself on all the distribution channels available to you. Now, your only concern should be, “How much do I spend?”

Great question!

Today, we’re giving you a high-level rundown of how to organize and plan your advertising budget to include video marketing – without breaking the bank!  Let’s dive in.

First step: Reframe your old-school ideas about video advertising.

Until just a few decades ago, video advertising exclusively referred to television advertising. That meant buying commercial time on the big TV networks, which meant competing with some of the biggest companies in America, which meant it was mostly cost-prohibitive with a steep barrier to entry.

Thanks to online video and the rise of social media, anyone can create a video and put a few bucks behind it on Facebook or YouTube to get it out to the masses. In the same way the internet has democratized our media, it’s democratized our advertising, and that’s especially true for video advertising.

That means the first step to planning out how much you should spend on video advertising requires a bit of mental reframing: video advertising online is not just something you pump tens of thousands of dollars into to raise your brand’s profile by exposing it to the masses. That’s simply one option – and it doesn’t require nearly as much money as it used to, as long as you do it right.

Instead of focusing on how much budget you should spend on your video advertising, you need focus on one thing, and one thing only: how much return on investment are you getting from your video advertising?

For every $1 you spend, you should receive at least $1 or more in returned value.

Just like any other online advertising, if your video advertising is generating a positive ROI, then the budget doesn’t really matter. That’s right – the budget doesn’t matter. The only thing that matters is that for every $1 you spend, you receive at least $1 or more in returned value.

But remember – returned value doesn’t always translate to monetary value. Not every marketing goal you set out to achieve will earn you an immediate dollar for every dollar you spend. Certain advertising goals won’t result in an immediate purchase, and it’s unrealistic to expect that every lead you attract or engage with will be immediately nurtured into a customer.

More often than not, you’ll find yourself running paid video ads that don’t result in any return. That’s also OK, as long as you’re learning from that failure and optimizing for future success, or tracking a different key performance indicator other than pure sales. Which begs the question: if you’re not tracking sales, how do you determine your ROI?

Next: Define what a positive ROI looks like based on your goal.

Your only focus in video advertising should be a positive ROI. But what that ROI looks like differs based on your marketing goal. Typically, your marketing goal relates to one of the following:

  • Attracting new audiences
  • Engaging with viewers and web visitors
  • Nurturing leads into sales
  • Delighting customers to keep them coming back

Video advertising can help your company achieve each and every one of these goals. But as you’ll notice, each of those goals have different outcomes, which means in order to properly track their success, you need to track different metrics.

For example, you won’t be able to properly track how successfully you’re attracting new audiences by tracking your sales numbers. And you certainly won’t be able to gauge how successfully you’re nurturing leads by tracking video views.

Instead, make sure you’re tracking the right metrics. Take a look at this guide, which shows you exactly which metrics to keep an eye on in order to track each of these individual goals.

Finally: Think about conversion rate to get your budget just right.

In order to determine the true budget you’re willing to spend, you need to think about your conversion rate. How much are you willing to spend to get a positive ROI? Do you already have a comparable conversion rate you can use based on your other marketing efforts?

For example, if you’re already sending traffic to a landing page, how many visitors sign up? And out of those sign-ups, how many convert into sales? If you have this formula ready to go, plug in your video advertising spend and you’ll know exactly what type of conversion you need for a positive ROI.

The truth is, when you’re generating a positive ROI, there’s no such thing as low or high budget – if you’re breaking even or making a 2x return on your investment or higher, your budget is limited only by you.

7 Best Practices for Determining Your Video Ad Budget

1. Typically, you want to start with a small budget and then scale up. Start by spending a max of $5 a day and track your results. Based on the success of your goals, make adjustments.

2. If people aren’t watching your video, try a different audience. If they aren’t clicking through, try promoting a different video, or try different copy. Then, if they aren’t signing up on the landing page or making a purchase, you know the landing page is likely your problem and you can pause your video ads until you fix that.

3. Once you’ve determined and surpassed your break even point, you can double your ad budget every week, while monitoring your expenses and tracking your ROI. Do this for about a week or so, and make sure your video is still delivering as it should.

4. Test different video advertising platforms with a small spend on each, keeping all else the same. Compare your results. Once you’ve determined which platform gives you the best results, optimize your spend by focusing it there.

5. If your company already has a set budget for marketing, dedicate a minimum of that on video advertising. The U.S. Small Business Administration recommends companies with a net profit margin (after expenses) of 10 to 12 percent should spend seven to eight percent of their gross revenue on marketing, and a 2017 study by Magisto reported that 60 percent of businesses spend more than 25 percent of their marketing budget on video.

6. Most social ad platforms like Facebook use a bidding system. Facebook’s bidding system determines who sees what ads by calculating your bid amount, your video ad’s quality and relevance, and the estimated action rates of your audience (how likely they are to take an action). Ads that are more relevant and higher quality can beat those that have a higher bid, but spending more usually helps.

7. As a video ad manager, think like a business manager: if it’s not performing well, don’t promote it! It’s OK if a video ad didn’t perform the way you want it to. If you’ve optimized it as best you can and you still aren’t getting a positive ROI, don’t waste the budget. Make and promote a different video – maybe the video you created is not optimized for your goal. For example, if you’re looking nurture leads into sales, try a customer testimonial!

Now you have your video advertising budget on lock – let’s make a video!

If you have a video ready to go, fire it up and see how it performs! There’s no time to waste when you can be increasing your sales numbers, gathering more leads, or increasing overall traffic to your site with video advertising. The only true way to determine if your video ad will be successful or not is to release it and find out.

Grant Harvey

Grant Harvey