Question

1. Please calculate the advertising budget for a start-up that expects annual $300,000 sales in the industry that dedicates on average 9 % of the revenues to promotion.
2. Given the projected conversion rate (% site visitors who makes a purchase) of 8% and average sale price of $500, how many sites visits do they need to achieve their sales goal?
3. The strategic objective is to acquire 60% of site visits from Facebook ads and 40% from Youtube (TrueView ads). Please re-calculate the advertising budget given the average cost per click (CPC) in your industry is $2 on Facebook and $5 on Youtube.

Answer 1

a. $27000

Advertising Budget = 9% of the revenue = 0.09*300000 = $27000

b. 7500

Expected No. of purchase= Expected Sale / Average Sale Price = 300000/500 = 600

Conversion rate = 8%

No. of site visits need to achieve = 600/0.08 = 7500

c. $24000

No. of visits from Facebook = % visit from Facebook * No. of site visits

No. of visits from YouTube= % visit from YouTube* No. of site visits

Advertising Budget allocation to Facebook = No. of visits from Facebook*CPC for Facebook = 4500*2 = $9000

Advertising Budget allocation to YouTube= No. of visits from Facebook*CPC for YouTube= 3000*5 = $ 15000

Total Advertising Budget = 9000 + 15000 = $24000

% of Revenue = Total Advertising Budget/Expected Sale = 24000 / 300000 = 0.08 = 8%