HomeBlog and ResourcesFree Tools & GuidesFree SMM Calculator: Is Social Media Advertising Right for Your Business?

Free SMM Calculator: Is Social Media Advertising Right for Your Business?

This article provides valuable insights and a free calculator to help eCommerce founders answer these top three questions:

  1. Should I invest in social media advertising?

  2. How much should I allocate for social media ads?

  3. Should I manage it in-house or hire a professional?

1. Is Social Media Advertising Right for Your eCommerce Business?

As an eCommerce founder, one of the crucial decisions you’ll make is how to allocate your marketing budget. Social media is a powerful tool for brand awareness and customer acquisition, but you might be wondering: should I invest in social media advertising, and if so, how much? Should I manage it myself or hire a professional? Here’s a quick guide to help you decide.

Top Considerations:

1. Your Customer Purchase Journey:

Understanding your customer purchase journey is vital. How do customers discover and shop for your type of products? Is social media the primary way to reach them, or could search engines or physical methods be more effective? If the answer is yes to social media, you need to delve deeper.

2. Platform Selection:

Consider the specific social media platforms your target audience uses. Are they primarily on Facebook, TikTok, Xiaohongshu, Pinterest, or another platform? Knowing these details will help you reach your target audience more effectively and prevent you from wasting money on the wrong channels.

By thoroughly understanding your customer purchase journey and the platforms they use, you can make informed decisions about your social media advertising strategy and maximize your marketing budget’s effectiveness.

2. How Much Should You Spend?

When it comes to social media advertising, you need to ensure your budget is sufficient to make an impact. According to the 2024 survey by CMO Survey, marketers anticipate social media spending will increase from 11% to 12.2% in the next 12 months, and back up to 16.3% in five years—a spending level achieved in 2023.

At Soodo, we offer two methods for calculating your social media advertising budget. 

The first method is ideal for mature businesses with consistent annual revenue. The second method is better suited for new or rapidly growing businesses with fluctuating sales.

Method #1: Using Annual Revenue

One way to calculate your ad spend budget is to consider your overall marketing budget as a percentage of total revenue.

For example, if your total annual revenue is $500,000, then 20% of that (or $100,000) would be earmarked for marketing and customer acquisition. A smaller portion of that would be used for your social advertising budget.

Your overall marketing budget may include business development costs associated with networking and membership in professional organizations or mastermind groups, plus the costs to hire freelancers or agencies to support marketing tasks such as writing, graphic design, and social media management.

Your paid social media budget may comprise only 20-70% of your overall marketing budget.

Method #2: Using Monthly Order Revenue

Here’s a quick formula to determine your social media budget:

  • Step 1: Calculate your revenue per month.
  • Step 2: Deduct your COGS to get Gross Profit. For example, if your total revenue per month is $10,000, after subtracting your cost of goods sold (COGS) which accounts for 30% of the revenue, you will have a gross profit of $7,000.
  • Step 3: Allocate 15-20% of this gross profit to social media advertising.

Social Media Advertising Calculator

Use the calculator below to determine your social media advertising budget and whether to manage it in-house or hire a professional.

While 15% of revenue is a recommendation, you can choose to allocate more or less to social media advertising depending on your marketing budget as a whole.

Social Media Advertising Calculator:

Use the calculator below to determine your social media advertising budget in dollars, and whether to manage it in-house or hire a professional.

Social Media Advertising Calculator

Social Media Advertising Calculator

3. Do It Yourself or Hire a Professional?

Deciding whether to manage your social media advertising in-house or hire an outside agency depends on your budget and expertise. Here’s a simple guideline:

  • In-House Management: If you’re spending less than $3,000 a month on ads, it’s advisable to manage your social media advertising in-house. This allows you to have more control over your campaigns and save on agency fees.
  • Hire a Professional: If your budget exceeds $3,000 a month, consider hiring an agency or a dedicated professional. Their expertise can help optimize your campaigns, ensuring you get the best return on investment.
Hiring a professional will free up a lot of time, as a significant portion of social media advertising involves creative production.
 

Creative production involves content creation, finding marketing angles, refreshing creatives, testing hypotheses, and more. At Soodo, our advertising process consists of three phases:

Phase 1: Prep Work

  • Understand your brand and competitors.
  • Craft engaging ads using data insights.
  • Refine your Ideal Customer Profile and optimize for conversions.

Phase 2: Execution

  • Create and launch ads with precise targeting.
  • Ensure brand alignment and approval before launch.

Phase 3: Optimization

  • Provide weekly performance reports.
  • Use analytics and A/B testing for continuous improvement.
  • Implement retention and advocacy strategies.

For a detailed look at our process, visit Soodo’s Advertising Process.

As a guideline, this is what Jess Bachman, Creative Strategy Director and Co Founder of Fireteam recommends with regards to allocating budget to creative production and whether to do it in-house or out-source:

creative production chart

Ready to take your social media advertising to the next level? 

Calculate Your ROAS and ROI with Our Free Tool:

Advertising to customers is tougher than ever. It’s essential to know whether your ad spend is generating a good return.

To help you with this, we’ve created a simple and effective ROAS calculator that factors in all the important metrics you need.

What Our Calculator Covers:

  • Enter your Revenue: The total income from sales.
  • Input your Margin: The gross profit percentage after COGS.
  • Enter your Ad Spend: The amount spent on advertising.
  • Ad Agency Cost: If you’re hiring an agency, add their cost here. Otherwise, enter 0.
  • Click Calculate: See your Gross Profit, ROAS, Net Profit after Costs, and ROI.

For a full breakdown of formulas and definitions, you can find them together with the calculator here.

Conclusion

Social media advertising can be a game-changer for eCommerce businesses, offering unparalleled opportunities for brand awareness and customer acquisition. By understanding your customer purchase journey and selecting the right platforms, you can ensure your efforts are targeted and effective.

Whether you choose to manage your campaigns in-house or hire a professional depends on your budget and expertise. For budgets under $3,000 per month, managing in-house is advisable, while larger budgets benefit from professional management.

To support your decision-making, use our social media advertising calculator to determine your budget and approach. Additionally, our free ROAS calculator helps you measure the effectiveness of your ad spend, ensuring you achieve the best return on investment.

Want to explore our detailed process at Soodo for your DTC eCommerce brand? 

Book a free 20 minutes consultation and we’ll address all low hanging fruits together.

https://soodo.co

Soodo is an eCommerce Venture Builder for Purpose-driven Brands | We build & scale profitable DTC businesses.


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