Why a $5 budget is not enough to test a campaign?

This week, we are delighted to feature an exclusive guest post by Voluum, one of the top campaign tracking systems.

Testing campaigns is instrumental to not only growing business revenue but also to making your advertising performance last long. But some marketers wish they could spend as little as $5 on a test. Seems reasonable, right?

Do you remember the first iPhone? It redefined the mobile phone market and defined the ‘smartphone’ as we know it. But even though it was so innovative at the time, that’s not what brought it to today’s success.

It’s the incremental innovation that Apple has successfully applied ever since the initial release. This is what brought iPhone sales from 6 million in five quarters to 77 million in one quarter (Q1 2018).

What’s worth mentioning is while Apple has been increasing its sales year by year, others like Nokia and Blackberry have fallen behind. The distance has been increasing every year. At some point, Nokia was struggling financially so much that only selling its mobile division to Microsoft could help them survive. When it did finally happen in September 2013, Microsoft was also incapable of turning Nokia mobiles around. They were sold again, to HMD Global in 2016.

In the digital era that we live in, everything is changing rapidly. What worked yesterday, just might not work tomorrow. And the only way to be prepared for unpredictable changes is through the incremental development of your product, service or… advertising campaigns.

There’s an example which is closer to home. If the only vertical you had been operating in was crypto, and you had advertised only on Facebook, you would be in trouble. One day, they suddenly decided to block such campaigns. The only way out now is to move to another ad network or vertical.

As you don’t know what will work, you need to test your campaigns. It’s the first rule of performance marketing.

What and how should you be testing?

Before we get to how much should we spend, we should know on what actually we are spending the money. What do we test?

In brief, everything, everywhere. Every aspect of the campaign can and should be tested. Looking for new opportunities is similar to research and development in tech companies. Even if something works just fine, it can always be improved.

The best way to conduct a test campaign is with a scientific approach. To get significant results, you should test one variable at a time. To make the results even more clear, set the test on your best performing variables. For example, if you test a new creative, leave the copy as it is and set the test on your best target audience. This way, you’ll know whether the creative failed or succeeded but only due to its design, not an underperforming audience.

Such tests, however, are only capable of discovering the full potential of an advertising campaign within the ad network you operate on.

If you were to test new grounds, like a new ad network, there are more unknowns. It’s harder to pick winners and losers in these conditions. Such a broad test will be more expensive as you’ll need to act blindly to some extent. However, soon you can pick the best performing aspects and create a true, revenue-boosting monster.

The ‘more expensive’ aspect can be scary, but there’s good news as well. As soon as you move to developing platforms and start growing revenue there, you have a massive competitive advantage over those who will join there later, once the platform matures.

Once the test is set up, leave it for 24 or 48 hours without any adjustments. After this period, you should be able to analyze the results. This one or two day window will allow you to pick winners quickly while also ‘kill’ losers to minimize your losses. Actually, picking losers is even easier and can be done quicker.

Note, that the Conversion Rate is not the only metric that can give you a clue for further advertising. You can also compare CTRs, Views, ROAS (Return on Ad Spend) – it all depends on your objective.

The budget  

As testing is often going through loads of unknowns which may fail, it’s important to look at the bigger picture. As we wrote earlier, it’s not just art for art’s sake. It’s a way to keep on top of growing – or at least stable – trends.

That’s why, just as innovative companies spend a chunk of their budget on R&D, you should set a budget for testing purposes.

You might want to set it at $5 to minimize eventual losses, but that won’t bring you any closer to new revenue streams and optimization opportunities. It won’t show you anything except that for 5 dollars you got almost zero visits and certainly zero conversions, compared to your best performing campaigns, where you spend hundreds or thousands of dollars.

The best practice here would be to allocate about 10% to 20% of your budget for testing while using that other 90-80% of the budget to scale what’s already working for you. That’s for your total testing budget but how should you distribute it across each individual test? Well, it gets trickier here.

You can get some estimates. A way of doing that would be to pick the benchmarks for cost-per-action and the minimum number of actions required for significance from historical data. If you multiply those two values, you can land somewhere near your test budget.

To put it into a real-life example, it’s not the previously mentioned $5 but closer to $1,000 for a test. And this still doesn’t guarantee you’ll get the results you need – you might need to spend $5,000 or even $10,000 on test campaigns before you hit the spot where your advertising brings you more than it costs.

Is it always about large budgets?

Of course not. You can get really good results with tighter budgets and extract rubbish conclusions with a large budget.

The more you spend on testing, however, the more you learn about your traffic. And even if you spend a lot on testing, it’s still wise to set reasonable budgets for test campaigns. Along with a systematic and calculated approach of testing paid ads, it’s the best way to grow your business!