An effective marketing budget isn't built on guesswork or imitation. Whether you're running a local made-to-order biscuit business or a global makeup marketplace, it pays to be structured and realistic when planning digital campaigns. Below is a straightforward approach to help you set up, calculate, and maximise your advertising spend on channels like Google and Meta.
Start with clear business objectives
Strong campaigns start with defined goals:
The Target
What revenue and profit do you want to achieve in the next period?
The Volume
How many sales are required to hit that target?
The Ceiling
What is the maximum cost per acquisition you can afford without exceeding your contribution margin and remaining profitable or cash flow neutral?
The Runway
How much controlled loss are you prepared to accept while a campaign is tested and optimised?
Note: It often takes around 90 days to optimise a digital campaign. Profitability is not usually expected in the first few months.
Without these answers, ad budgets tend to drift. Spending increases without a clear sense of whether growth is sustainable or simply expensive.
Work out your key numbers
Before you decide how much to spend on advertising, you need a clear view of how money moves through your business. This is where unit economics come in. Unit economics look at revenue and costs on a per-order basis, helping you understand whether each sale actually contributes to profit.
Revenue and retail price
Revenue is the total money your business earns from sales. In ecommerce, this is driven by your retail price, which is the amount the customer pays at checkout, or your average order value (AOV) if customers often buy multiple items. Revenue sets the ceiling that all costs must fit within.
Cost of goods sold (COGS)
COGS are the direct costs required to produce and deliver your product. This typically includes product cost, packaging, shipping, and fulfilment. These costs scale directly with each order.
Gross profit (product margin)
Gross profit is what remains after COGS are deducted from revenue. This shows how much money each order generates before running the business or acquiring customers.
Operating costs (non-advertising)
Operating costs are the expenses required to run the business that are not part of making the product itself. These include payment processing fees, platforms, warehousing, returns, customer support, software, and overheads. While some of these scale with volume, they are not direct product costs and should be treated separately from COGS.
Contribution margin (what can fund advertising)
Contribution margin is what remains after operating costs are deducted from gross profit. This is the pool of money available to fund advertising, owner profit, tax, and reinvestment. Advertising spend must fit within this margin if the business is to remain profitable or at least cash flow neutral.
Example
A product sold at $200 with $80 in COGS leaves $120 in gross profit. If operating costs average $40 per order, $80 remains as contribution margin. That $80 must cover customer acquisition and profit. If advertising costs exceed this amount, growth becomes unprofitable unless the business relies on repeat purchases over time.
When the maths is wrong from the start, the business is fighting an uphill battle, regardless of how good the ads look.
Estimate how much traffic you need
Rather than picking a monthly ad budget and hoping for the best, work backwards from your revenue goal:
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Set your monthly sales revenue target, for example $10,000
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Identify your average order value (AOV). If it is $200, you need 50 sales
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Choose a baseline conversion rate. For Australian e-commerce, 2% is a common starting point for intent-based traffic like Google Search, though this varies significantly by category, website quality, and traffic source
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To generate 50 sales at a 2% conversion rate, you need 2,500 website visits (50 divided by 0.02)
Translate traffic into advertising spend
Once you know how much traffic you need, the next step is translating that requirement into advertising spend.
Different advertising platforms price traffic in different ways. To build a realistic budget, these pricing models need to be converted into comparable costs per visit so they can be assessed against conversion rates, order values, and unit economics.
At a high level, e-commerce advertising spend is shaped by two considerations:How traffic is priced
Some channels are priced per click, while others are priced per thousand impressions. To compare them properly, impression-based pricing needs to be translated into an effective cost per visit before it can be assessed against conversion rates and unit economics.
Who the traffic targets
Traffic reaches people at different points in the buying process. Search-driven traffic captures existing demand from people actively looking to buy. Discovery traffic introduces the brand to new audiences who may not yet be aware of it. Remarketing reaches people who have already engaged and are typically closer to conversion, resulting in different cost and performance dynamics.
Start with the simplest case: CPC-based acquisition traffic
Google Ads Search and Google Shopping are typically priced on a cost-per-click (CPC) basis. You pay each time someone clicks your ad, which makes these channels straightforward to model.
For Australian e-commerce businesses, typical CPC ranges are:
Google Search
Approximately $1.80 to $4.00 per click, with competitive commercial keywords often at $10.00+
Google Shopping
Commonly $2.50 to $4.00+ per click, depending on category competition, margin, and feed quality
Because traffic costs scale directly with clicks, CPC-based channels provide a clear baseline for estimating spend.
Worked example
If you need 2,500 website visits:
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At a $3 CPC, ad spend would be $7,500
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At a $4 CPC, ad spend would be $10,000
If that figure feels higher than expected, it highlights how quickly traffic costs scale and why conversion rate and margin matter before increasing spend.
CPM-based acquisition traffic (Meta prospecting)
Meta advertising on Facebook and Instagram is primarily priced on a cost-per-thousand impressions (CPM) basis. Rather than paying for clicks, advertisers pay for exposure, with the effective cost of traffic determined by how often impressions turn into clicks.
In Australia, e-commerce CPMs for prospecting commonly range from $10 to $25+ per 1,000 impressions, depending on audience, creative, and competition.
To compare CPM-based traffic with CPC channels, CPM needs to be converted into an effective cost per click using expected click-through rates:
Effective CPC = CPM ÷ (CTR × 1,000)
For example:
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A $15 CPM with a 1% click-through rate results in an effective CPC of $1.50
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A $25 CPM with a 0.8% click-through rate results in an effective CPC of approximately $3.13
Worked example
Using the same requirement of 2,500 website visits:
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An effective CPC of $1.50 would require approximately $3,750 in ad spend
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An effective CPC of $3.13 would require approximately $7,825 in ad spend
This illustrates why CPM alone is not a reliable measure of efficiency. Engagement quality has a material impact on the true cost of traffic.
It's also important to understand that Meta prospecting traffic typically converts at a lower rate than Google Ads Search traffic, even when the cost per click is similar. This is because Meta prospecting introduces your brand to new audiences who aren't actively searching for your product, while Google Search captures existing demand from people already looking to buy.
These click-through rates and conversion rates are illustrative only. Actual performance varies by category, creative quality, audience, and stage of business, and should be treated as directional rather than predictive.
Remarketing traffic (different cost dynamics, limited scale)
Remarketing refers to advertising shown to people who have already interacted with your business, such as previous visitors or users who added items to cart but did not convert. Remarketing exists across both Google and Meta and may be priced using either CPC or CPM models. Because these audiences are warmer and more familiar with your brand, remarketing frequently converts at 3–5x the rate of cold acquisition traffic, which can significantly reduce your cost per acquisition even when headline costs appear similar.
However, remarketing is volume constrained. Its scale depends entirely on how much new traffic enters the funnel through acquisition channels. A business generating 2,000 site visits per month might have a remarketing audience of 1,500–3,000 people, depending on cookie duration and engagement recency. Without sufficient prospecting, remarketing performance will plateau.
Bringing it together
When translating traffic requirements into advertising spend:
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Search and discovery channels generate traffic volume.
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Remarketing improves conversion efficiency within a defined audience pool
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All channels must ultimately be evaluated at the cost-per-acquisition level against contribution margin
Modelling traffic costs realistically helps prevent under-budgeting, unrealistic expectations, and unprofitable growth.
Allocating traffic across channels
Most ecommerce businesses spread traffic across multiple channels rather than relying on a single platform. A practical allocation reflects both how customers buy and how different channels contribute at each stage of the funnel.
The model below assumes that required traffic is delivered through Search, discovery and remarketing channels. Testing and experimentation are funded separately as a percentage of total spend and are not assumed to contribute to core traffic volume.
A common starting mix for e-commerce looks like the following. This allocation will vary based on category, brand awareness, product consideration cycle, and creative capabilities.
Google Search Ads and Shopping: 50%
Capturing high-intent demand from searchers already looking to buy
Meta prospecting to cold audiences: 30%
Supporting discovery with new audiences who may not yet be aware of the brand
Remarketing across Google and Meta: 20%
Focused on converting warm audiences who have visited the website or engaged with ads or social content. Many customers require multiple touchpoints before converting
Additional to delivery budget:
Testing and optimisation: 10%
Reserved for creative experimentation and secondary channels
Example budget scenario
This example builds on the earlier requirement of 2,500 website visits per month to support a $10,000 revenue target at a $200 AOV. The figures below are illustrative and will vary by category, offer, website conversion optimisation, creative quality, and competition.
Assumptions:
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Google average CPC: $2.50
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Meta CPM: $18
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Meta CTR: 1%
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Meta effective CPC: $1.80
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Remarketing blended effective CPC: $1.20
Google Search and Shopping 50%
1,250 visits at $2.50 = $3,125
Meta prospecting 30%
750 visits at $1.80 = $1,350
Remarketing across Google and Meta 20%
500 visits at $1.20 = $600
Subtotal (core traffic delivery)
$5,075
Testing allowance (10% of delivery budget)
$507
Estimated total monthly media spend
$5,582
This budget delivers the required traffic volume while reflecting the different roles each channel plays in the funnel.
Using this model to set expectations
If the projected budget exceeds your margins or available capital, that is not a failure. It is a signal.
You can then decide whether to:
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Improve conversion rates before scaling paid media
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Increase AOV through bundles or pricing strategy
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Focus Meta spend on remarketing rather than cold acquisition
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Lean more heavily on Google Shopping for top-performing products
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Delay aggressive paid spend until the business is structurally ready, and focus on other channels like referrals, SEO and organic social
This is how ecommerce leaders approach budgeting: by understanding the economics first, then deciding where and when paid acquisition makes sense.
How to use this framework
You don't need perfect data to start, but you do need to understand how the pieces fit together.
The purpose of working through these numbers is not to predict outcomes with certainty. It's to avoid building a business that only works if advertising behaves exactly the way you hope it will.
Some ecommerce businesses rely heavily on paid acquisition. Others grow through organic demand, referrals, repeat customers, or a mix of all three. In every case, the businesses that stay in control are the ones that understand what it costs to acquire a customer, how that cost changes as they scale, and where the pressure points sit.
Start with the unit economics. Work backwards from your revenue goal. Model the traffic costs honestly. Then make an informed decision about whether, when, and how much to invest in paid acquisition.
That clarity is the outcome you are aiming for. Not a perfect budget, but fewer surprises.
Ready to put this into practice?
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This content is for general informational purposes and does not constitute financial advice. The information contained in this blog is of a general nature only. It does not take into account your individual objectives, financial situation or needs. It is not intended as financial or investment advice and should not be relied upon as such. The information provided is correct as at the time of publication.
About the Author
Maryanne Evans is a marketing leader and FinTech/SaaS strategist with over 15 years of experience driving growth in fast-paced B2B environments. Known for blending data-driven strategy with creative storytelling, she builds impactful brand narratives that resonate and perform.