Beginner's Guide to Digital Advertising Part 1: The Basics

If you're a rising entrepreneur starting a new business or a SaaS founder who just launched his latest project, chances are you will need to run paid advertisements to drive traffic to your website and get people to buy what you are selling.

Hiring a professional marketing agency to create and manage the ads for you is expensive and if you're not spending at least a thousand dollars a month, it's not even worth using their services. Small business owners have to take matters into their own hands, after all, you are a wearer of many hats :).

This guide will give you a basic understanding of how digital advertising works and the terminology used so that you can start running your ads today.

Where to run ads

Most products which you use daily make their living by displaying ads to their users, that's how they manage to keep providing their services for free. Here are a few popular platforms where you can publish your ads:

Meta - The company which owns Facebook and Instagram, you can place ads in people's news feeds or Insta Stories.
Google - Target people searching for specific keywords (e.g. "Christmas Sweaters") on Google Search or place ads in between Youtube videos. They also manage a vast network of ad space resellers, ever wondered how websites or mobile apps manage to run ads? Yep, through Google's Adwords or AdMob products.
Twitter - a lot of users a still using the platform, even after Elon Musk renamed it to X (ugh), most of them from the U.S. You can target people based on the hashtags they follow.
Reddit - Niche communities on Reddit provide unique opportunities for targeted advertising.
LinkedIn - If you're selling a B2B product or service, LinkedIn ads are the way to go. They are usually a lot more expensive than the other channels.

The marketing funnel

Let's get one thing straight, no one will make a purchase on your website after viewing your ad for the first time. That being said, there are a few steps that a user goes through from seeing your ad to giving you their credit card details:

View your ad on one of the apps he is browsing
Click on the ad and go to your landing page
Insert his personal information and make the purchase

These three fundamental steps are what's called a marketing funnel which is used to describe the user journey from first seeing your ad to purchasing your product.

It looks like a funnel because each step towards the bottom has fewer actions than the one above it. You can think of it like this:

100 people are viewing your ads
30 are clicking on the link to your website
5 of them are buying your product

The percentage of people who move from one funnel step to the next one is called the Conversion Rate. The higher this conversion rate is, the more effective your ads are. Usually, this is affected by the quality of your visuals or ad text as well as the targeting settings you are using (you won't have a good conversion rate if you're showing cat food ads to dog owners).

Another metric you should keep in mind is the Cost Per Action (what action? depends on which funnel step the user is in currently). You should keep this one as low as possible because if you are selling a product which costs $10, but your Cost-Per-Conversion is $30, then you are losing $20 for each sale.

Each step of the funnel has its purpose and every ad platform will give you access to an analytics dashboard where you can track the number of actions and conversion rates for each of them.

Awareness

Also referred to as ToF, short for top of funnel*,* tracks how many people have seen your ads. You can see this as the impressions metric in your ads dashboard.

This is where you will see the highest numbers, that's why you will be charged for each 1000 impressions. You will see this metric as CPM (cost per mille, or cost per thousand impressions).

The outcome of this step is to get people to click on the ads to visit your landing page, so the conversion rate is called CTR (click-through rate).

Consideration

At this stage, people have arrived at your landing page and are reading all about your product or service and checking out the pricing page.

The MoF (middle of funnel) actions are represented by clicks and that's how platforms will charge you. The cost term at this stage is called CPC (cost per click).

Those who end up making a purchase will proceed to the last step of the funnel, which will be your Conversion Rate. The deciding factor will solely depend on how well your landing page is optimized, having clear call to action buttons, user reviews for building trust and a comprehensive pricing policy.

Conversion

The BoF (bottom of funnel) counts how many purchases have been made from your ads. Unfortunately, ad platforms don't magically know what actions a user is performing on your website to keep track of purchases. This is why you must install a small script called a Pixel for each marketing channel you are using.

You are still charged for each click delivered to your website so keep track of your CPC here too, but you will mostly be interested in the Cost-Per-Conversion at this point, which tells you how much money you are spending on ads in order to make 1 sale.

This is the final step of the marketing funnel so there won't be a Conversion Rate. But this is where the most important metric of your ads will be calculated, the ROAS (Return on Ad Spend). Assuming you have correctly installed the pixel on your website you can track the Conversion Value of each purchase (maybe you are selling a subscription with 3 different tiers) and sum them all up into Total Revenue in order to apply the ROAS formula:

ROAS = (Total Revenue / Ad Spend) * 100

The * 100 is added because ROAS is expressed as a percentage. You can think of this metric as "how much money am I making for each dollar spent on ads". Let's say you have spent $500 on ads and have made a total of $3000 in sales. Your ROAS would be 600%. If you would have made $3500 in sales, then your ROAS would be 700%, so the higher the better.

Conclusion

Running paid ads involves getting familiar with marketing terminology, but once you get that out, the concepts are fairly easy to understand. Also installing the pixel software for each ad platform takes a bit of tinkering, but you only have to do it once.

Learning the basics should not take more than a day and it will help you stay in charge of your ad spend, making sure you are not losing money on ads.

Would love to hear your thoughts, let me know if I have missed anything or if there is another marketing related subject you would like to know more about.