So you’ve decided digital marketing is worth its salt. Where do you go now? Where do you start?

Beyond ensuring that your brand is rock-solid for the foreseeable future, figuring out an effective budget is something any good agency will be able to help you with. It all comes down to some simple statistics and mathematics, so let’s take a look at quick look at how we determine a budget leading into a work arrangement.

Marketing Budget

Forbes magazine suggests that you consider the age of your business, but more importantly, that you consider how effectively your business has established brand awareness and a profitable customer base. The recommendation is that well-established companies (five years or more) dedicate between six and 12 percent of gross revenue to marketing, while newer companies (five years or less) dedicate between 12 and 20 percent of gross revenue to marketing.[i]

Digital Marketing Budget

It is suggested that at least 30% go to digital marketing from the marketing budget.[ii] When the fruits of digital marketing are realized and businesses see their cost per acquisition (CPA) dropping and their return on investment (ROI) skyrocketing, they usually respond by allowing their digital budget to occupy a greater portion of their overall marketing budget.

When determining where to allocate the digital marketing funds, it really comes down to the strategy that is in place. Depending on the campaign creative direction and the strategy, there will often be more emphasis on one channel than another, supporting the need to apply a larger portion of the digital marketing budget towards that channel. Some websites and online calculators[iii] will give you benchmark budgets that look something like this:

  • Search Engine Marketing (SEM) – 14%
  • Display Advertising – 10%
  • Social Media Marketing (SMM) – 2%

The problem with these template budgets is that they fail to account for the strategic/creative direction of any campaign’s plans.

Budget-Kill Ratios

When setting a budget, we will often consider fail-safe actions to determine at what point we’re going to kill a particular tool/channel based on its performance. If there is a channel that simply isn’t performing for your campaign after every attempt to make it work, why would you bother throwing any more money at it? Perhaps it can be revisited in a future campaign from a “lessons learned” perspective, but in order to maximize return on investment, it is often best to have some budget-kill ratios in place. For example, if we’re running some social media ads and find that we’ve spent over 75% of our Facebook ad budget but have accomplished less than 10% of our goal, this would certainly be a scenario where we would look at ending the Facebook ad campaign and diverting the remaining funds to a channel that is performing better.

Let’s run through an example of a digital marketing budget.  Assume that your well-established business made gross revenues of $1,277,408 last year. After a stagnant year with minimal growth, your organization wants to make a major push to gain more market share.  In this scenario, we would be looking at an aggressive marketing budget in the 10–12% of gross revenue range. Let’s split the difference and use 11% for the purpose of this example.

Gross revenue  $  1,277,408.00
Marketing budget – 11%  $      140,514.88

 

For the sake of brevity, we won’t include a campaign creative direction or strategy, we’ll just use the digital marketing budget template we presented previously:

Search Engine Marketing (SEM) – 14%  $        19,672.08
Display Advertising – 10%  $        14,051.49
Social Media Marketing (SMM) – 2%  $          2,810.30

 

Monthly figures would be as follows:

SEM  $    1,639.34
Display  $    1,170.96
SMM  $        234.19

 

Now you have the knowledge to determine what your digital marketing budget should look like before you meet with a digital marketing agency. Next you need a great strategy to employ your new digital marketing budget to develop an effective creative direction for your digital marketing campaign.

[i] http://www.forbes.com/sites/steveolenski/2015/12/21/a-practical-guide-to-determining-your-perfect-marketing-budget/#2715e4857a0b1eb976b05030

[ii] https://mention.com/blog/2016-digital-marketing-budget/

[iii] https://www.leadgenix.com/digital-marketing-budget-calculator/