Are you the marketing manager of your company?
Is this one of the toughest questions to answer while budgeting for the month/quarter/year?
If your answer is yes, then we have the answer(s) for you.
We asked specialists and experts from across the world and different industries, their take on digital marketing budgets, and below are their golden nuggets.
Expert: Matt Slaymaker
Digital Marketing Director at Folsom Creative
While there is a general rule of thumb that 10% of a business’ revenue should go towards their marketing budget, some businesses need a lot more, and some need a lot less in terms of budget. How we recommend budgets to our clients comes down to 3 major factors:
The nature of your business. This includes what industry your business is in, the size of your business, and what your margins look like.
The level of competition in your market. This includes your geographic location and the number of similar businesses competing for the same customers. Your recommended budget will be very different if you operate in New York City, NY vs. Ithaca, NY.
Your goals, and the best way to achieve them. If your goal is long-term brand awareness, then your budget may look very different than if your goal is acquiring new business immediately.
Any budget must take all of these factors into account. The best budgets are the ones that have been carefully thought out and have data to support it. Using tools such as Keyword Planner, you can get an idea of the budget required to achieve your business goals.
Expert: Orlando Rios
CEO of Dropkick Ads
I have a rule when it comes to marketing spends. If my measurable ROAS for digital is averaging at least 3X or more in previous months, I put at least 45% of all profits from the previous month back to work for me in ad spend. This of course is determined by what stage you are in your business. Newer businesses need to allocate more revenue towards growth, more seasoned businesses can find a better balance for maintenance + acquisition.
Expert: Calloway Cook
President, Illuminate Labs
The most efficient way to budget for digital marketing is to perform small-scale tests of various digital marketing channels, and only add profitable efforts to the main budget. This means that if you determine Google Ads is the most profitable medium for your brand, continually increase its budget. Once a channel is determined to be profitable, its budget should be continually increased because so long as profitability is maintained there is no financial risk.
Expert: Kent Lewis
President & Founder of Anvil Media, Inc
According to statistics and best practices, marketing budgets should average 1-30%, depending on a variety of factors, including:
- Age of business: the more mature, the lower the budget, but a startup may spend 30-80% of it’s cash on marketing in the early stages
- Size of business: the larger the business, the smaller the percentage of revenue is attributed to marketing
- Industry: the more competitive and higher-growth industries require larger budgets to cut through the noise
- Competitive landscape: the quality and quantity of competitors, as well as level of sophistication can impact ad budgets, perhaps more than any other single factor
- Economic, legislative, or political factors, including regulations, tariffs, etc.
I recommend our more mature small-cap clients budget 5-10% of revenue towards marketing. You can conduct business intelligence (we use WinMo) to estimate if not identify competitive ad spends and related marketing budgets for our clients. The factors above also impact how the budget is allocated, by channel. A majority of our clients, including DTC, are spending 40-60% of budgets on digital channels today. Some of our clients are as high as 100% of the marketing budget is allocated to digital, but we don’t recommend that per se. We’ve found that cutting other marketing channels impacts the performance of our digital programs. During the last two recessions, many or our clients dramatically cut traditional advertising (print, broadcast, outdoor), events, PR and direct mail budgets. We saw a 30% decrease in our digital campaigns (including SEO) immediately. I tell my clients recessions are the best time to maintain if not increase ad spend, as the opportunity to capture new customers for a fraction of the cost is very real. Unfortunately, most companies lack the cash or vision to double down on that strategy.
Expert: Stacy Caprio
Founder of Growth Marketing
Basing the marketing budget you have on current cashflow and profit is usually a good starting point. Then, once you start seeing marketing results boosting cashflow and sales, you can keep allocating more to the marketing budget accordingly. The key is to never go into debt by spending more on marketing than your business is taking in each month in profit.
Expert: Matthew Edgar
Partner & Consultant at Elementive
My biggest piece of advice for companies is to remember to allocate some amount of the budget for the cleanup work that is required to keep websites performing at their best. For example, you may have old content that is full of inaccurate information and is misrepresenting your brand but still getting lots of traffic. Or, you may have an unruly category and tag structure within your blog that creates lots of thin, unhelpful pages. Or, there might be lots of dead pages returning 404 responses. Whatever the
issue, these types of problems can massively impact traffic, conversions, engagement, and brand reputation. This work isn’t the cool side of digital marketing but it does drive big results. How much to allocate here? As a general rule of thumb, I suggest at least 10-20% of the budget should go to
cleaning up bad content and fixing errors on larger websites though you need to check your monitoring tools to understand exactly how many errors exist on your website currently and just what needs to be cleaned up. If you haven’t cleaned up content or fixed errors in a while, more of the budget should be allocated here.
Expert: Gabe Bautista
An Independent Turnaround Consultant & Marketing Technologist
As a turnaround consultant and someone responsible for spending 250K+ on advertising and many millions in my career I can say there is two factors to consider.
1. Is the business aimed at growth or profitability?
If the business needs to make that money back asap it will be under increased pressure to get traction quick and be out of the water. Every one wants this, it is almost impossible to achieve.
The essence of economic activity is the commitment of present resources to future expectations, and that means to uncertainty and risk – Peter F. Druker
2. What is the competition spending and what will be the competitive terrain.
If everyone in your market is outspending you, it will be an uphill battle that you will in all likelihood lose. Even if you have a superior and differentiated product.
You better have something amazing and unique and even then you are going to have to at least match what your competitors are doing or constrain your reach, geographically or niche down somehow.
Expert: Dave Irwin
Founder of David Irwin Design
Marketing can be tough, there is a lot of planning involved and like any project, once it starts its over budget and over time. Your marketing plan, as far as marketing content, does not need to be however.
While it can be difficult to gain traction in Digital Marketing these days without paying, it is not impossible. As Ryan Holiday points out in Trust Me, I’m Lying, there are ways to gain the system with great results. You are either spending time or money, but you shouldn’t spent both. If you can
pay 5 bucks to make 5000 impressions then you shouldn’t spend 5 hours trying to make the same. That’s generally how I explain it to my clients. Time is money, so if it will cost me 50 dollars and hour to hire someone to engage in comments sections but I can pay 5 bucks to boost a post for the same level of engagement, then it is worth spending the money.
So start small. If you have a marketing budget for the quarter, or even the year, you should break that down to find out what your daily spend should be, If you are wondering what to spend in a day, then work out how much you expect to earn from an engagement and extrapolate 25% of that for marketing. So if I am paid $100 dollars for a job, I keep 25% for taxes, 25% for marketing, 25% for costs of doing the job (business costs) and break the remainder down into various other parts, including my salary.
Sales/Marketing should be 60% of any business, with marketing consisting of 25% of that portion.
We are a brand marketing design firm, we specialize in creating on brand campaigns for clients and with that comes some cost. This is for the established company or marketing manager, and less the small business but we are always happy to point some strategies out to other business owners if they want to do the work, we do for themselves. This of course takes them away from their own business and can be a distraction, that’s why you hire a marketing firm. Time actually is money, so work out how much your hourly is worth and then budget 25% of that amount for marketing, charge accordingly.
Expert: Maksym Babych
Each social network offers you a different pricing mechanism — per impressions, clicks, purchases, etc. And even when you know the target and campaign goal, the prices can vary not only through the year but even through the hours of one single day. So here we can only give you a rough example.
Let’s say you’re a family photographer working all by yourself and want to have 500 clients this year, with a $200 check each.
You have to experiment to see how your social media ads convert and need to do some math.
Now let’s say you pay $1 per click in average and 1% of those who click contact you. Then, 10% of those who contact you become actual clients. It makes you spend $10 per purchase ($1/0.1=$10). Multiply by the number of clients, and $5000 is all the budget you need (just for this case with this tiny target). It all changes of course, when you take another industry or another goal.
For simpler solutions, you can just spend 5% of your revenue on social ads, as many sources suggest.
And while managing social media, don’t forget about influencers! One $500 post for the right audience can pay back better than a $1500 campaign.
Expert: Brian Cairns
CEO of ProStrategix Consulting
For starters, it’s good to have a rule of thumb for how much you should invest in marketing. The U.S. Small Business Administration (SBA) recommends spending 7 – 8% of gross sales on marketing if you’re sales are < $5M a year. Our rule of thumb is 10% because it’s simpler.
Step 1 – Goal Setting
The marketing budget should tie back to a business goal. It should never be the other way around. For goals to be as effective as possible they should be SMART: Specific, Measurable, Attainable, Relevant, and Time-Bound. It’s good to have a goal at every step of the funnel, which when added together realizes some revenue goal. What’s measured gets done, and if you can know where you get results, it’s good to know where you should be spending more.
Step 2 – Budget
We start with our 10% of gross sales as our rule of thumb. Then, we determine which tactics are most likely to achieve or exceed our marketing funnel goals. In our business, it is driven by Lead Generation. Lead Generation is a function of brand awareness and credibility, so content marketing is a key strategy for us. This is true for most professional services. Let’s say I was a salon business, where visual media were key. So, in deciding this marketing mix, we might focus more on social media, website enhancements, e-mail, Google My Business, geo-fencing, etc.
Step 3 – Putting a Plan Together
When putting a final plan/budget together, it’s important to know which element work the hardest for you. Then, it’s a prioritization game. For us, it’s content marketing, followed by social media/e-mail cultivation, and referral. For the salon example, IG and YouTube are great media for visual impact, as is, email. Visual drives the impact, but people need to know where you are so local search and geo-fencing would likely be the 2nd tier.
Expert: Carla Williams Johnson
Media Marketing Consultant at Carli Communications
So exactly how do you plan the perfect budget for your campaign? Let me share with you the top four ways I’ve found that can help:
- Take a look at what has worked in the past: It may be beneficial to re-look at a previous campaign to determine what media may have brought you some success. Maybe you distributed flyers or invested in social media advertising; increasing your investment this time around would be a great tactic to employ.
- Observe your competition: Take a minute to observe the media and marketing tactics of your competition, taking note of what you’ve noticed has been working in their favor. Use this information as a guide as to what you should be doing and where you should advertise; then get the relevant costs.
- Get customer feedback: Consider including a new tactic based on feedback from your clients. Speak with them to determine what media they consume and how frequently, use the information gathered to determine if you should utilize a new media into your advertising mix.
- Seek expert assistance: If you believe the best way to get the most out of your campaign is to seek someone who is knowledgeable in a specific field, then this cost must also be included. Think about specialists you might absolutely need such as social media manager, a marketing consultant, or even an administrative assistant and research the costs involved to have the best of the best on your team.
A combination of the above will help you set a realistic marketing budget for your campaign, however, there are a few things that must not be overlooked as it can also affect your final investment figure.
Seasonality: The time of the year may dictate the modification of your advertising budget. For example end of the year tends to be overly cluttered so there may be a need for a boost in your spend, conversely, there may be times of the year where your specific audience may be less receptive to an ad campaign and therefore you may be required to reduce or eliminate your advertising.
Communication goals: This is where an executive decision should be made to determine which media would best help you explain or convey your message to your target audience. Will video or audio work best to help your customers understand your offer? This will guide you as to what media tactic might be best.
Time frame: This refers to how long you would like the campaign to run. Six weeks is usually the ideal duration for the campaign; four weeks is considered a short promotion, while eight weeks is considered a lengthy one.
Campaign type: Launching a new product onto the market may require an increase in spending in order to get potential customers familiar with the brand, however, a maintenance campaign would require significantly less investment.
Expert: Chane Steiner
CEO of Crediful
*15-20% – *If you’re a new company, you’ll have to spend a little more on marketing. This is about establishing your brand and reaching as many potential customers as possible.
*6-12% – *As an established company, you shouldn’t be spending more than 15% max on marketing, and if you can keep it closer to the 6-8% range, that’s ideal. At this stage, you should already be semi-established in the marketing world and be able to rely on past campaigns to carry new ones. This means less money needs to be spent on marketing.
Expert: Yaniv Masjedi
CMO at Nextiva
As a CMO, when I look at setting a budget, I start by setting the key metrics I’m trying to achieve—digital marketing or otherwise.
For example, there was a year where we really wanted to focus on building up our SEO traffic, so I set our traffic targets, then created a plan to hit those numbers, including a budget for it. Since that was our No. 1 focus, that’s what I budgeted first—before I moved on to the budget for our other activities.
The danger is saying you’ll increase or decreasing spending by a certain percentage across-the-board. I am aware that is how a lot of people approach budgeting, but that’s not a strategic approach.
Instead, start with your objectives and key results. Then work backward from there to set your spending. If you’re spending on efforts that aren’t aligned with your goals, this process will make it obvious where you might need to make some cuts.
Over the years, our spending has trended more toward digital marketing efforts, but digital or not, everything is driven by the broader strategic goals we want to achieve.
Expert: Hitesh Sahni
Principal Consultant at Smemark
In reference to your query on allocating a budget to digital marketing, the decision will depend on a number of factors, which include the type of business and target audience.
Once these two factors are taken into account, a great way to allocate budget to digital marketing is to look at the available data and statistics.
For example, reports from Forrester Research and eMarketer show that In 2018, the average firm was expected to allocate 42% of their marketing budget to online, and this rate is expected to grow to 45% by 2020. In addition, digital marketing is pacing at an 11% compound annual growth rate between 2016 and 2021 with the biggest growth occurring in online video.
When allocating marketing budget for a client, I always go through statistics related to their industry. This helps me come up with reasonable assumptions and predictions to minimize risk and allocate an optimal budget to digital marketing.
Expert: Robyn Flint
Insurance Specialist at ExpertInsuranceReviews.com
Deciding the marketing budget: In order to get your business in front of the consumer, you must have a
marketing strategy. A business must go where their target audience is found. Once you identify your target audience, you must develop a plan to reach them. This means setting a realistic budget for marketing.
Once you establish your goals for marketing, you can determine the cost of reaching your target audience through marketing means that make the most sense and brings the greatest return on investment. For example, in real estate, most home buyers find their future homes online. So Realtors should create a marketing strategy to reach those consumers if their goal is to build their client base of buyers. If this is your main goal for your business, then a large part of your marketing budget should be allocated to this strategy.
Marketing budgets depend on the type of business. It also depends on the target audience and your financial goals for your business. An overall marketing plan should be developed based on the mission of your business. Once the plan is in place, you can decide how to financially prioritize specific action plans based on their return on investment. If you find that you reach more clients by advertising on social media, then this should be allocated more in the budget than an action plan that is effective on a smaller level.
Expert: Chris McNeil
CEO of 5th Level Web
Digital Budget for Marketing Spends: Many of our clients budget a set, fixed monthly amount for digital marketing. That is much more common than using a percentage of sales, a distant second place for prevalent budget methods we encounter with clients initially.
We encourage them to calculate the net margin lifetime value of a customer so they can better understand the allowable cost of acquiring a new customer. Then we can make the case of using marketing to drive growth since it will have a positive ROI when done right. Especially in those cases, we can see dramatic growth and it makes life easier on us as an agency since the value of the service is so clear.
Cash flow can be a constraint when working with the lifetime value of a customer vs. allowable acquisition cost model since there will always be a time delay between spending and the return from putting more resources in digital marketing.
Expert: Dhawal Sehgal
CEO of Dignitas Digital
Your Business Goals should define your digital marketing budget – Defining the marketing budget is tricky. Defining a digital marketing budget may be trickier if it is just one of the elements of your overall marketing strategy.
Ecommerce businesses typically spend a higher percentage (15% – 35%) of their revenue on digital marketing as compared to a services business (5% – 15%).
At the end of the day, if your customers find you on the internet, it is worth investing in online marketing to get more attention.
There is no one-answer-fits-all for this question and this is the main reason why a digital marketing agency stays in business.
As a leading digital marketing agency in Philadelphia, we analyze the digital marketing strategy of the closest competitors of our clients to get an idea of their digital marketing spends. This forms one of the variables for determining the budget. Other variables include the kind of digital marketing service that is appropriate for a client. Digital marketing encompasses SEO, SEM, Email Marketing, Social Media Ads, Native advertising, and many more elements. All these services have different budget components, especially online advertising of every kind that comes in with a media budget element (which is usually the highest).
We thank all the participants for their invaluable insights about one of the most important questions that marketing leaders and business owners have in their minds.
If you would like our digital marketing experts to help you decide a marketing strategy that fits your budget, contact us now.