All companies that have established their online presence expect returns on their investments into digital marketing as soon as possible. However, many small businesses often experience difficulties with marketing budgets.
If you start a research on the internet on how to allocate your digital marketing budget, you may get confused and probably start thinking there’s some voodoo magic involved. But that’s not the case. Millions of different businesses have had contrasting results from digital marketing cost distribution. As such, we’ve ended up with millions of mixed results for allocating budget items.
What we want to do is cater to those of you who have absolutely no idea of where to start allocating your digital marketing budget. In this article, we will give you an idea of the main approaches to planning your digital marketing budget and provide some useful instruments and recommendations to build upon in the future.
Types of Digital Marketing
The first step toward creating a digital marketing budget is setting your goals and defining how you are going to measure them. There are basically two kinds of goals:
- Sales. You can track metrics throughout your sales funnel — first-time buyers, repeat sales, conversions, and upsells.
- Awareness. To measure awareness, pay attention to your traffic, social following growth, and social engagement (for example, comments and participation, content downloads, and content shares).
After setting achievable and measurable goals, we recommend you narrow down your focus on the main areas that you can spend your budget on to produce the best results based on the demand for your product.
The second thing you want to do when creating a digital marketing budget is to evaluate previous campaigns and budgets. How much did you spend, what exactly did you invest in, and were your investments productive? Then figure out if there was any money that was really well spent or, in the worst case, money that was wasted and had no impact.
The third step is to choose the type of digital marketing that will suit your product according to its demand. If you’re promoting a product or service that is already familiar to the market – for example, if you are a brand of clothing, cosmetics, or food – there are a variety of marketing techniques that will suit you. We will name the most popular.
Search Engine Optimization or SEO is a combination of practices aimed at increasing the volume of quality traffic to your site through organic search engine results. SEO can take many forms. It can be anything from optimizing title tags and meta descriptions to link building and to using keywords that can generate quality traffic to your site.
The main feature of this marketing technique is that it works best in the long term. You can expect reliable results from SEO in no less than 4-6 months. The good news is that SEO works great for newly established companies as well as for long-existing brands.
Unlike SEO techniques, PPC advertising can be quickly profitable with proper planning. PPC stands for pay-per-click, an internet marketing technique in which advertisers pay a fixed fee whenever one of their ads is clicked. It’s a way of buying visits to your website rather than trying to “earn” those visits organically with SEO. When PPC is set up correctly, its costs are trifling, because the visit may be worth more than what you pay for it. In other words, if you pay $2 for a click, but the click results in a $200 sale, you’ve made a considerable profit.
It takes a lot to build a winning PPC campaign: from researching and selecting the right keywords to organizing those keywords into coherent campaigns and ad groups, and then to designing PPC landing pages optimized for conversions. On the upside, this tactic can bring you profit in a short time, which is mission-critical for newly established businesses.
In case your product is entirely new to the market – for example, if you are introducing Kombucha to a market where customers are not familiar with Asian fermented drinks – then social media advertising and content marketing are your best choices. Social media marketing (SMM) is a must if you’re looking to reach a new targeted audience—fast. And content marketing is great for establishing a reputable and influential brand image.
A well-thought-out email marketing strategy can work perfectly for established businesses with a readily available contact list. For new brands, there is an option of using a third-party customer database, but this can be tricky as cold email marketing is less effective.
To sum it up, depending on whether there is a high demand for your product on the market or not, you should focus on different marketing techniques and tactics. Evaluating revenue from investing in content marketing or SEO is quite difficult, and the result may not be immediately visible. But this doesn’t mean you should limit yourself to just one or two techniques. On the contrary, they work best bundled with each other.
We recommend you carefully analyze the specific features of your business before deciding which digital marketing strategy would work best for you, as every single case differs from another. What didn’t work for your competitors may turn out to be very profitable for your brand, and vice versa.
When you know which types of digital marketing you should focus on, it’s time to consider budgets.
Traditional Approach vs. Modern Approach to Budgeting
What percentage of revenue should you invest in your marketing and advertising? Which part of your whole budget should you spend on digital? These questions have been bothering entrepreneurs for ages. We are going to give you both the traditional answer and the latest cutting-edge answer to these questions.
The traditional method of calculating your digital marketing budget is about investing a certain percentage of your revenue in chosen marketing projects and tools.
According to Entrepreneur, new businesses up to 5 years old should invest 12-20% of their marketing revenue. And older ones should invest 6-12% of their revenue.
In their turn, WebStrategies offers a budget calculator that estimates the percentage of revenue you should allocate for marketing depending on the form of your commercial transactions – B2B or B2C (7-8% and 9% accordingly).
Basically, the traditional marketing budget formula for the percentage of revenue looks like this:
Budget = total revenue × % invested in marketing
In other words, if your revenue is $10,000 per month, you should invest between $600 and $1200 per month in marketing to sustain that level of revenue and continue to grow. If you are a new business and have no existing revenue, you could calculate your goal revenue and multiply that figure by somewhere between 12-20% to get the budget you need to achieve that goal.
The weak spot of this approach is that it doesn’t take into account either the specific features of your business or your strategies and projects.
The traditional approach can be applied to traditional businesses, such as franchises, retail locations, storefronts that are selling physical goods, restaurants, etc. (in other words, businesses that prefer to invest in offline marketing). You can hardly determine the return on the investment when you spend money on newspaper or magazine ads, direct mailers, and advertising on the TV and radio. So, the traditional budgeting approach allows you to find that “safe spot” in the amount of marketing investment that will ensure sufficient business activity throughout the year. But every business is unique, and you can change those percentages from the average to something that suits you better. This is especially true for companies with solid online presence or businesses that have much higher margins and may spend more to acquire customers.
Unlike offline marketing, digital marketing allows you to take into consideration literally hundreds of data points. Your industry, target market, location, competition, previous marketing history, channels used, search volume, product features, etc. Your goals should be taken into account as well when making your marketing investment.
So, according to the modern approach to budgeting, the volume of your digital marketing budget should really depend on your ROI (Return On Investment). And the great news is that, with online marketing, it is very easy to determine your ROI. If you set your Facebook Ads or Google Ads correctly, you can track every dollar you spend and see what kind of return you’re getting. If your advertising campaign is profitable, your budget can essentially be unlimited. When you can achieve a positive ROI with a specific advertisement campaign, you can have enough budget to reinvest continually.
It may be challenging to come up with a budget for businesses that have just started out and have no digital marketing experience. However, such tools as Google’s Keyword Planner can help you plan your Google Ads budget. Unfortunately, there is no software for channels like Twitter, Facebook, LinkedIn, etc. And yet, for making the right decision on allocating your digital marketing budget, you need data to build your strategy. The best way to get that data is to start a marketing campaign. It may not be a success from the get-go, but at this point, the results are secondary – what really matters is collecting the data that will serve you as a foundation for further marketing efforts. Answering the following questions will help you get started:
- How many clicks did you get?
- Did people comment on your ads?
- What questions did they ask?
- How many conversions did you get?
- What were your marketing costs?
With those data points, you can start making decisions about your future marketing investments.
Closing Thoughts
Every small business owner and marketer wants to make sure their brand doesn’t get lost in the crowd. It’s essential to plan your budget well to get the most return.
Ultimately, we recommend you find out what works best for your customers, niche, budget, and resources at hand. Keep in mind that every business is unique, and the distribution of the budget for digital marketing depends on its unique features.