budget for digital marketing

What Percentage of My Revenue Should I Allocate to My Digital Marketing Budget?

Welcome! If you’ve been following our series on building a digital marketing budget, you’ve probably read the previous posts. If not, you may want to back up a bit…

  1. Build a Digital Marketing Budget for Any Small Business

In this post, we’ll be discussing how much your business should be spending on your digital marketing budget. In addition to my experience planning and optimizing digital marketing budgets daily, the insights in this blog come from reliable sources including: a yearly survey of Chief Marketing Officers from many industries and company sizes, a leading research report about digtal marketing trends and online predictions, and other top research firms focusing solely on digital marketing.

General Changes In Total Marketing Budgets

There is no doubt that the ways consumers are engaging with brands and the ways companies are engaging with each other is changing, significantly. In 2017, even as a small or local business, your buying audience expects you to be available and involved on the platforms they are. Which means, if your website isn’t responsive for mobile devices, and if you’re not engaging with your audience online, you’re missing out on valuable market share.

We’ve talked in other posts about the ROI potential of digital marketing. If you’re doing things right, traction often happens swiftly, and conversion naturally follows – even with relatively small budgets. Digital marketing is also ridiculously trackable – meaning you can know exactly what channels are driving traffic and yielding results. Which makes digital marketing a perfect investment for any business.  

You may think this means companies are able to spend less and get more ROI. But in fact, companies have been spending more on marketing because of the explosive potential of digital marketing channels. Check out the graph below:

For the last five years, agencies have been asked by Econsultancy.com how their clients’ marketing spend was expected to change in the upcoming year.

There’s nothing to suggest this trend will change, and 2017 marketing budgets are expected to remain consistent with 2016 levels or increase.

You can download the full report here.

How Should I Allocate My Budget Across Marketing Channels?

The next question to answer is how to allocate marketing budgets across channels – offline and online – and how to spread the online investment across the various online/digital channels.

Another report from Forrester Research shows the estimated allocation of marketing funds offline vs. online as well as across the digital channels.

Here are some relevant conclusions:

  • In 2016, the average company was expected to allocate 30% of their marketing budget to online channels. And this is expected to grow to 35% by 2019
  • Search engine marketing (SEO and paid search – PPC – advertising) will carry the largest share of online spend with online display ads such as banner ads, online video ads, etc. taking the second largest share.
  • Social media related investments will continue to grow, but will only represent about 15% of the total online spend.
  • Mobile marketing has grown to a point that it is a presumed vital and standard across all channels. Because of this, it is no longer tracked.

For Comparison, here are some conclusions from the 2014 report:

  • 29% of marketing budgets were put into digital channels
  • Search engine marketing (SEO & SEM) captured the largest share of online spend at 47% or about 14% of the company’s total marketing budget on average.
  • Online display advertising (banner ads, remarketing & retargeting) captured the next biggest share of the online spend at about 34% of total online spend, or about 10% of the total marketing budget.
  • Social media investments were estimated at 6% of total online spend and less than 2% of the total marketing budget.
  • Mobile specific marketing garnered about 10% of the total digital marketing budget and slightly less than 3% of the total marketing budget.

The chart below shows significant increases in digital marketing investments. There were five primary digital tactics in the report, and each expected to see at least a 42% increase in investment – which is huge!

Conversely, traditional marketing channels are experiencing significant decreases. While these are only averages, and shouldn’t be taken as standard in every market or industry: Print, radio, and television were expected to see a net decrease in total investment.

How you ultimately decide to allocate your marketing budget should be driven by the nature of the business, the competitive atmosphere and how your buying audience behaves through their buying journey.

What Percent of My Revenue Should I Allocate to My Digital Marketing Budget?

The age-old wisdom here is 8-10% into marketing in general. And depending on your resources, competitive atmosphere, and geographic scope, I might agree. But I realize to some, this simply isn’t realistic. But the truth is, I’ve seen well prioritized and hard working 2-5% out-perform a lazy and poorly implemented 8-10% time and time again.

Here are some things to consider when determining whether you need to be in that 8-10% range, or if you could be effective with less:

Will you be Advertising online?

Advertising your business on networks like Google Adwords, Facebook for Business, and others is great. It fosters brand awareness and generates leads. When done right, it almost always provides a return-on-investment that is 100% trackable. There’s just one problem – it can also get pricey.

If you’re a B2B organization, you can be dangerous with smaller advertising budgets (2-5%), because you have a sales team to generate leads.  

On the flip side, If you’re a B2C business, you should consider focusing more priority on consumer ads to generate potential customers.

Are you Maintaining Your Brand or Building One?

Talk to any branding, marketing, or PR expert and they’ll tell you the same thing. Maintaining a brand is less expensive than building one.

If you have an established brand already, a corporate identity you’re proud of, a website that is easy for your customers to use, marketing collateral, and tools in place such as analytics; it will be much easier to put a marketing plan together and thus, choose to invest less in your digital marketing budget. If you still have to create (or recreate) any of the basics, you’ll probably want to allocate a bit more.

Think about How Much Growth You Want to Have.

This is one of the most common struggles for any small business. Why wouldn’t I want to grow a ton? But the fact is, each time you grow, your business needs new resources to manage the growth. This leaves many businesses not ready for growth, adopting resources (employees, equipment, tools….marketing) to react to it. But when that sudden growth take a break, these businesses are left with resources they can’t sustain. Because of that, the pace you grow should be strategic and intentional.

Ask yourself how much you’re looking to grow. If you’re in maintenance or moderate growth mode, you might be able to get away with a 2% marketing budget. On the other side, if you’re projecting a record year, you should plan on investing in marketing to make that happen.

Overall Marketing Budget vs Online Marketing Budget

First of all, the use of “vs” makes it seem as though these two things are different and even at odds. But a good marketing mix should include multiple marketing mediums, including print, media, and yes – digital. Being a digital marketer, I’m understandably biased toward digital. But I have my reasons.

Digital marketing is 100% trackable. From when that customer first sees your ad on Facebook to when they purchase something on your website, we have tools to track each step on their buyer’s journey. Something like a media buy (billboard, magazine ad, radio) can offer you volumes of people who may or may not have seen it, but they can’t tell you how many people went to your website. Or how many of those chose to become a customer.

The trackability of digital marketing can provide you with powerful insights that can help you make intelligent business decisions. For this reason, it also tends to be easier to see ROI. Also, for this reason, if you’re one of those businesses who isn’t sure where to start, we would recommend you start with digital.

SUMMARY

You may be saying: this is all well and good, but how do I figure out what areas to focus on? Digital marketing is pretty technical – can I do any of this myself? What should I hire professionals for? Well, in the next article in our series on digital marketing budgets, we’ll be exploring the answers to these questions and more. It will be our most in-depth guide yet and I promise, it will help you get specific about your goals and digital marketing tactics to achieve them.

Still feeling overwhelmed? Is reading a guide not your thing? We completely get it. If you’re ready to move forward with your digital marketing budget, but having trouble taking the first step, let’s chat. We can walk you through the process together, and even make custom recommendations for your business – no obligation whatsoever.