Kevin Latchford
Chief Revenue Officer
Whether your business operates on a calendar year or a fiscal year, someone needs to set your annual marketing budget. The problem is that it’s not always easy to identify just how much of your budget to allocate toward digital marketing.
Oftentimes, the digital marketing budget is a subset of a more comprehensive total marketing budget that may also include traditional marketing and advertising, events, tradeshows, and other offline marketing efforts. While digital marketing is one piece in a big accounting puzzle, that doesn’t make it any less essential for a growing business.
Ready to create a marketing budget that makes sense for your digital efforts? Below, we'll walk you step-by-step through the considerations when calculating a digital marketing budget, including ad spend, investments in any necessary software platforms, and the actual people resources you’ll need to enable your digital marketing efforts.
Step 1: Calculate an Overall Marketing Budget
You can’t establish a digital marketing budget without knowing how much you have for your overall marketing spend. You’ll need to calculate a marketing budget that accounts for all your efforts, both digital and traditional.
Of course, this situation leads to a very common question: How much should an organization allocate to marketing and advertising each year? You’ll see a lot of different numbers thrown around here. For example, the following groups each offer their own recommendations on how to calculate a marketing budget.
- The U.S. Small Business Administration recommends spending 7-8% of gross revenue on marketing and advertising for small businesses. That means for a $1 million per year business, you’re looking at $70,000-80,000 per year for marketing and advertising.
- The CMO survey found that the overall marketing budgets ranged between 6 to 14% of total revenue, with an average marketing budget of 8.6% of total revenue as of August 2021.
- Marketing event company nuphoriq recommends the “5% rule,” or allocating up to 5% of sales revenue on marketing.
Summing all of this up, it’s safe to say that it’s widely recommended that small- to mid-sized businesses allocate around 5-10% of their revenue to marketing and advertising, with potential for more if necessary.
Step 2: Determine Your Digital Marketing Budget Allocation
Once you have a total budget, it’s time to carve out just how much of that total will go to your digital marketing efforts. The particular percentage that is allocated to digital will depend on several factors:
- Is your audience engaged online? (hint: they are)
- Are you able to effectively reach your audience online? (hint: you are)
- How much of your budget do you need to allocate to essential marketing efforts (tradeshows, events, direct mail campaigns, etc.)
- Is your business B2B, B2C, e-commerce, physical location(s), or a distribution network? (essentially, how do your customers interact with you?)
While each business may vary, one thing is certain – the average digital marketing budget allocation is growing over time. According to Hook Agency, the digital and online efforts were expected to account for an average of 45% of marketing spend in 2020. Gartner’s 2022 CMO Spend Survey raises that number considerably, with 72.2% of marketing investment going to digital channels.
While these numbers don’t necessarily mean that you need to spend nearly three quarters of your marketing budget on digital efforts, they are a clear sign that businesses should examine their online needs. If you’re wondering if moving from traditional marketing methods to digital marketing methods is right for you, check out our article on Shifting from Traditional Marketing to Digital Marketing.
Step 3: Determine Your Digital Marketing Budget Breakdown
It’s not hard to understand that digital marketing is crucial for growing your business, but it’s not always apparent how to budget for digital marketing efforts specifically. To set your digital marketing budget, you’ll need to identify which online efforts will help you achieve your online goals and allocate parts of your budget appropriately.
So which services do you need to consider for your budget? Your exact campaign can change based on your goals and needs, but can involve everything from content creation to Google and social media ads.
Workforce costs
Good digital marketing starts with good work. Of course, you need to have people in place to do the work necessary to grow your online presence and complete your goals. As such, you’ll need to allocate a good part of your budget toward resources to accomplish the following:
- Marketing strategy
- Content creation
- Social media marketing
- Email marketing
- Paid ads
The exact amount of money you’ll need to allocate toward workforce costs can vary greatly depending on your approach. If you hire a full team of marketers, you’ll need to account for annual salaries, benefits, and any other costs associated with employing the individuals necessary to run your digital campaigns.
In most cases, the salary of any internal marketing employees won’t be included in the overall marketing budget. Regardless, your organization will need people to develop and oversee your digital marketing strategy, implement and monitor your efforts, and report ongoing results. This will typically fall into one of three classifications:
- Internal Digital Marketing Team - Organizations that are dedicated to digital marketing may opt to hire in-house talent who can closely translate the organization’s objectives into a digital marketing strategy that they themselves also implement and track.
- Digital Marketing Agency Partnership or Freelancers - Many small- to mid-sized businesses will partner with a digital marketing agency to take advantage of having a team of experts with wide industry experience and digital marketing skillsets.
- A Combination of Both - Oftentimes, an organization will have a strong marketing leader internally (such as a Marketing Director), but will partner with a digital marketing agency to implement the digital side of the marketing strategy without taking on the additional costs of salaries, benefits, and more.
Ad spend
Digital Advertising is one of the most effective marketing methods due to its ability to yield quick results, precise targeting, and clear reporting and analytics.
Just as you may have line items in your marketing budget for print ads and radio ads (maybe not so much anymore), if you’re running digital marketing ad campaigns you’ll want to budget accordingly. Here are some recommendations in reaching the right numbers here:
- How many channels will you be advertising on - As a rule of thumb, we typically recommend a minimum ad spend of $1,000 per month per channel (for example, Facebook or Google Ads). Some small businesses can get by with smaller budgets, but this minimum investment allows organizations to collect a sufficient amount of data and reach a large enough audience.
- How expensive are impressions, clicks, or leads - Depending on your campaign goal, you’ll likely be paying by one of these “pay per” models. While each ad platform has its own average costs, some keywords and/or audiences are naturally more expensive. For example, in Google Ads search advertising, keywords around health care or health insurance can be extremely expensive, reaching upwards of $40-50 per click (or more!). Likewise, very small, targeted audiences in some platforms may cost more because of how specific the audience is, therefore making it more valuable to advertisers.
- Goals - Simply put, generating 100 leads with a $200 per month budget in any platform will be challenging. It’s important to set clear, reasonable expectations. Work with a partner to understand per click or per lead costs, pair that with your goals (whether it be visitors, leads, sales, or other), and set the budget accordingly.
Tools, software, and other investments
These days, marketers have a bevy of software and tools for just about every aspect of digital marketing. Social media management tools, email marketing platforms, SEO performance tracking – you get the picture. All these tools are incredibly helpful for digital marketing. There's just one problem – they can be expensive.
While a variety of these supporting tools and platforms will likely find their way into your overall marketing budget, it’s important to evaluate what is essential to running an effective digital marketing program. You'll also need to consider which approach you want to take and how it will impact your budget.
The “All-In-One” Approach
For some organizations, an investment in marketing technology means investing in one platform that can meet most of their needs. There are certainly some good platforms out there, but for as many good platforms as there are, there are just as many (probably more) that are jacks-of-all-trades, but masters-of-none.
The Pros - When you go with an all-in-one marketing platform, for example, Hubspot, the obvious upside is having many tools within one platform. (Note: We’re not a Hubspot partner, so we have no skin in the game here, but we do help organizations evaluate the right platform for them.) A platform like Hubspot includes tools for content creation, landing pages, email marketing, and marketing automation.
The Cons - The biggest downside to the all-in-one approach is the price tag. Most of the larger platforms (Hubspot, Salesforce Marketing Cloud, etc.) start at a minimum of around $10,000 per year and quickly scale up to well over $40,000 per year. There also tends to be a greater learning curve with larger platforms. A platform like Hubspot can be pretty user friendly, but these tools typically require at least one internal power user who can dedicate time to training and supporting the organization internally.
The “a La Carte” Approach
Rather than investing in an all-in-one platform, some organizations opt to pick and choose one or a few individual digital marketing platforms that fit their needs.
The Pros - This approach tends to be more cost-effective. Rather than spending tens-of-thousands of dollars per year on one platform, individual platforms are usually in the double to triple digits per month (i.e. $39/month or $159/month). Another advantage is that these platforms serve a more specific purpose. While an all-in-one platform may have a tool for posting on social media or researching keywords, dedicated platforms that are leaders in their niche tend to perform better at that specific task.
The Cons - The potential of having multiple platforms that don’t necessarily integrate and that all require training and education can certainly be disadvantages. For enterprise-level businesses, having a full-suite of niche digital marketing software may work well, but for most small- to mid-sized businesses, once you get past a handful of digital marketing tools, it may become more of a cost and resource burden.
The “Digital Marketing Agency Access” Approach
As mentioned above, two of the major challenges businesses and marketers have with investing in digital marketing software is cost and training. One of the benefits of working with an agency like Aztek is that we’ve invested in a vetted suite of digital marketing tools that we use for and with our clients. As such, your organization only has to account for the agency costs instead of tacking on multiple tools to your budget.
Rather than organizations double-dipping on spending the money on these platforms and spending the time learning them, working with an agency can mean avoiding costly software investments while still reaping the benefits. This type of relationship gives you the opportunity to work with a team of experts that knows how to take full advantage of each platform.
Putting the Right Digital Marketing Budget Together for Your Business
Once you consider all the costs that go into a digital marketing budget, you’ll have a clearer picture of how these come together and how you need to balance them.
You can certainly use one of the many digital marketing budget calculators out there as a starting point, but don’t forget that your business is unique. Online marketing isn’t a one-size-fits-all type of endeavor. Think about the following things when deciding which approach best fits your organization:
- Salary and benefits for digital marketing specialists or generalists vs. agency fees
- Ability to train internal employees vs. leveraging experience and expertise
- Software costs (mentioned above)
If you need help establishing a digital marketing budget, or want to get a sense of the costs of working with an agency like Aztek, we can help. Reach out to us and we’ll start a conversation about how we can help you grow your business!
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