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How to Calculate and Set a Digital Marketing Budget

How to Calculate and Set a Digital Marketing Budget

Whether your business operates on a calendar year or a fiscal year, someone is likely responsible for setting the annual marketing budget. Even if that figure is loose or based on the previous year, business owners and marketing leaders typically need to start somewhere.

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.

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.

Calculating Overall Marketing Budget

The first and most 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 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 Gartner CMO survey showed that as recently as August of 2019, CMO's stated that their marketing expenses accounted for about 9.8% of their firm’s revenue.

Finally, 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.

Percentage of Marketing Budget Spent on Digital

The percentage of your overall marketing budget that is allocated to digital is going to depend on a number of 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? (there are certainly more options here, but the idea is to consider how your customers interact with you)

According to Hook Agency, the digital/online part of marketing budgets is expected to be up from 42% in 2019 to around 45% on average by 2020.

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.

Digital Marketing

Calculating Digital Marketing 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.

Digital Marketing Software

Investing in Digital Marketing Software and Platforms

Let’s face it - for marketers these days, there is a bevy of software and tools for just about every aspect of digital marketing. Social media, email marketing, search engine optimization, lead generation, landing page creation - you get the picture. While these will likely find their way into the overall marketing budget, it’s important to be able to evaluate which software is essential to running effective digital marketing programs.

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, etc.

The Cons - The biggest downside to the all-in-one approach is the price tag. Most of the larger platforms (Hubspot, Marketo, 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.

Leveraging a Digital Marketing Agency for Software Access

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.

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 and the opportunity to work with a team of experts that knows how to take full advantage of each platform.

Digital Marketing Employees

The Cost of Digital Marketing “People” Resources

In most cases, the salary of any internal marketing employees won’t be included in the overall marketing budget. Using certain accounting methods, salaries are allocated to specific departments or functions.

In-House Team, Digital Marketing Agency, or Both?

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 - 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.

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)

We put together a helpful blog post on Is it Better to Hire In-House or Outsource Digital Marketing?

Putting It All Together

Once you consider all of 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.

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, reach out to us and we’ll start a conversation!

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