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Wed Mar 27 2019

How much can you afford to spend on your digital marketing?

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As we approach the end of this financial year, we start looking ahead to new plans and budgets. So, in setting your new budget, how much should your digital marketing budget be?

It all starts with your objectives and goals

You can’t just blindly assign a budget to digital marketing without an understanding of the strategy and what you’re trying to achieve in the new year. This will be based on a combination of evaluating previous digital marketing strategies (what worked well and what didn’t), and what your business is trying to achieve more broadly.

  • Are you seeking to grow brand awareness?
  • Are you looking to increase leads for a service-based business?
  • Are you looking to grow eCommerce sales?

Knowing what has worked in the past and what the business objectives are, you can understand how your digital marketing efforts will support the business and what campaigns you’ll need to put in place to meet the business goals. This forms your marketing objectives, which should then be used to set your digital marketing goals for the year and to prioritise these goals.

What about industry trends?

Are your competitors now outranking you on search? Are they updating the look of their website? Have they started a blog? Keeping an eye on competitor’s strategies can help you identify your own digital marketing opportunities and identify what you might need to do to not get left behind. This will help inform your budget for the new year.

You may also find ballpark figures on industry spend on digital marketing. Depending on what you read, you’ll see that industry trends suggest that businesses spend between 5-15% of their total revenue on digital marketing. This will obviously vary by industry and business size.

Remember, what works best for everyone else might not work for you (and vice versa)

A digital marketing budget will normally be split among SEO, PPC, social media, and content marketing activities. When considering how your budget will be split among the areas, consider the activities that have performed well for you in the past. These might be different from your competitors. Others might be running social media campaigns, but you may have tried this previously and found that search ads perform better according to your objectives. These need to be tracked to a conversion to determine which channel is best to continue spending effort, removing from the marketing mix, or increasing effort.

Don’t lose sight of any of your operational costs!

When planning your digital marketing budget, make sure you are correctly accounting for all your expenses, so you know what the mark-up is on the products that you’re selling and how much you can spend on their marketing. Once a customer purchases a product on your website or contacts your service-based business, what needs to be done to complete the sale? This includes the cost of:

  • Picking & packing
  • Shipping
  • Increased accounts receivable costs
  • Average return & refund rate
  • Increased staffing costs in service-based businesses to service new clients
  • Onboarding new clients in a service-based business

The costs stack up quite quickly, and without these in mind at the beginning, a successful campaign on the surface may not be as profitable as you think. On the other hand, running these numbers may show it is far more profitable than originally thought. In short, knowing your numbers is a good thing.

Are you running separate campaigns for your products?

Mark-up values will fluctuate across the products and services your business sell. Some production costs will vary, and other costs will be the same across your product line.

Consider Product A selling for $50 and Product B selling for $500.

Product A costs $20 to produce, and Product B costs $200. But an additional $20 of overhead and shipping costs are the same for both products (excluding marketing costs).

In dollars, Product A’s mark-up value is $10, compared with Product B’s $180.

At a product level, the figures would suggest that more could be spent on marketing Product B. This would not risk a profit margin and could increase sales of Product B.

Likewise, in a service-based business. Depending on the service you are selling or surrounding costs of a service, the profit margins may vary. Costs of selling a standard service may be able to be performed successfully by a less experienced employee. However, a more advanced intricate service which is performed by a less experienced employee may need a senior employee to oversee it or have third-party costs. Knowing the overall costs even in a service-based business can help inform where to allocate marketing efforts.

Assign some budget for testing new things

In planning your budget for your digital marketing activities, set some money aside for testing new strategies. This might be A/B testing the conversion rate of a landing page or running a new search or social campaign testing a new audience segment.

This does not have to involve trying a radical new strategy emerging as an industry trend. Tests could largely be based on past performance – taking measured risks to look at building on the success of a previous campaign, or to boost a current campaign that could be performing better.

Need help aligning your digital marketing activities with your goals, or maximising the return on your digital marketing budget? We’d love to help!

Get in touch

We’d love to hear about your digital requirements. Even if you don’t quite know what you need, get in touch as we can help formulate a whole digital strategy to meet your business objectives.

Contact us

Level 16, 459 Collins Street, Melbourne, VIC 3000

03 9090 7070

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