how-to-set-a-digital-marketing-budget

How to set a Digital Marketing Budget

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 A common question asked by businesses is “how much money goes into digital marketing?”

With many ways to spend your revenue, setting a digital marketing budget can be a stress for brands and business owners.

 

As a business owner, should you budget more or less for marketing? Does a high budget guarantee the most result? What are some of the factors that determine how much you should budget?

 

Here’s the twist – if you under-allocate a high performing channel like Facebook, you’ll miss out on important opportunities. If you over-allocate to the low performing, you’ll end up wasting money as they don’t provide qualified results.

 

Without a budget in place, you can overspend on marketing costs.

 

Without a budget in place, you can overspend on marketing costs. Click To Tweet

 

With this in mind, how can you as a business owner avoid overspending or under-spending?

 

In this blog, I’ll share with you how to go about setting your digital marketing budget.

 

But first, what is digital marketing budget?

This is the amount of money set aside to spend on all marketing activities. It includes content marketing, website design, social media, paid search, email marketing and more.

 

Benefits of setting a marketing budget

 

Is setting a marketing budget all about sitting down with your team and coming up with an amount to invest in different marketing platforms?

 

Does it in any way help your business? Allocating a budget for marketing helps in more ways than you can imagine. A marketing budget allows you to:

  • Measure Return on Investment (ROI)
  • Determine platforms working
  • Know how much to invest
  • Cut down cost

 

What you should do before setting a marketing budget

Before setting a budget, there are certain things you should consider. Think of them as a roadmap; something to guide your marketing strategy and activities.

They include:  

  • Setting SMART goals and relevant marketing objectives
  • Carrying out a research. This includes industry research, competitive analysis, market growth and target audience
  •  Analyse past effort – what worked well in the past?

 

How to set a marketing budget

  1.   Know your annual revenue

Before a marketing budget is set, first know your annual revenue. This is a step you don’t want to miss. Why? It determines your marketing spend.

You can’t talk about setting a budget without knowing what’s in your account. Check in with your accountant or Chief Financial Officer (CFO) to know your financial capacity.

 

If you’re unable to determine your financial strength, it’s either you’ll under-budget or over-budget. It’s hard to create a realistic marketing budget if you only have estimates of numbers in sales.

 

Is your annual revenue of 500,000 cedis or less than that? Knowing this guides you to set a more realistic budget for your marketing activities.


Let’s say you want to buy a car. It’s not advisable to set a budget without knowing how much it costs and how much you have in your account.

  1.  Set your Marketing Budget

 

Based on your annual revenue, you can proceed to set a marketing budget. The general rule of thumb says companies willing to maintain their current position should spend 5 percent of their total revenue on marketing while companies willing to grow should invest 10 percent of their total revenue on marketing.


This, of course, is dependent on some factors. Such as company size, competitive marketplace, target audience, type of product or service and annual revenue.


The magic number is often 10% of your annual revenue. This is the answer you often get whenever you ask how much you spend on marketing. But, this doesn’t apply to all companies.

 

If you compare a growing company versus a well-established brand like Coca-Cola, you might see a difference in how much go into on marketing.


According to a 2016-2017 Gartner Research study, companies spend 12% of annual revenue on total marketing. Large companies spend 13% of annual revenue compared to smaller companies who spend 10% of their annual revenue. But, much smaller companies spend 5%.


A CMO survey report revealed how marketing professionals from all types of firms will spend their budget. For business-to-business (B2B) firms, marketing budget fell within 6-7% range of firm revenue; business-to-consumer (B2C) fell around 7-9% range of firm revenue. The marketing budget as a percent of total firm budget fell within 10-11% range.

 

Figure 1.1 Marketing Budget as a percent of the firm budget

Overall 11.4%
B2B Product 10.4%
B2B Services 12.6%
B2C Product 13.4%
B2C Services 9.3%

Figure 1.2 Marketing spending as a percent of company revenues

Overall 6.9%
B2B Product 6.4%
B2B Services 6.8%
B2C Product 8.6%
B2C Services 7.3%

It’s true that 10% is the ideal number but it’s not a one-size fit all percentage.

You want to spend well to maximize your return, but you also want to make sure that you’re investing as much as practical to drive growth.

 

For example, if your company has a revenue of 10,000 cedis and you decide to put 10% of this into your total marketing campaign. Take your revenue (10,000) and multiply it by the marketing percentage (0.1). You have a total marketing budget of 1,000 cedis.

 

Total revenue x 10% = marketing budget

10,000 x 0.1 = 1,000

There you have it, 1,000 cedis will be your total marketing budget.

  1.  Allocate marketing budget across channels

When it comes to marketing channels, you have the traditional (offline) and digital (online) marketing. As a Ghanaian business owner, how do you determine marketing spend across these channels?

 

Don’t invest in only one marketing channel. Spread your budget across all channels first to see which one works best for you.

Contrary to what some people believe in, traditional marketing (Television, billboard, radio and print) hasn’t completely died although there has been a decline over the past few years.

But, how much of your marketing budget of 1,000 cedis go into traditional and digital marketing? What percentage goes into traditional and what percentage goes into digital?

If you aren’t sure, you can decide to play it safe. Divide an equal amount of both traditional and digital marketing activities. Then, once you test and measure, you can tell which platform performs better.

The graph below shows the changes in marketing budget over the period of years.

how-to-set-a-digital-marketing-budget
 
  1.  Allocate budget to Digital Marketing activities

It’s important to spend more on digital marketing activities. Why? With digital marketing, you can test your marketing efforts, track and measure how well you’re performing and how to improve. That’s the benefit of digital compared to traditional marketing.

What digital marketing activity should you go in for? This can be tricky. With the array of digital marketing activities out there, it’s hard to decide which one to invest in. Should you invest in all activities or a few?

 

A common question asked is “How do I best divide my digital marketing budget to achieve a return on investment?”

Your digital marketing activities depend on the goals you want to achieve. Do you want more email opt-ins? More prospects? Do you want to build awareness? Or you want to increase sales? Let your goals guide you into choosing the right activity and platform.

Report from Forrester Research and e-Marketer show a heavy digital marketing spend on search engine and mobile marketing. Also on paid search, social media marketing, email marketing, video advertising and content marketing.

Email marketing, organic search, social media marketing and content marketing are the most effective marketing tactics.

Digital Marketing activities include:

  •         Content marketing
  •         Social media marketing
  •         Email marketing
  •         Website development
  •         Paid Search
  • Affiliate Marketing

 

how-to-set-a-digital-marketing-budget

The figure above shows the number of respondents expected to increase their digital marketing spend. 75% expects to increase spend on Google Adwords in 2018. The second was Facebook which expects to increase by 71% marketers.

 

  1.  Time to measure

It’s important you leave room for improvement. If you’re not measuring, you’re not marketing. You can’t improve what is not measured.

 

Now you’ve allocated budget to certain offline and online marketing activities, it’s important you measure at the end of the month or quarter.

Has there been any improvement? Are you getting more conversion and engagement from traditional or digital? Which of the digital activities is performing better?

 

Let’s say social media performs better, which of the social media channels are you likely to increase marketing spend the next month?

 

It is necessary you ask these questions to know where to increase spend and reduce spending when planning your next marketing activity.

 

Invest a greater percentage of your total marketing budget to what performed better. For example, if Facebook works well for you, spend a greater percentage of your next marketing.

 

Key Takeaways

  •  Setting a marketing budget depends on some factors such as growing market share, competitive nature, annual revenue and industry.
  •  It’s okay to first put an equal amount to digital and traditional before testing to see what works better for you 
  • A greater amount of your total marketing budget goes into digital marketing 
  •  Spend more on platforms and channels that perform better
  •  Always test and measure your marketing activity

 

In conclusion, setting a digital marketing budget can be challenging; it’s no easy task. But once you know the steps involved and how much of your income you need, it all becomes easy for you.

Use the steps above to guide you into creating a marketing budget for your next marketing campaign.

 

What has been your experience so far with setting a digital marketing budget? Are there any challenges you’ve faced? Kindly share in the comment section.

 

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Judith is a content marketing manager at Sidekick Social Media and also writes for She Leads Africa. She loves to write and when not writing, she loves to listen to a long playlist of good music.

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