Digital marketing is essential for modern-day business success. In 2020, the average daily time spent consuming digital media in the United States was 470 minutes.
That number jumped to 489 minutes in 2022 and is expected to rise above 500 minutes by 2023. Businesses are recognizing this shift and rising to meet the challenge, with analysts predicting internet advertising spend to reach the $200 billion USD threshold in 2025.
These numbers paint a clear picture: digital marketing is table stakes in today’s business world. Rather than assessing if digital marketing is right for your company, we’ll dive into essential allocation strategies for managing your budget effectively.
We’ll also highlight typical spend figures and tips on how to make the most of your budget.
How much should you spend on marketing
The scope of digital marketing can be vast. It can include multiple channels (blogs, video marketing, PPC, social media, emails, etc.), team salaries, production costs, CRM adoption, and more. A seemingly generous budget can quickly be diluted.
Start by identifying all required expenses when planning your digital marketing budget. Of course, every business is different, so there’s no one-size-fits-all approach. Your industry, company size, location, and history are all factors to consider.
For instance, startups and businesses under five years old may need to spend 12-20% of their revenue, while more established companies need to spend 6-12% of revenue to yield similar results.
According to the CMO Survey, the average business spends 9.5% of revenue on marketing (online and offline). When planning a marketing budget, annual business objectives should be reviewed at the outset.
Is the business on a high-growth trajectory or looking to steal market share from competitors? If so, investing a more significant percentage of revenue may be necessary to achieve these goals.
It’s also important to review and analyze previous results. What’s your current customer acquisition cost (CAC), and can you reduce it? Where is your revenue increase (or decrease) coming from — existing customers or new business?
This data is key to breaking down the overall budget by individual channels.
Marketing budget breakdown
Content marketing
According to HubSpot, companies spend 46% of their marketing budgets on content creation. This includes strategic planning, organic SEO, resource allocation, writing, editing, reviewing, and publishing.
Content creation covers a range of content types and should be supported by a strong search-engine-optimization (SEO) strategy. Even if hiring a freelance writer or bringing on in-house writing support, your team still needs to strategize, edit, design, and publish each piece — not to mention manage the partnership.
Businesses with more conservative budgets may do this relatively inexpensively, but each activity in the content creation lifecycle needs to be addressed in the budget — the most substantial being a content marketing strategy.
Without a strategic footing, content is unlikely to produce results or aid in reaching annual company goals.
Video marketing
Video marketing is an increasingly popular and lucrative way to reach customers. As your company scales, allocate funds to build a presence on YouTube and Facebook or Instagram Live.
In-house video marketers earn an average salary of $62,150, and you’ll need to factor in production equipment such as mics, cameras, lighting equipment — and potentially even a studio.
Travel costs, post-production editing software like Premiere, and hosting software will also need to feature in your digital marketing budget. Another option is outsourcing, which can eliminate equipment expenses but can cost a minimum of $1,200 for a good-quality video.
CRM tools
Customer Relationship Management (CRM) tools can considerably improve interactions with current clients, the ability to reach new audiences, and make website management easier.
Despite being a crucial element to business, many companies encounter CRM adoption challenges and struggle to get team members to embrace the technology.
If you can boost your CRM adoption rate, you’ll gain valuable insights to help produce more effective digital marketing activities.
How much budget do you need for CRM tools? Some start at a free tier, while others begin at tens of thousands of dollars per month. The more users, contacts, and features the tool offers, the higher the cost.
HubSpot is an all-in-one solution encompassing CRM, CMS, and marketing automation requirements. Not only does it remove the need for multiple software expenses, it features unparalleled tools to reach new audiences and retain existing customers.
To get the most out of the budget you spend on HubSpot, consider exploring a HubSpot Consulting relationship with a trusted consultative partner.
Paid search
Pay-per-click (PPC) advertising is central to many digital marketing plans. According to WordStream, the average small business using Google Ads spends $9,000-$10,000 monthly on online ad campaigns.
If you aim to secure a certain number of website visitors or contacts each month, you can review your clickthrough rates to determine your cost-per-click. From there, you can work out a dollar figure to budget for this expense.
Paid social
Social media ad campaigns are now more popular than paid search ads, with organizations spending $137 billion annually.
And it’s unsurprising when you consider the sheer volume of potential customers using channels like Facebook, LinkedIn, and Instagram. On average, a business will spend $200-$350 on social media ads per day ($4,000-$7,000 per month).
When allocating funds to your social media ad campaigns, make sure you find the most fruitful channels for your customer base. You may also consider setting part of your social media budget aside for influencer campaigns.
Creating an effective digital marketing budget
1. Document the sales cycle
A sales cycle or funnel is the process your prospective customer goes through before buying from you.
You need to understand the steps in your sales cycle before budgeting for your digital marketing needs. Boost every sales cycle stage with a good marketing strategy to convince potential clients to buy from you and become regulars.
Setting up your sales cycle gives you a clear idea of where you’ll spend your marketing money and how you need to spend it to get a good return on investment.
Your sales funnel should have the following four main stages with examples of the digital marketing material you should use.
For example, Basecamp’s sales funnel features customer testimonials prominently at the decision stage. These help to earn their prospective customers’ trust and spur them to the next level.
You need marketing strategies that help your prospective customers move to the next stage. You can use PPC ads (combined with personalized landing pages for each user), social media ads, email, and video marketing strategies.
2. Identify your costs
When making your digital marketing budget, you should consider other aspects of your business that require your financial input. Depending on your figures, consider the amount you’re willing to spend on your marketing budget and how sustainable it is.
You also need to understand how much it costs to implement every marketing strategy you make for your business. Creating a marketing strategy is one thing; making it work for you requires more than financial input.
Here are some factors your budget manager should consider when making your digital marketing budget.
Cost of hiring people (salaries, benefits, non-monetary needs). For example, you may need to hire an SEO specialist to build you content. According to payscale.com, the average salary for an SEO specialist is $48,216 per year.
Digital marketing campaign costs. According to expertmarket.com, a social media campaign should cost between $4000-$7000.
Miscellaneous costs.
3. Establish your goals
According to CoSchedule, marketers who set clear goals for their businesses are successful in their marketing ventures. Having clear goals for the year helps you prioritize and have an organized budget.
The first step towards establishing your goals is understanding why you’re in business. Remind yourself why you started your business and what you hope to achieve.
You could need a digital marketing budget to create brand awareness, boost content marketing, generate more leads, maximize your ROI, boost your sales or gain more subscribers. Whatever your reason, be sure that you have it in mind when preparing your budget.
Having specific SMART goals in marketing will help you articulate your budget. It’ll help you focus on the areas that need more attention and help you decide which areas you need to remove from your budget.
You also need to identify a market for your brand. Assess your products or services, and compare them to your competitors’.
4. Review your options
There are so many digital products your business could use to market its products. However, you can’t apply all of them blindly and assume that they’ll promote your brand effectively. You need to assess the available options and decide which ones work best for your business.
Understand your business objectives and choose the options that help you meet them. For instance, if you’re selling gym equipment for men, your target market is men. Find out which digital marketing solutions appeal to your audience and capitalize on them.
After picking the strategies most appropriate for your business, understand how much each strategy will cost you. Based on the price tag of each strategy and its appropriateness for your audience, you can allocate your budget.
5. Review your past results
The only way to a bright future in digital marketing is to assess your past and improve it. Assess the strategies you have used in the past and their performance with budgeting tools, then decide if they’re still viable for your business.
The channels that worked for you in the past are more likely to work for you now. They’ve already proven their effectiveness. You should give them priority when allocating your budget.
If you identify strategies that failed you in the past and still believe they could help your business, study what made them fail. If you choose to keep them, allocate some money to them. However, if you’ve used these strategies repeatedly with no success, it’s time to drop them.
For instance, if you’ve used social media marketing for months and still don’t have a good ROI, you need to reassess your social media strategy and see why it isn’t effective in generating leads.
The ROI attached to each channel and strategy you’ve used in the past is the pass mark you should consider when deciding which ones to keep and which ones to drop.
6. Allocate your budget
The US Small Business Administration recommends that businesses use 7-8% of their net profit if they’re making at least $5 million in a year. Your marketing spend should be anywhere between 7-10% of your net profit, depending on how much you make.
After settling for all the strategies you’ll be using, allocate some money to each. Give priority to strategies that have worked in the past. Allocate the least revenue to the strategies you’ve tried and failed in the past.
You should follow the 70-20-10 rule when allocating money to your strategies. 70% of your budget should go to strategies that work for you.
Spend 20% of your budget on the new strategies you’re introducing to your business. You may spend the remaining 10% of your digital marketing budget
How to more effectively manage marketing budget
Digital marketing encompasses many activities and budgeting for it is nuanced. Regardless of how large or small your company’s budget is, the following can help you get the most out of your digital marketing:
Allocate a portion to existing clients
Not only is customer retention beneficial to a company’s reputation, it also costs five times more to onboard a new customer than to keep an existing one.
By investing time and resources into an exceptional customer experience, you’ll reduce your customer churn rate.
Common digital marketing retention activities include customer communications, “Delight” stage content, and support to encourage more repeat business that allows your company to scale.
Make decisions based on data
Rather than make guesses about how and where to spend money, consult the data. Analyze it closely, as expenses that seem steep at first glance, may yield a high ROI. Unless you take the time to look at it, you may miss these critical insights.
Platforms like Facebook automatically drive more traffic to a company’s best-performing ad for increased ROI. While this is a welcome feature, it’s important to review active ads daily.
Ensure the pre-set budget is being adhered to and that desired goals are being met. If it isn’t and they aren’t, you can pivot quickly to minimize negative impacts on the business.
Hold your team accountable
Marketing is a creative, fluid process. A small idea can sprout into a massive undertaking that requires extensive budget to execute.
While creativity should be an integral part of the marketing process, team members need to be kept in-check to ensure ideas don’t turn into budget-killers.
Be sure to share the approved budget and logic behind it with team members. Provide ample time to field and answer questions so complete clarity is achieved.
Whoever is tasked with managing the budget once it’s approved should be checking actual spend versus the budget on a regular basis.
