Ask this question in a room full of marketers and you’ll be met with mumbles and muttering, until someone finally says “well, that depends.” And it really does depend on a number of factors, including:
a) who you are asking, and
b) what you hope to achieve
Some will say you should spend as much as you can afford. Others will tell you to spend as little as possible without sacrificing results.
With effective marketing campaigns in place, the more you spend, the more you stand to make. But it’s very easy to throw good money after bad campaigns. If your campaigns aren’t performing, you’re not setting a marketing budget, you’re deciding how much you’re willing to lose every month.
So, how much should you spend on digital marketing?
First of all, you need to decide on your marketing budget as a whole. This will include online and offline activities. For an eCommerce startup, the budget allocated to offline activities will be negligible and perhaps even non-existent. But for a dentist or law firm, offline marketing will be more significant to your business.
The good news for digital marketing managers and planners is that digital marketing spend is easily traced. So you can quickly determine your return on investment, and this will help you determine if your marketing activities are having the desired effect.
How much should a business spend on marketing?
Every marketing budget should be unique to your business and reviewed regularly. You will need to think about the following factors when setting your budget.
Company revenue
When setting your marketing budget, consider these industry benchmarks:
- In 2019-2020, UK companies put an average of 9.3% of overall company revenue towards marketing. This is down from 11.4% the previous year.
- Digital marketing budgets account for around 45-50% of overall marketing budgets.
- Social media ads make up around 25% of the digital marketing budget.
Already we can see that a digital marketing budget needs to be far more detailed. You need to know how much you are planning to invest in every single platform and activity.
Industry averages
If you’re looking to get even more granular, you could then look at industry-specific averages to help you to determine where you stand.
According to this survey, retail spends the most on advertising, with 21.9% of revenue going back into advertising, while entertainment is one of the cheapest sectors, putting just 5.1% of revenue back into advertising.
Competitor activity
It’s not only industry averages that will help to determine your budget. You should also keep a close eye on what your competitors are up to.
Tools like SpyFu will help you to get a sneaky peek into your competitor’s PPC campaigns and how much they are spending.
Review this regularly, as you might not be aware of new competitors making their way into your sector.
Company age
A young startup will need to invest a higher percentage of their revenue into marketing than a more established company. This is simply because a new company will need to invest more time and resources into building brand awareness, building your website authority and educating your customers. Also, the shiny new company will have smaller revenue streams. You might need to invest a higher percentage of your revenue to achieve the same results as an established company with higher revenue.
Some experts say that for the first five years of business, around 12-20% of your revenue should be reinvested into marketing spend. After five years, this can drop to 6-12%. Hopefully, your revenue will increase over this time.
Company revenue goals
If you want to increase your company revenue by £100,000 and you know that 50% of all sales come from digital marketing activities, then you’ve narrowed down your goal ever further to £50,000 in sales.
You can break this down further by looking at marketing activity for different channels, including paid search, social media and SEO.
And once you know the ROI of each channel, you can determine how much you need to spend in each area to reach your income goals.
For example, if 12.5% of your revenue comes from social media, where you have achieved an ROI of £2.50, you would need to spend £5,000 to achieve £12,500 on social media.
This is where digital marketing attribution comes in handy. When you know your return on investment or your cost per acquisition, you can assign marketing spend accordingly.
How to calculate marketing spend
Web Strategies offers this excellent tool for calculating your 2021 digital marketing budget. The spreadsheet pulls averages from a range of sectors to give you an idea of how much other companies in your sector are putting towards digital.
How often should I review marketing spend?
- Review marketing budgets daily or weekly to ensure everything is on budget. A mistake in your PPC campaigns could blow your entire budget for the month in a single day. Regular monitoring should help to avoid this.
- At the end of each month, review the results to determine if you’re getting the results you expected. You wouldn’t typically adjust your budgets on a month-by-month basis, but it’s helpful to understand the impact your marketing spend has on your sales and conversions.
- At the end of each quarter, revisit your budgets. Look at wider market trends and respond to seasonal demand.
- At the end of each year, review performance, prepare projections and plot your marketing spend for the year ahead. It’s ok to be optimistic at the start of the year and scale back, as long as you keep an eye on your ROI or CPA and ensure you’re always making healthy returns.
Need help with your marketing budgets? I can help with everything from strategy to implementation. Get in touch today for a virtual consultation – I’ll put the kettle on!
