How much should your budget be for digital marketing? Learn the rules and models!

[Digital] Marketing Budget

The issue of budget for digital marketing is crucial for every business.

There are various rules, theories, and models that you can use to determine the appropriate budget for your business.

Let's look at some of the most common, simple and effective ways:

1. Percentage of revenue:

Small and new businesses: It is usually recommended to spend 7-8%

of their marketing revenue.

Established businesses: They typically spend 5-6% of their revenue on marketing.

Example: A business with annual revenue of €1,000,000 decides to invest 7% of its revenue in marketing. The marketing budget will be €70,000.

2. Objective and Task Model:

Define your marketing goals.

Calculate the actions and tactics needed to achieve these goals.

Cost every action and tactic.

The sum of these cost estimates constitutes the total budget.

Example: A business sets a goal to increase sales by 20%

within the year.

After a study conducted by the company, it concluded that in order to achieve this goal, actions such as Google ads (€10,000), social media ads (€15,000), email marketing (€5,000) and content production (€10,000) are required. The total budget will be €40,000.

3. Competition Analysis:

Study the budget your competitors spend on

marketing.

Try to spend similar or larger amounts if you want to gain market share.

Example: A business discovers that its main competitors spend an average of €50,000 per year on marketing. To remain competitive, it decides to invest €50,000 in marketing as well.

4. ROI (Return on Investment) Model:

Calculate how much each euro you invest in marketing returns.

Adjust your budget based on how effective your actions are and how much you wish to increase your return on investment.

Example: A business wants to achieve a 5:1 ROI on its marketing spend. This means that for every €1 spent, it must earn €5. If it wants to earn €500,000 from marketing, it must invest €100,000.

5. Zero-based Budgeting:

Start from scratch and justify every expense you propose to make.

This model helps identify unnecessary spending and focus on high-value actions.

Example: A business starts with zero budget and proposes expenses for each action, such as €5,000 for SEO, €10,000 for PPC ads, €5,000 for social media advertising, €3,000 for email marketing, and €2,000 for content creation. The total budget would be €25,000, with justified expenses for each action.

6. Model 70-20-10:

70%: Invest in tried and tested tactics.

20%: Spend on new strategies that are in the testing stage.

10%: Experiment with innovative and radical ideas.

Example: A company has a total budget of €100,000 for

marketing.

€70,000 (70%) invested in proven tactics such as PPC

advertising and SEO.

€20,000 (20%) is spent on new strategies such as partnerships with

influencers.

€10,000 (10%) experiment with innovative ideas such as augmented reality ads.

Some more specialized models for Digital Marketing are:

1. CPA cost per acquisition

This model focuses on how much it costs to acquire a

new customer.

If you know how much it costs on average to acquire a customer and how many new customers you want to acquire, you can calculate the necessary budget.

Example: A business knows that the average cost of acquiring a new customer is €50. If the business wants to acquire 1,000 new customers within the year, it can calculate the necessary budget:

CPA: 50€

New customers: 1,000

Total budget = CPA x New customers = €50 x 1,000 = €50,000

2. Return on Advertisement Spend (ROAS):

This approach focuses on return on investment. You set a goal for your marketing performance and budget accordingly. For example, if you are aiming for a 5:1 ROI, for every $1 you spend, you need to earn $5.

Example: A business sets a goal of having a 5:1 return on its advertising spend. This means that for every €1 spent,

must earn €5. If the business wants to earn a total of €500,000 from its advertising campaigns, it can calculate the necessary budget:

Revenue target: €500,000 ROAS: 5:1

Required budget = Revenue target / ROAS = €500,000 / 5 = €100,000

3. Benchmarking:

You can look at what other businesses in your industry are spending. Many surveys and reports provide information on the average amounts that businesses spend on various areas of digital marketing.

Example: A company in the cosmetics industry looks at what other companies in the same industry are spending. It finds that on average, companies spend 10% of their annual revenue on digital marketing. If the company has an annual revenue of €2,000,000, it can calculate the necessary budget:

Average industry spending rate: 10%

Annual revenue: €2,000,000

Total budget = Annual revenue x Average percentage = €2,000,000 x 0.10 = €200,000

Choosing the appropriate model depends on the stage of your business, your goals, the industry you operate in, and your available budget.

It is important to regularly monitor the performance of your marketing actions and adjust your budget accordingly.

For more information or to discuss how we can help grow your marketing budget, don't hesitate to contact us!

At DayOne Growth Igniters we evolve the way our clients grow and we love talking about new projects.

Book a free introductory & consulting meeting today,

and come see how we can create growth

for your business from day one.