All brands operate with limited time and resources at their disposal. Digital marketing costs are a reflection of that reality.
With so many methods and channels accessible, firms assembling their quarterly or yearly budgets face the ongoing danger of over- or under-investing in the wrong areas. The issue becomes: “What kind of digital marketing budget does it take to stay competitive in the new landscape of always-on digital?”
As expenditures on digital advertising rise, so does competition. Oberlo forecasts worldwide digital ad expenditure will grow to $870.9 billion by 2027. For every $4 a firm spends on advertisements in 2027, $1 will go to digital ads.
How will you spend this $1 amongst social advertisements, ad spender marketing, and other channels? Striking the correct balance for marketing budget allocation is a topic on everyone’s mind. Fortunately, we’ve got answers.
How Much to Invest in Marketing
According to Gartner’s CMO Spend and Strategy Survey, marketing expenditures declined from 9.5% of total sales in 2022 to 9.1% in 2023. 75% of CMOs believe they’re being pushed to do more with less.
Because of this, 86% of marketers indicated they must make changes to their marketing function to attain “sustainable results.”
Marketing leadership isn’t the only group influenced by these developments. 86% of all marketers feel they’ll need to dramatically adjust their strategy to continue achieving outcomes.
With all this in mind, how much of your company’s income should you spend on marketing?
In truth, there’s no one proper solution here. The appropriate marketing budget relies on things like:
- Your customers.
- Your brand’s industry.
- The size of your firm.
- What high-value outcomes is your organization seeking to attain?
But you may look at benchmarks from other firms as a starting point.
According to the 2023 CMO Survey of 2,747 marketing executives, the mean marketing spend of all respondents took up 10.89% of total revenue, with a 95% confidence range around the mean of 8.79% to 12.98%. As a proportion of a company’s overall budget, the mean marketing expenditure was 12.3%.
So, do you fall on the high or low end of the spectrum? This mostly relies on your marketing objectives for the year and the maturity of your go-to-market plan. Consumer companies launching into a new category, for example, could seek a significantly more aggressive marketing spend than established competitors in a historical specialty.
Here’s a solid rule of thumb for digital marketing budget allocation:
- Budgets for aggressive/high-growth models: 12%–15% total revenue.
- Budgets for keeping competitive: 8%–11% total revenue.
- Budgets for conservative/maintaining status quo: 5%–8% total revenue.
We should clarify that these are only guidelines; they’re not set in stone. Depending on your company’s requirements and objectives, you can always go above or below the criteria.
Digital marketing budget predictions
For many organizations, the typical budget split occurs between digital and traditional marketing resource allocations. With more and more people migrating online, marketing spending is flowing progressively toward digital.
But in 2023, marketing expenditures are being slashed across the board. Nearly 70% of respondents in the CMO Survey claimed their organizations lack the money for an effective marketing plan.
As economic volatility grows, firms will face pricing interruptions in their marketing strategies. Unforeseen shocks down the road, such as changing finances and internal reorganization, might take a toll on marketing efforts. So, it’s better to prepare ahead. Companies should maintain a buffer in their budget for unforeseen surprises.
Even the inconceivable—ccutting back on IT investment in the marketing budget—iis occurring. In fact, 75% of CMOs are being ordered to slash expenditures on technology and tools to support their existing marketing initiatives.
The proportion of digital marketing expenditure in the overall marketing budget has also declined a whole percent to 55%, according to the 2023 CMO Survey.
All told, CMOs will have to do more with less today. That implies your budget allocation has to be much smarter. And budget cutbacks across the board will hurt both conventional and digital marketing investments.
Marketing spending hasn’t returned to its pre-pandemic levels. So, there’s a higher focus on efficiency and originality.
Focusing less on quantity and more on quality is the key. CMOs will also have to deal with less tech, as many organizations regard “martech” as a viable option for cost-cutting.
Solving Digital Marketing Budget Allocation
How do you judge that some channels deserve higher expenditures than others? There are several different approaches to getting this answer when you’re planning, strategizing, and budgeting for your campaign expenditures. Here are two of them.
Use the right measurement methodologies.
To understand which of your existing channels are driving customer behavior towards company objectives, consider adopting multi-touch attribution (MTA) models. MTA technologies let you understand the customer journey to conversion by utilizing many consumer touchpoints. You can also duplicate attribution across platforms and obtain an untangled picture of channel engagement.
To explicitly answer where to spend additional dollars, employ media mix modeling (MMM). With MMM, you can analyze the effect of digital and non-digital channels on company objectives, as well as identify declining ROIs for each channel. MMM may also assist you with forecast trends and budget optimization.
If you want to pinpoint the success of a new channel, you may do incremental lift studies, which discover the exact lift of marketing channels toward client acquisition or conversion. Incremental lift studies are adjustable to numerous KPIs and channels—iincluding non-digital activity—aand may help you answer the particular effect marketing initiatives have on acquiring new consumers.
These are only a few instances. However, the correct measurement approaches rely on how much data you have, your Martech stack, what measurement solutions you currently have in place, and finally, what answer(s) you’re attempting to obtain.
Understand your customers.
It goes without saying that you need to know who your consumers are, what they care about, where they spend their time, and what drives their purchase choices. Dive into your first-party data, undertake consumer research, and identify crucial patterns to gain a complete insight into potential and current customers throughout their purchase journeys. People-based marketing solutions may help you make the most of your data.
Some questions to ask to discover more about your ideal consumers include:
- Where do our consumers go to study products?
- Where do our clients go to discover answers to this issue that we can solve?
- Who do our consumers listen to? What routes do they employ to find influence?
- What function in the consumer journey does each internet channel play for this persona?
Understanding these intricacies may not only sharpen your marketing efforts but also deepen your connection with clients, establishing long-lasting relationships founded on trust and relevancy.
6 Steps to Create a Digital Marketing Budget
Digital marketing budget allocation is no small accomplishment. It must be more planned than wishful—aand more data-backed than gut instinct-based. Moreover, it should link back to corporate goals.
Here are six ways to guarantee you’re on the correct road.
1. Determine your marketing budget.
Before you set a budget for the digital side, determine your entire marketing budget. The more competitive your sector is, the larger your budget will be. Some businesses demand a hefty marketing budget by default owing to the greater cost per lead and click. Examples include enterprises in higher education, financial services, transportation and logistics, healthcare, legal services, and a variety of B2C sectors.
2. Decide on goals.
What do you want your marketing strategy to accomplish? For example, do you want to develop more credibility or produce more leads?
Your goals will ultimately define how much you spend on various channels. For example, you may consider employing SEO and content marketing methods if your objective is to optimize organic exposure and create authority. Content marketing is typically less costly than conducting sponsored advertisements and is built up over time.
But if you want quicker results, you may want to consider launching sponsored marketing campaigns. The ad spend expenditures might build up in this instance. Similarly, if you want to build customer loyalty or raise revenue, you may choose the email marketing path.
3. Get historical data.
How effectively did your digital marketing strategies succeed last quarter or year? That might set the tone for your budget going forward.
Take the methods that succeeded and leave the unsuccessful ones behind. Did your meta ad campaign bring in additional leads? Adopt it for the future.
Were the outcomes from content marketing initiatives unremarkable? It may be time to reevaluate.
4. Select the channels.
Let’s imagine you’ve opted to employ social media and email as two key marketing methods. Here’s what a social media budget normally entails:
- Content creation (hiring writers and designers, purchasing tools, etc.)
- Ad spend
- Market research
For email marketing, you’d have to invest money in cultivating an email list. Then there are email marketing tools’ membership expenses and the money you’d spend on copywriters and designers.
Similarly, you might pick additional channels like SEO, influencer marketing, SEM, retail media networks, and digital audio advertising (podcasts). Their expenditures will also be unique, depending on their components.
5. Account for Production Costs
For your marketing strategy to be effective, the output should be top-notch. Here are some production charges you’ll have to add to your budget:
- Market research
- Salaries (in-house teams)
- Outsourcing expenses (agencies or freelancers)
- Software subscriptions
- Tools
- A/B testing
6. Factor in additional costs.
It’s better to be prepared than to be caught off guard. Make sure you have a good grasp of the potential extra expenditures. These might include:
- Contract cancellation costs
- Legal consultations
- Tech support services
- Content/dDesign modifications
- Legal consultations
Finally, consolidate the expenditures into a detailed budget and set your marketing activities in motion.
Common digital marketing expenses
You now know how to construct a digital marketing budget. What most firms struggle with is the fifth step, where they have to consider digital marketing expenditures. Here are a few frequent costs below so that you can get a sense of what to look at.
Content Marketing
In a poll done in late 2022, 49.2% of digital marketers predicted their content marketing spend would grow in 2023. These results are consistent with Neil Patel’s poll. He observed that 83% of firms are increasing their content creation spend.
Content marketing charges will be significant if you intend on partnering with a professional firm for content generation. However, it might still be considerably cheaper than recruiting a team of in-house professionals. So, if you’re on a constrained budget, choosing a content marketing firm might be a sensible option.
Paid Search
While SMBs spend $1,000 to $10,000 monthly on sponsored search ads on Google, bigger enterprises may spend up to $50 million a year. If you want to employ sponsored search in your digital marketing budget, allocate the funds appropriately.
Social media spending
Social media is gradually taking over other routes as the primary approach for digital marketing initiatives. That’s why Statista projects that social media ad expenditure will equal $358 billion by 2026.
With social media enabling a wider role in purchase processes, investment in social media marketing has become important for numerous sectors. A considerable part of your marketing investment will go here.
That is also connected with a lower search ad spend. People increasingly utilize TikTok and other social media platforms rather than search engines to discover the items and services they need. As a consequence, social advertising expenditures have peaked, while search advertising is receiving less investment.
CRM Tools
Customer relationship management systems (CRMs) such as Salesforce, Hubspot, and Netsuite have become must-haves for B2C and B2B organizations alike.
Though CRM products include a free tier, you’ll typically discover that they’re not sophisticated enough for bigger enterprises. Factor in your CRM expenditures, which are frequently significant, ranging from hundreds to thousands of dollars a month in subscription and maintenance fees.
Prove your marketing works.
How can you assure that your marketing budget will be authorized or increased? Prove that marketing works using the correct measurement techniques, and make sure that, as much as possible, your results are founded on KPIs that matter to non-marketing executives.
The objective is to underpin your budget-related judgments with statistics. Paul Frampton, the president of our sister firm CvE, together with Goodway Group’s specialists, Chief Media Officer Stephani Estes and Scott Blessman, our vice president of analytics and data insights, touch on the matter in this on-demand webinar.
When the marketing team can identify the red thread from the visitor to the customer acquisition and explain how your marketing activities produce revenue results, you can justify your budget in the boardroom.
Budgeting for the Future of Digital Advertising
The future of digital advertising is bright and full of complexity. But the basics remain simple. Plan, perform, review, and iterate.
By allocating your digital marketing budget to cover the funnel that drives the company, you’ll match your expenditure with the most high-value activities.
Eager for more practical thoughts on the future of all things digital?
- Learn how to assess your GTM success.
- Read how to accelerate marketing revenue growth using a media mix strategy.
- Dive into our tutorial on demonstrating the effect of your marketing approach.