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How to Easily Calculate Your Digital Marketing Budget for the Year
Reading Time: 5 minutes
Figuring out your digital marketing budget is quite confusing, isn’t it? Of course you know you need to allocate annual marketing spend. But did you know 57% of CMOs expect their budget to increase in 2017?
That’s because digital marketing and big data make attributing revenue dollars to marketing efforts easier than ever.
And as conversion rates and revenue increase, so should your marketing budget.
But, that brings up a common problem:
How much of your company revenue you should feed into your digital marketing strategy.
Luckily for you, that’s exactly what I am going to walk you through today.
You’ll learn how to calculate your digital marketing budget so you can ensure you’re spending the right amount for your business goals.
Intrigued? Well, let’s get into it.
Why can’t I just pour money into campaigns whenever my company needs new leads?
True – your business may not always be aggressively seeking new customers.
And when that’s the case, you might think you can just funnel money toward campaigns anytime you’re in the market for leads (and then scale back marketing spend once the funnel fills up).
The thing is… for most businesses, this approach just won’t work.
You see, marketing campaigns don’t work like a faucet that you can just turn on and immediately start streaming leads into your pipeline.
In fact, moving leads through the sales funnel takes the average B2B business anywhere from three months to over a year.
So, even if your business is on the low end of that scale, there’s likely a considerable gap between the launch of a campaign and actually converting any generated leads into customers.
And that’s exactly why setting up a marketing budget for the year needs to happen.
By doing so, you ensure you’ll have a steady stream of leads moving through your pipeline at all times.
That way, when you’re ready to start bringing on new customers, your sales team will have a good list of well-nurtured prospects ready to go.
What factors determine how much I should be contributing to a marketing budget?
1. Company Revenue
Look, you know this – at the end of the day, businesses attribute the success of any marketing campaign to the revenue it generates.
But the inverse is also true: the more revenue you invest into your marketing budget, the more success you’ll see from campaigns.
(That is, of course, assuming you have a solid strategy in place.)
This approach is called a causal relationship and it’s exactly why you need to continually reinvest a percentage of your overall revenue back into marketing spend.
That way, you ensure your business continues to generate leads and build new revenue.
And that’s exactly what businesses are doing. According to Gartner’s 2017 CMO Spend Survey, the average B2B business allocated 12.3 percent of their overall revenue to their marketing budget.
2. Position Within Your Industry
As a general rule, new businesses should invest more in marketing spend than well-established companies.
“Young enterprises, one to five years old, should be aggressive with their marketing tactics. Though these companies are often less profitable than older, more established firms, they rely much more heavily on brand reputation and recognition. A company that devotes more money to marketing is likely to attract an audience faster, gaining the just rewards for its efforts.”
But even if your business is the dominant player in the industry today, that doesn’t mean you can cut your marketing budget completely.
Established companies need to maintain campaigns to keep brand reputation high and fight off competition from rising startups in your industry.
3. Your Goals
What is it your looking to accomplish with your digital marketing strategy?
- Do you need more traction to keep up with your growth goals?
- Are you trying to find a way to stand out from the competition?
- Do you want to expand into a new channel?
- Or perhaps you feel you’ve exhausted all your current channels?
The more aggressive your goals, the more you need to be willing to invest in marketing your business.
So How to Calculate Your Digital Marketing Budget?
Now that you know the factors that contribute to your marketing budget, let’s look at exactly how you can calculate your own.
First, Determine Your Annual Revenue
This should be the easy part.
How much money did your business make in the past year?
Look at the gross revenue before deductions and allowances – not net revenue – to get the right figure for the calculation.
Then, Research the Cost of Marketing Services
I recently published a post on how to evaluate building an in-house marketing team versus using an agency or outsourcing to a freelancer.
In the post, I highlighted the pros and cons of all three options across a number of categories. And of course, “cost” was one of the most important factors for businesses looking to maximize their marketing budget.
I’m sure you’re cost-conscious as well, so consider this:
That’s why it’s important to know the most cost-effective route when determining your budget.
Established companies with the ability to pump significant cash into marketing may be able to build out an in-house team.
But for most businesses, going the agency route may be the best way to maximize your budget.
Finally, Determine The Right Percentage Based on Industry Position and Goals
According to Wordstream, new businesses should be allocating 12 to 20 percent of their gross revenue to marketing efforts, while established companies should be contributing 6 to 12 percent.
Of course, that’s not a hard-fast rule by any means.
If you’re an established company looking to expand into new channels, you may want to temporarily boost your percentage higher.
The same goes for smaller businesses – if you have more leads than you know what to do with at the moment, scale the budget back slightly and reinvest the money into hiring a sales team that can keep up with the inbound leads you’re generating.
Let’s try an example…
Pretend I am the CFO of “XYZ Company”: a Series B startup that’s just over a year old with 11 employees.
Here’s a little more about my company:
- Our product has low production costs and we operate in a niche market. That means there’s ample opportunity, but gaining exposure is a top priority right now.
- The company earned 500,000 in the last 6 months. So, assuming everything stays on pace, the business is set to earn $1 million this year.
- Considering the need for quick and substantial growth, the company has decided to “go big” and invest 18% of revenue into their marketing budget for this year.
Now, how would you calculate the marketing budget?
Yep, it’s that simple – just multiply the gross revenue by the percentage to find the marketing budget for the year.
Determining how much you should allocate to your marketing budget can be confusing. But, if you consider these factors and the simple formula included in this post, you’ll be well on your way to setting up a successful digital marketing budget for the year.
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