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How Much Should You Spend on Digital Marketing?

by Mary Ann Hegvold on August 13, 2019

How Much of Your Marketing Should Be Digital?

Before you decide on a budget, you should consider what you're trying to achieve. Remember: 70% of a purchase decision is made before someone talks to a sales representative. Because of this, a heavy online marketing presence plays a big part in the overall sales process. 

Some companies go all-in on digital marketing and lose other, more traditional, forms of marketing . Some need a combination of traditional and digital marketing. But with today's buyer thinking differently than they did 10-15 years ago, a significant  digital presence is a good idea for most companies.

The specific amount of digital marketing you need will ultimately depend on:

  • Your goals for growth
  • Your timeline

This is true whether you're a B2B or B2C business. It takes both time and money to drive qualified leads that will increase sales. 

The next step is to understand the growth goals and timeline from your management.  Their buy-in on digital marketing as a primary driver of sales is critical for success. Without their full understanding and excitement, they're going to be hesitant to share the information you need and may cut your timeline short without warning. 

Determine your Company Goals Before Setting a Budget

What is it your company is trying to achieve and in what time frame?  This is different from what the sales manager says or from what the marketing director thinks. This is from-the-top direction because, ultimately, they're handing out the budget dollars.

If they haven't given you a goal, ask for one. It's only fair for you and the sales team to know what success looks like.  This could be in the form of additional sales in dollars or a growth rate, say 15% or 30% growth in revenue in 12 months.

For this example we're going to say that management has set the goal for growth a 20% of revenue over the next 12 months that equates to an additional $2M in revenue.

It's also important for the entire sales and marketing team to know what is expected and whether there will be rewards for meeting or exceeding goals. And, conversely, will there be any consequences if you don't get to this goal?

Understand the Value of a Customer

What is the average revenue per customer? Don't feel bad if you don't have this number off the top of your head. Today is the day to start finding out!

It's ideal to come up with a lifetime value of a customer rather than just counting their first purchase. If you typically have repeat sales then include those in the lifetime value. This could also vary depending on what they buy. If you have a few major products/services, you can create an average customer value. Do this for your current sales. Later we'll look at what to do if part of the goal is to shift where you get most of your sales, or if you're adding a new product/service.

For our example, assume there are 3 common sales:

  • Product A is a monthly service that costs $100 per month. The average customer is retained for 2 years. This makes the lifetime value $2,400. Fifty percent of customers fall into this category.
  • Product B is a piece of equipment sold for $2,000 each. The average buyer purchases one piece of equipment from you. This makes the average lifetime value for this customer $2,000. Twenty five percent of customers fall into this category.
  • Product C is both A and B purchased together. This is the remaining 25% of customers for an average lifetime value of $4,400.

On average, the lifetime value of a customer in this example is $2,800.

(I used this handy weighted average calculator to find that answer. Always workin' smarter, not harder ;-)

Identify the Gap

Here's where you look at what you're doing now and what you need to accomplish. What will it take to get where you need to be?

If the goal is to shift sales to the more expensive product, then use the goal numbers for your calculation, not current numbers.

In this example, Product C is now the primary focus for the most sales (previously Product A).

NEW GOALS FOR NEXT 12 MONTHS

Product A - 25% - $2,400 average lifetime value (previously 50%)

Product B - 25%  - $2,000 average lifetime value (previously 25%)

Product C - 50% - $4,400 average lifetime value (previously 25%)

In the case of our example where we're trying to increase sales by $2M over the next 12 months, you get:

$2,000,000 / $3,300 = 607 (or so) new customers. 

That's approximately 50 new customers per month for 12 months.

There you have it. Your goal is translated into new customers. That doesn't cover the cost of the digital marketing, but we'll get to that.

Determine the Additional Marketing Budget You'll Need

Here's where it's important to be reasonable. You don't want to spend more than you're making, but you also don't want to expect too much from a budget that can't sustain the amount of work required to meet your goal. 

Spending 5% - 7% of your targeted additional amount of revenue is common and reasonable.

Caution: Make sure the math is working throughout the year. That's one of the beautiful things about digital marketing - how well it can be tracked!

It's also important know when you're at the break even point for your marketing efforts.

For our example: If you're going to spend $120,000 (6% of target revenue growth) over 12 months, you should be at break even for the cost of your digital marketing efforts after the first full month your program is running (about 37 sales at $3,300 each). If not the first month, the 2nd month for sure. If you're not, your spend might be too low, or your efficiency is off. 

Using breakeven can be helpful for the management team to see. They may not see all the results in month one, but knowing that you're covering the costs of the additional marketing activities is very helpful.

Don't go to the end of the year and try to make up for lost time. It's got to be an ongoing effort with ongoing reporting. Some digital marketing activities take more time for success than others. But that's why you need to do more than one type of advertising.

What Activities Fall Into Digital Marketing?

Don't let the term "digital marketing" intimidate you. The most common forms of digital marketing include:

Inbound Marketing / SEO

Increasing your company's visibility in the organic search results for topics important to your customers. This is done best through inbound marketing.(Sometimes people will say "you need SEO" and that gets wrapped into inbound marketing.) 

Pay Per Click Ads

Placing your company's solution to a problem in front of people who are in the midst of trying to find the best options. This might be done through Google Ads or another pay per click ad opportunity (ie: Capterra, Facebook, etc.)

Related Read: Understanding the difference between organic and paid search

Review Collection and Management

Online reputation is so important. Did you know that most people will treat an online review of a product or service as if they heard it from a friend? That can be scary if you are not monitoring or encouraging online reviews! 

Social Media

Use strategies that build an audience and engages them on multiple channels used by your customers.

Online Listings

Use both free and paid!

Should You Keep the Other Marketing You're Doing?

That depends.  Does it really work and can you prove it? If you can't show specific results it may be time to reallocate funds. But if you are getting some results from the current marketing, here are some questions to ask:

  • Did you assume you'd keep what you have now as you created your plans?
  • Can you report on the results from the old marketing processes? Or, would it be better to take funds previously spent on marketing activities and invest them in different ways for the sales and marketing team?

4 Tips for Digital Marketing Success

1. Evaluate Staffing

Don't panic if you're looking around and the marketing staff is a team of 1 or 2. That can be solved. Maybe it's time to add a content manager, videographer, or other digital marketing expert. Or, you can have an agency help you. More than likely a big jump in marketing activity and reporting will require some additional hands.

2. Sales and Service work together

Keep in mind that ultimately it's up to sales to close deals. But, if you could bring them highly qualified, very interested leads, their job is easier, and they will see a higher close rate. 

Therefore, it's best to keep an ongoing dialogue with the sales and marketing teams. Together you can really nail this goal.  Get support from your sales team by explaining the "why" behind everything you do. This will also help you see the value of your day-to-day activities because they're working towards the bigger goal.

3. Optimize your website

Your website will be a huge part of the digital marketing process. Be sure it's solid, and provides good information in the form of clear explanations of your products/services and educational resources.

This will increase the trust in your company and make the lead more likely to engage with you further. If you need an updated website to help you meet your goals, you may need to extend the timeline for success. There are some options, such as Growth Driven Design, that can help shorten the time to getting a new site working to draw in leads.

4. Utilize a CRM System

You'll need to find a way to determine if leads became customers. This requires your sales team to work with you, but if you have an overarching goal hopefully you can find a system be able to get the information you need to report at all times on your marketing ROI.

A CRM combined with your digital marketing software (like Hubspot) is ideal for the entire team to have access to what's working, leads collected, customers finalized, deals in progress, and more.

Get Started On Your Digital Marketing!

Don't wait. Now is the time to get started on your digital marketing. If you need any help trying to set your goals, or you're not sure which digital marketing programs would work best for your company, please let us know. We are always happy to jump on a 15 minute phone call to review your goals and strategies.

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Originally published in 2015. Updated August 2019.

Topics: Inbound Marketing, Marketing ROI, Lead Generation

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