A Basic Cheat Sheet to Determining Your Online Marketing Budget

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A Basic Cheat Sheet to Determining Your Online Marketing Budget

Your online marketing budget could be completely different from your marketing budget. Online marketing is when you use digital, internet-based channels and platforms—think social media, websites, blogs—to market your brand and products. Marketing is generally the same thing, only using whatever channels (digital or not) best suit your goal.

If you aren’t sure how much you should be spending on marketing, don’t worry. People generally don’t start a business knowing everything. And besides, there is no one right answer that works for everyone.

However, there are a couple of elements and formulas that can help businesses figure out an acceptable online marketing budget that works.

1. Use Your Company Revenue as the Baseline for Your Marketing Budget

One of the best ways to calculate your online marketing budget is to start with your company’s total revenue. Knowing how much your business has (or will make, at minimum) can help you figure out how much you have to comfortably spend on marketing.

A 2017 CMO Spend Survey revealed that the average B2B business allocates about 12.3% of their overall revenue on their marketing budget. Meanwhile, the U.S. Small Business Administration suggests that small businesses invest about 7% to 8% of their gross revenue on marketing.

Regarding the percentages…

If you have a solid marketing strategy in place, then it’s definitely worth it to invest a little more in your marketing budget—particularly the one for online marketing. But if you don’t, decide what percent of your current revenue you’d feel most comfortable spending on marketing. It can be as little as 10% or as much as 20%. If you want to stay within the average, we recommend going with 12% or 15% of your overall revenue.

A. Calculating Your Marketing Budget (Option 1)

  • Step 1.Calculate CTR (Company Total Revenue)
  • Step 2.Solve for MB (Marketing Budget) using:

CTR x 12% = MB

or

CTR x 15% = MB

If you don’t have a set budget for your marketing or you have absolutely no clue where to start, we recommend 10% of your Gross Revenue for your marketing. So, Option 2:

B. Calculating Your Marketing Budget (Option 2)

  • Step 1. Calculate GR (Gross Revenue)
  • Step 2. Solve for MB (Marketing Budget) using:

GR x 0.1 = MB

or

GR x 10% = MB

Of course, to minimize risk and potential loss, we highly recommend working with a reputable online marketing company so you can have a solid marketing strategy that increases your chances for great ROI. Most business owners would like to see a $10-to-$1 return—meaning that for every dollar they spend for marketing, they ideally make $10 in return.

Once you know how much of your revenue you want to spend on marketing, take another portion of that percentage and allocate it to online marketing.

So, for example, using Option 1:

CTR = $100,000.00
Chosen Percentage for Marketing Budget: 12%
100,000 x 12% = $12,000.00

You have $12,000.00 to spend on marketing over all. Let’s say you want to put about 50% of that towards online marketing efforts. That’s $6,000.00.

2. Use Your Marketing Budget & Existing Reports/Figures as a Reference Point for Your Online Marketing Budget

A Basic Cheat Sheet to Determining Your Online Marketing Budget1If you aren’t sure what the “standard budget” is for online marketing funds, we recommend doing a bit of research to find a common midpoint or reference point using other businesses in your industry.

Points to Consider:

  • Data analysts predicted a 17% compound annual growth from 2016 to 2021 way back in 2017.
  • Data trends suggest online marketing strategies will account for 46% of all forms of marketing by 2021. This refers to strategies like:
    • paid search
    • display advertising
    • online video advertising
    • email marketing
    • social media advertising
  • Reports state that the average business has allocated more than 42% of their marketing budget to online marketing strategies since 2018. This number is expected to grow to 45% or more by 2020.
  • Most marketers recommend putting as much as half of your marketing budget into online marketing.

Sources: Forrester and eMarketer

It always pays to look at industry averages to get a feel of how and where you should adjust. That is to say, if you’ve been putting 70% to 75% of your marketing efforts into online marketing, then you at least know you’re above the average. But if you’ve been putting in less than the average—say, 10% to 20%—then you at least know you can afford to put in a little more.

3. Work With an Online Marketing Company to Evaluate How New or Established Your Business is in Terms of Marketing

Your seniority and authority in your industry will also dictate your average online marketing budget.

Contrary to what many believe, newer businesses and fresh startups are the ones who should allocate a bigger percentage of their revenue or total marketing budget to online marketing. Established brands can afford to not push their marketing as much as newer brands thanks to the familiarity of their name with their market—not to mention their already-existing consumer base.

However, there is no one way to calculate this.

Marketers are experts at figuring out how established a brand is and how far they need to promote themselves. Even if you’ve been around for five or six years, your name could be considered less established than a brand that’s only been around for three. It all depends on how well-known you are, how memorable you are, and how much people trust your brand.

These factors can easily be assessed by a professional marketing company.

Ultimately, your online marketing budget is dependent on a lot of factors: the nature of your business, the competitiveness of your chosen industry, your authority/age in the market, and—most importantly—your specific marketing/business goals. Working with an online marketing company can greatly help in assessing each element of this formula so you can then arrive at the best possible budget.