Ask Janet: About Digital Marketing Budgeting

How Much Should I Budget for Online Marketing?

This is a question that has vexed many business owners, and, of course, there is no one answer that would apply to all businesses.

Many experts suggest that a total marketing/advertising budget of 5-7% of gross revenues is a good rule of thumb. But, obviously, there are many factors that affect that calculation, including overhead costs, margins, the nature of what the business is selling (ie. products vs. services) and the size of the market both geographically and in terms of the gross number of potential customers.

Entrepreneur Magazine  recommends the following calculation, which is primarily appropriate for retailers:

1. Begin by calculating 10% and 12% of your gross annual sales or revenue and multiply those numbers by your average markup. (Remember, markup is a number representing your gross profit expressed as a percentage of the selling price.)
2. Deduct your annual cost of rent from both of the numbers resulting above. These two numbers represent the minimum and maximum you should spend on all advertising and marketing efforts annually.

But when you ask how much you should be spending on Internet marketing, there are other variables that come into play. Unlike mass media advertising or direct mail, Internet marketing puts the business’s marketing message in front of people that are looking for that business’s products/services and are usually ready to buy. That makes it an especially powerful marketing medium—especially for some categories of business. For example, when was the last time you didn’t use the Internet to plan a vacation, buy a car, rent an apartment or buy a home? And, those are just a few examples of the biggest search categories on the Web.

So, when you ask how much you should be spending on Internet marketing, the answer is partially dependent upon the opportunity the Internet presents for your particular business. I have clients that have doubled their annual revenue by landing a single client that found them online. And, I have clients that get hundreds of calls and emailed inquiries weekly because of their Internet marketing. So, it’s sometimes the quantity of leads/sales that online marketing generates that is valuable—but, more importantly, you can count on the quality of these contacts to result in sales.

There are some businesses that should be spending virtually their entire advertising/marketing budget online because the Internet is the most cost-effective way to reach their potential customers. For some niche business-to-business marketers with a nationwide or worldwide marketplace, it is actually the only way.

But, if you are a small or mid-size company that must budget for advertising through multiple media, my best rule of thumb suggests that 1.5% – 1.9% of gross revenues should be directed to online marketing. Looked at another way, you should probably spend at least 27% – 30% of your total marketing budget on Internet marketing efforts.

In order to get the best results, though, don’t spend it all on one online channel. Have an experienced firm like 1^st Click Consulting draw up a strategy for you that might include SEO, pay-per-click advertising, social media, email marketing, mobile, video, etc. That way, you can ensure that your budget is reaching as far as possible to bring you qualified new customers. Contact us here  for a quote on this service.