How much should you spend on your digital marketing budget?
This question has never felt more relevant.
More people than ever are taking the plunge into business ownership. In the UK, 672,890 new businesses were registered in 2019 (Source) – that’s 76.8 new businesses every hour – and that’s just the UK!
Those numbers grew in 2020 – with an increase of more than 12% of that number.
These stats demonstrate the number of new business owners – many of whom need advice about their digital marketing budgets.
This massive jump in new businesses also means an increase in competition – making the marketing budget a determining factor for success.
What Does More Competition Mean?
Greater competition can only mean one thing – greater marketing costs, especially for new businesses or those breaking into digital marketing.
It’s a bitter pill to swallow, but that doesn’t mean it’s all doom and gloom.
For starters, the sooner you start, the cheaper it’s going to be.
Digital marketing costs have perpetually risen – it’s nothing new. The only thing this should do is push you to get started ASAP.
As bad as more competition sounds, it actually proves how crucial digital marketing is.
If other companies are spending large portions of their marketing budget online – it has to work!
How Much Are Businesses Spending on Digital Marketing?
Business and marketing go hand-in-hand.
However, marketing budgets vary from industry to industry – making advice anything but a one-size-fits-all answer.
The most recent CMO survey revealed that marketing budgets rose to an average of 11.4% of total revenue, with a noticeable increase in all sectors following the pandemic.
‘B2C services’ led the way, at a total of 15% of revenue, with ‘B2B product’ lowest, at 8.3% of total revenue.
The same study also revealed that:
- 83.8% of participants had noticed an ‘Increased value on digital experiences’
- ‘58’8% had noticed more online research before purchasing.’
These figures point to success in campaigns that are well-rounded – focusing on digital presence, content and experience.
The U.S Small Business Administration advises a marketing budget of 7-8% of total revenue for businesses bringing in less than $5m and 10-12% for those earning more.
And whilst these figures are similar to those from the CMO survey, it’s worth remembering that they are made without knowledge of margin, business maturity or industry.
Marketing Budget Media Spend
Of course, digital marketing isn’t the only form of marketing. There are several different channels to think about.
A 2018 study by eMarketer, revealed that media spend in the US on offline sources like television, print and directories is on a gradual decline, whilst digital is growing year-on-year.
In 2020, eMarketer also revealed the massive increase in digital ad spending worldwide.
Despite the global pandemic slowing economies, digital ad spending still saw a 2.4% increase, and it’s predicted that this will grow by 17% in 2021.
A forecast made in October 2020, demonstrated the growth in importance of digital ads in just a few months – with the prediction increased by more than $17 billion from March to October 2020 – highlighting the effect of the global pandemic on digital as a marketing resource.
Digital spend is increasing – meaning more competition, but also, greater opportunities for businesses.
Where Are You On Your Digital Marketing Journey?
I really dislike blanket advice – especially when it’s given as gospel.
Saying something like ‘every business should spend between 5-15% of their total revenue on marketing’ is ill-thought-out and reckless. As the saying goes, it’s easy to spend other people’s money.
My own belief is that your marketing budget should be as high as you can possibly allow it – but this comes with caveats. The first is where you are on your marketing journey.
To help me explain, let’s dive into a simple example of two businesses:
Business A – Has been marketing online for 10 years, they have established channels, informed campaigns and tons of data to back their decisions. If they spend 10% of their revenue, they can be pretty certain what it will result in.
Business B – Has never marketed online, has very little presence, no data and zero tests to back their decisions. If they spend 10% of their revenue on their digital marketing budget, they can only guess what’s going to happen.
The moral of the story – established businesses are capable of safely spending a large chunk of their revenue on marketing, relatively new businesses must go about their marketing campaigns in a much different way.
Digital Marketing Budgets for New Businesses
Brands with established digital channels and marketing strategies can spend their marketing budgets much more securely than new businesses, but that doesn’t mean new businesses should spend less.
In fact, businesses that are new to digital marketing should spend a larger percentage of their revenue on their digital marketing budget.
At the core of everything online – particularly when it comes to awareness, traffic and conversions – is data.
It’s pretty simple – the more data your business has available to them, the better your marketing returns are going to be.
This doesn’t mean having a database of every prospect’s eye-colour. It means allowing the tracking pixels, advertising events, internet algorithms and your own CRM to collect as much information as possible.
The really valuable stuff includes the behaviours, interactions and contact information of those most interested in product/services.
An established business has access to advertising audiences based on behaviours, interactions and events, in addition to scalable ‘lookalikes’ of these audiences, they also have access to analytical data, software, tools and most importantly, tagged and segmented contacts. A business that is relatively new online, doesn’t.
And it’s for this reason that new businesses should be prepared to invest more in their digital marketing budgets.
BTW: Appeal to modern audiences by adopting a green marketing approach.
Data and Testing
Your data will inform digital algorithms moving forward, as well as giving you vital information about what networks, placements, content, strategies and tactics will work.
That means that as a new business, you’re going to have to sacrifice some of your marketing budget to testing.
Think about it like this, if you spend £100 today and £95 of it is wasted but £5 is spent well, tomorrow you can spend much more of your £100 on that £5 source. The day after this, you’ll learn more and so will the machines (AI and algorithms) that are aiding your progress.
As this testing goes on, your data will continue to rack up – and you’ll make much greater returns on your marketing spend.
In the early stages of your marketing journey, you need to accept that you’ll have to spend generously on your marketing budget, and much of it will not make an immediate return.
Just remember, the data from the campaigns that fail are just as valuable as those that succeed.
Testing vs Educated Testing
Every business, no matter how established they are, should devote some of their marketing budgets to testing.
Again, it’s tough to pinpoint an exact percentage – but anything from as little as 10% of their digital marketing budget could make a big difference moving forward.
Think about it like this – if you’ve found a strategy that works for your business, and you spend 100% of your marketing budget on it, what will happen when the goalposts move?
Algorithms are always being updated (Google adjusts theirs many times every year), laws change (particularly around data) and competition is always intensifying.
Whatever you do, make sure you’ve collected enough information from alternative channels, because your business should not rely completely on an advertising channel that is owned and controlled by a third party.
Spending to Scale
As your business grows, so should your marketing budget.
An increase in revenue shouldn’t necessarily mean an increase in profits. That jump in revenue should enable an increase in your digital marketing budget.
At all times, your marketing budget is there to scale your business – don’t let it stagnate or stall on a figure that’s producing results – keep on increasing it at a similar percentage.
For example, if you’re spending 10% of £500k revenue on your marketing budget, you should continue to spend 10% (or more) at £700k.
Keep on maxing out your available marketing budget – and never let those budgets be underspent.
Testing is expensive but necessary. That’s why it pays to get ahead. The more you can learn without spending, the more you’ll save.
Before you blow your budget on every available digital avenue or spread yourself too thinly across 10 different strategies, perform competitor analysis.
Unfortunately, it’s not easy to find out what your competitor’s marketing budgets are, or what % of their revenue they’re spending. However, with the help of some handy tools, you can dig a little deeper into their preferred tools, software and marketing channels – and then make an educated guess about their marketing spend.
When performing competitor analysis for marketing budget research, I’d advise you to start by analysing the leaders in your industry.
Brands that lead the market tend to have the biggest budgets, meaning that they’ve already performed the most market testing – discovering what has worked and what hasn’t in your niche.
If you’re still trying to figure out where you should spend your marketing budget, I’d advise replicating their tactics (to start).
Here are a few competitor research that will inform the strategy behind your digital marketing budget:
Your marketing budget isn’t going to be spent entirely on ads and paid traffic – much of your recurring spend will be spent on subscriptions, software and tools.
A tool that reveals what software your competitors are using is ‘BuiltWith’.
The BuiltWith tool runs a software check on any website for free, allowing you to see how your competition has built their website and what they’re using to capture sales, generate leads and drive traffic online.
Run a search on some of your biggest competitors, cross-check the software and the pricing, and see how they fit into your marketing budget.
This tool allows you to see the best-performing traffic sources for almost any website online (the tool only works on high traffic websites), including a breakdown of each source.
Using this tool, you’re able to see where your competitors are advertising, where they’re spending the majority of their marketing resources and what they’re doing to be effective in this area.
The information available from SimilarWeb should provide you with new marketing ideas, as well as marketing budget information.
Content marketing and SEO provide much slower, but longer-lasting results than advertising and paid traffic tactics.
Both of these tools do more-or-less the same thing, so you’ll only need one.
They both give users access to a detailed website and SEO analysis of any site – giving you plenty of competitor analysis to work from.
The Digital Marketing Budget
If you’re new to business or are still trying to figure out your digital marketing budget – hopefully this guide has helped.
As an average, the research tells us that that the majority of businesses spend between 7-15% of their total revenue on marketing – however, it’s important to note that following advice like this could be dangerous.
Before deciding on a fixed marketing figure, be aware of your accessible data, where you are on your marketing journey, and of course, your margin and accessible cash.
Perform the research, never stop testing new areas and always be prepared to scale!