July 13, 2020

You’ve been asked to allocate an annual budget for your digital marketing endeavors, but how much company revenue should be fed into the budget?

This is a tough problem that comes up a lot as spending the right amount to achieve business goals can mean the difference between new leads,  no leads, and consistent leads.

Let’s take a look at what factors determine how much capital should be added to your marketing budget.

Why Do I Need an Annual Budget?

One of the mistakes that a lot of companies make is pouring money into new campaigns when leads are needed and scaling back the campaigns when they are not.  The problem with this approach is that leads don’t just appear and start streaming into your pipeline as soon as you begin your marketing.

Rather, it can take leads over a year to get to the end of your sales funnel.

So, turning on the ad campaigns and off when you don’t need new leads, just doesn’t work well.

By having an annual budget, you can have a steady stream of leads through the pipeline at all times, so that when you are ready for new customers, the prospects are there.

What Factors Determine the Scale of the Budget?

1. Revenue

The success of your marketing campaign is determined by the revenue that it generates. The more revenue it generates, the more profit your company brings in.  The opposite of this is also true, the more revenue that is invested into the budget, the more success you will see from marketing campaigns.  This is why reinvesting a percentage of your company’s total revenue into the marketing budget is critical, as this builds new revenue while continuously generating leads. 

2. New to the Industry? 

If your business is new in the industry, you will need to invest more into your marketing budget than companies that are already well-established.  You should be aggressive in your marketing tactics, as it is more likely that you will attract an audience faster. Established firms are able to fall back on their brand reputation and recognition. 

3. Define Those Goals  

You must define your goals and what is needed to achieve them. What type of traction do you need to obtain growth and in what ways are you standing out from the competition? Are you looking to expand into new channels? If you have aggressive goals, higher investment is needed.

Doing the Calculations: What It Comes Down To

To calculate your budget, you must look at a set of values. 

You must first determine what your annual revenue is. You can base this on how much money your company brought in the previous year. Make sure to look at the gross revenue before you take off allowances, deductions, and taxes. Net revenue does not work here.

Then you must look at how much marketing services cost. You can either outsource to a freelancer, build an in-house team, or use a marketing agency.  All three of these avenues have their own pros and cons.

Choose the one that is most cost-effective for you. An established company may be able to build an in-house team, where an online business may be better suited for an agency to maximize budget spend. 

Finally, figure out the percentage you can allocate. This is determined by whether you are a new business, an established business, and your goals and position in the industry.

While not a hard or fast rule, new businesses tend to spend between 12-20 percent and a well-established company between 6-12 percent.

If you are looking to expand into new channels, boost the percentage but if you have too many leads, scale it back, and reinvest the money into your sales team.

The easy way to do it? Multiply your gross revenue by the percentage you have settled on to find your annual marketing budget. 

While determining the marketing budget may be hard at first, if you break down the factors that impact it and grab a few numbers from previous years, you can come up with a successful number going forward. 

How Much Should I Spend on Digital Marketing?

Oh, the power… you’re looking at the annual budget for your business and it’s time to divvy it up.

Operations, staffing, supplies, rent, transportation … and then there’s Digital Marketing.

If you’re wondering how to come up with a budget that’s better than a ballpark estimate or worse, a shot in the dark, we can help you break it down.

Why do I need an annual budget for digital marketing?

You might think it’s ok to just fly by the seat of your pants when it comes to budgeting. Throw some money at digital marketing and if it works, you’ll add in some more. But you can’t forecast that way, so you want to be prepared with a budget, one that has room to scale.

Keeping a steady stream of new business is vital to staying afloat, so digital marketing needs to work for you all year long.

Don’t just pour money into new campaigns when you need a quick hit of leads and pull back when you have plenty of business.

You want your business to grow steadily, not in fits and starts.

Some businesses have a long sales cycle from lead to conversion, so it’s best to always have some leads cooking to keep that sales funnel going and the revenue flowing.

It’s all about those leads

For most companies, digital marketing is all about leads. You have a product or service to sell and you need to get it in front of the right people.

The ones who are most likely to buy.

Armed with customer avatars and a big stack of goals, you need to figure out how many leads it will take to find the right people who will actually buy what you’re selling.

You’ll want to think about how much money you make when someone becomes a customer, and how many leads it takes to get them there.

That helps you come up with a cost per lead that can make you profitable.

How do I figure out how much to spend?

It all starts with revenue. How much revenue do you need per year to grow your business? Break down how many leads it usually takes to get to that revenue number and then your cost per lead. That’s a good starting point for the budget.

Make sure to continually reinvest some of your revenue back into marketing, to keep things growing.

If you’re new to an industry, there will be a launch period when marketing will be a bigger percentage of your overall budget.

You have to spend more upfront to make a splash, attract an audience, and get things moving.

Be prepared for a few months of marketing outlay to get your sales funnel going before the tide turns and marketing starts to pay for itself.

Set your goals

Digital marketing can’t help you until you know who you are, what you’re selling, and how much you need to sell to make your business profitable.

How much do you want to make per year? How many sales or clients is it going to take to get there?

Your Digital Space Marketing team can step in from there and share from our experience to help you determine what kind of lead flow you’re going to need to get to the revenue numbers.

If you’re looking to expand aggressively into new channels and lines of business, you might want to shift marketing spend to those areas to stimulate the flow of new leads and customers.

Let’s add it up

Starting with annual revenue, look at the gross number, before deductions, allowances, and taxes. Next, take a look at the cost of marketing services.

We can help you with that once we have a chat to find out what you’re up to and how we can help. A rule of thumb is 12-20 percent of annual revenue for a new business and 6-12 percent of revenue for a well-established company. And make sure that your sales team is robust enough to handle all the new leads and business opportunities you’ll be getting.

One easy way to set your marketing budget is to multiply your gross revenue by the percentage you have settled on.

That’s your annual marketing budget. It’ll be divided between things like website development, social media, email marketing, content marketing, and digital ad spend. Our team at Digital Space Marketing can help you determine how to optimize your budget.

Give us a call for a free consultation: we’ll learn your business, then tailor our marketing to match your goals.