Marketing and finance are the cornerstone of any business. However, it is not uncommon for both departments to have a difference of opinion over digital marketing costs.
Of course, it is natural to want to save as much money as possible when creating a digital marketing strategy. However, that should not be your only consideration.
The amount you spend on digital marketing should always be balanced against your objectives, available platforms and performance metrics.
As a general rule, the more money you want to make, the more you will have to invest in marketing. Therefore, it is no wonder that a growing number of companies are starting to invest in digital marketing and advertising. According to the Digital Marketing Institute, 95% of surveyed organisations have increased their digital marketing budget in recent years.
But exactly how much money should you spend on online marketing?
In this blog, we will outline exactly how to calculate digital marketing spend. We will also compare this with how companies around the world are allocating their digital marketing costs.
Calculating your digital marketing costs is not always easy or intuitive. Unless you are a marketing guru, it can be difficult to know how to organise your digital marketing budget. There is more to it than setting up a spreadsheet and breaking down the costs.
You also have to factor in your business objectives and balance that against demand, market trends in your industry and economic factors.
You should have a clear idea of your KPIs and what it would take to achieve your goal.
Once that has been taken into consideration, you are in a much better position to calculate your digital marketing costs.
While every company is different, the following digital marketing costs could be considered as a starting point:
Marketing budgets as a percent of total revenue can vary dramatically depending on the industry you are in.
For example, the CMO Survey showed that the B2C product sector devotes an average of 55.9% of revenue to marketing budgets. On the other hand, the B2B product sector reports a much lower 46.9% of revenue dedicated to marketing spend.
So you will also need to factor in any unique requirements dictated by your industry into account. For example, if you are promoting a blockchain company, your expenses may or may not include a list of blockchain tools. These could include things such as MetaMask, Blockchain TestNet, wallets, ICOs and more.
Another consideration you should factor into your digital marketing costs is technology. Regardless of your content marketing strategy, if you are doing it well, then technology will be a key part of it.
This could include anything from SEO tools, CRM tools, advertising platforms, email automation tools, marketing platforms and more.
Therefore, you may want to dedicate a portion of your budget to this, as well as other digital marketing costs.
A study published by Gartner found that marketing leaders planned to spend 26.6% of their marketing budget on marketing technology in 2021. This makes it the single largest area of investment for businesses, followed by paid media, employees, and agency fees.
Owned digital assets such as email marketing, website and mobile channels took a large share of digital spending, with 29.5% of the vote.
The highest growth category was online video, with investment doubling in 2016 and 2021.
This was closely followed by social media, which saw a 17% compound annual growth rate between 2016 and 2021.
The report also showed that mobile marketing was now such an integral part of marketing that it was no longer counted separately in the report.
Social media took the lion’s share of digital spending allocation, with 11.3% of the budget. While that may not sound like a lot by itself, it was by far the most popular marketing channel for businesses.
It is not difficult to see why.
The power of social networking is such that the number of worldwide users is expected to reach some 3.43 billion monthly active social media users by 2023, around a third of Earth’s entire population.
Social was closely followed by paid digital advertising, which commanded 11.2% of the digital marketing spend. Digital ads include anything from social media ads, to Google ads, and banner ads on third party websites.
SEO took 10.5% of the budget, while websites took 10.1% of the share. This was followed closely by offline ads at 9.9% of the digital marketing costs. Mobile, search and email all took 9.7% of the budget, while there was a 9.4% budget spend on affiliate advertising.
The least popular platform was events marketing, which only got 8.4% of the budget.
The way that you will break down your digital marketing costs will depend on the following factors:
The type of business you have will influence the platforms you advertise on. For example, a consumer focussed business may focus on platforms such as Facebook or Instagram, whereas a B2B may be more inclined to advertise on Linkedin.
It also depends on the personality and brand voice your company has.
For example, a business aimed at white collar professionals that is known for humorous campaigns may find that advertising across a spectrum of digital channels increases success.
Similarly, your target audience will have the most significant impact on the channels you choose. If you serve millennials, you may consider Facebook, and Instagram. If your target is Gen Z, Tik Tok and Snapchat may be your most effective channels. On the other hand, if you were a business focussed firm reaching out to an older audience, then email and Linkedin may yield the best results.
The digital marketing costs of each channel varies, so your budget will obviously be a significant deciding factor. However, generally speaking, the more money you invest in digital marketing, the more success you are likely to have with it.
This is because experimentation and A/B testing is an essential part of marketing. In order to find out which ads are more effective, it is necessary to run a few low budget ads to find the best fit. Perhaps you are unsure what digital marketing platform will yield the best results. If that is the case, you may have to experiment with running ads on a few of them to see which one works the best.
This costs time and money, so while your budget will guide your choices, it should not be the only factor.
If you have previously used a digital ad platform and gained a great deal of success from it, then it may be your strongest channel.
To ensure this is definitely the case, try running a few low cost ads or organic posts on that platform to see whether it yields the same results.
If not, then it may be time to try something new. Be sure to analyse conversions, traffic, audience profiles and the messaging on your post to account for variables. For example, if you gained success with several Facebook ads, but the last one flopped, do a little comparison to find out why.
It is important to note that industry trends change over time and it is recommended to stay on top of these. This is so that you can keep ahead of what is trending, new regulations, audience changes and potential pitfalls and opportunities. All of these different things will have an impact on the way you do your marketing.
Your audience research, analysis, and metrics will all inform your content marketing strategy. The platforms and the digital marketing costs breakdown will impact your entire strategy. It will also impact the way you interact with customers going forward.
Of course, the digital marketing costs will depend on how many people you want to reach out to. It will also depend on the platform you are using and the kind of content you are putting out.
However, knowing how most of the platforms work in terms of targeting options and types of ads, will help you to make the best decisions for your company.
Below, we have listed three different types of online ads, which will impact the price of your campaign.
Ads will vary depending on the social media platform. So we look at 3 of the most popular below.
Facebook has a variety of different ad options to choose from. For example, you can promote posts on your Facebook page. Alternatively, you can show ads to a specific demographic of Facebook users. Another option is to advertise your website itself.
There are also many formatting options on Facebook. You can choose from image based ads, video, carousel, collections and instant experiences.
Ads work on a pay-per-click basis. You can set a budget, choose your targeting options and the goal of your ad. For example, you can set up ads to drive more website traffic, increase conversions, get more clicks or Facebook page likes.
The audience targeting options are also pretty impressive. You can target users based upon their gender, interests, location, device used, education, job title and more. You can upload your own custom audience lists into Facebook and target their Facebook pages.
You can also create Instagram ads, using Facebook Business. The targeting options are similar – with the added option of creating Instagram story ads.
You can set a lifetime budget or a daily budget. Your lifetime budget determines the total amount of money you will spend. A daily budget will outline how much you will spend per day.
You can also control the digital marketing costs of your ads by selecting a start date and finish date. All of this ensures you do not get charged more than you were expecting.
Tik Tok’s videos have taken the world by storm. Whether you are watching dancing nurses, political rants or budding singers, Tik Tok puts you on the world stage. It also has a variety of advertising options that allow you to connect with a wider audience.
These include carousel ads and in-feed ads, that you can create yourself through the Tik Tok ad manager interface. It also includes image ads and video ads. This allows your brand to boost organic content from your own account or from other users.
Another advertising option that Tik Tok allows is Pangle Ads. These types of ads are placed through the TikTok Audience Network.
There are also a number of different formatting options you can use, which are priced differently. These include:
Top View Ads: These appear as a full-screen takeover for 5 to 60 seconds when users open the TikTok app.
Branded Hashtag Challenge: This comes in the form of a 3-6 day ad campaign format designed to encourage engagement.
Branded Effects: This type of ad allows people to create branded stickers, special effects and filters to get Tik Tokkers to engage with your business.
You can also choose ads designed to fulfill a specific objective. This can include things such as traffic, more app downloads, video views and lead gen. You can also create ads designed to increase website conversions, increase reach or catalogue sales.
The amount of money you will spend on each ad depends on how many people you are trying to get to fulfill one of the goals outlined above. Like Facebook, you can choose a daily or lifetime budget and set start and end times. This means that you have full control over how much is spent.
The first step with Linkedin is you want to create your campaign. You can do this on the LinkedIn Marketing Solutions platform, where you can create an ad. From there, you will be prompted to create a LinkedIn Campaign Manager account (if you haven’t yet).
The next step is to set your Linkedin ad campaign objective. There are 4 main objectives. This includes website visits, engagement, video views and lead gen.
After that, you will be prompted to designate your Linkedin ad audience. There are around 20 options to choose from. This includes company name, company size, member groups, member interests, member schools, job title, job seniority, skills and more.
You will then be able to choose the format of your ad. These can come in the following forms:
Sponsored content: this shows up in your audience’s news feed among organic LinkedIn content. These ads come in the form of single image ads, carousel ads and video ads.
Message ads: these are delivered to your target audience’s LinkedIn inbox.
Dynamic ads: these are personalised ads that change content based on which audience member is viewing them. They come in three formats. These are, follower ads, which promote your LinkedIn Company Page. There are also spotlight ads, which promote a special offering. You can also create job ads, which promote open vacancies.
Text ads: these ads show up on the right column or top of the page on LinkedIn.
Whatever platform you advertise on, setting your budget, schedule and bidding options will help you to control your digital marketing costs. You can choose from setting a daily budget or lifetime budget.
One way to ensure that you only spend money on a strategy that will work for your business, is to test and measure the success of each campaign and ad variation. Do this by creating 2 or 3 very low-budget variations of the same ad for between £2-£5 each.
You can play around with copy, formats, audiences and platforms. Then track each campaign to see which ones work best.
Below is an example of how that may play out.
Let’s say you are the CMO of a real estate company. You assume your target audience are white collar professionals looking for a family home. So you direct your Linkedin ads to professionals earning over £100,00 per year. But after spending thousands of pounds, you realise you are only generating 10% of what you are hoping for.
Additional research shows that you should have targeted wealthy landlords in your area looking for their next investment. It would have been better to have that information beforehand. This is why experimentation is crucial. It prevents you from investing all of your money into an ad that may not yield results.
Pay-Per-Click ads appear alongside search results on Google and other search engines. You only pay when a user clicks on one of your ads.
The great thing about this form of advertising is you are only targeting users that are actively searching for the kind of products you offer.
The key to success with PPC is doing keyword research. When done correctly, keyword research will ensure you are using the keywords people are actually searching for.
Profitable keywords are words that reflect buyer intent. Typically, they will have the words “buy”, “best”, “cost”, “purchase” or “price” in them. They may also include searches about the benefits of a product or service, for example.
Using SEO tools can help you to discover the keywords relevant to your business. There are many free tools on the market, but they are not as accurate as the paid tools. Paid tools include Ahrefs, SEM Rush, Moz and others.
PPC ads work on a bidding system. This is where advertisers must bid on the keywords they want to “trigger,” or display ads.
When someone submits their search query, the search engine performs complex algorithmic calculations that the Ad Auction is based upon. This subsequently determines which ads are displayed.
Each ad that is clicked on will be charged to your account. This is why you should ensure that the keywords are accurate, profitable and relevant to your business.
Other forms of PPC advertising includes banner ads, and display ads, which includes pictures.
Another way to promote your business online is by advertising on third-party websites. This is a form of affiliate advertising.
There are usually three main parties involved with affiliate ads. This includes yourself as the advertiser, and the websites you are seeking to advertise on. It also includes third party ad servers, as most businesses do not deal directly with the websites they want to publish on.
The way it works is that you will purchase a certain amount of ad buys or spaces. It may also include commission fees by the ad server. As part of the pricing, companies bid a certain amount per click-through on ads and set a total budget.
The format of the ad will usually be in the form of a banner, or square. You usually will not have much choice over the exact location on the website, although it partly depends on how much you pay. Different ad servers will have their own prices.
All of the above advertising methods allow you some degree of control over your digital marketing costs. This will ensure there are no nasty surprises when you publish your ads. You can certainly get started with a relatively low budget of just a few hundred pounds. However, remember this will impact your ROI and the amount of people you can reach.
While it is very inexpensive to get started with online advertising, it will usually take a while before you start seeing results.
Remember that on average, a customer has to see an ad seven times before they are ready to purchase. Therefore, do not expect results straight away. Generally, leads have to be nurtured over time before you make a sale. This is particularly the case if your product costs more than £100.
There are several common mistakes that businesses make that can lead to disappointing results or frustration. These mistakes can also be very costly and use up a significant portion of your budget or resources.
This is particularly the case if you are a startup with a small budget. Below I look at some of the common pitfalls businesses fall into.
When taken individually, some of the pitfalls below may seem quite strange to you, particularly if it actually worked out for you before. It is also important to suggest that when taken individually, not all of the ‘pitfalls’ listed below are necessarily always bad.
But in the fast-changing world of digital marketing, relying on any of the pitfalls below can eventually result in burnout, frustration or poor results. So avoiding the mistakes and common traps is essential if you want to succeed in digital marketing.
If you are a struggling startup, it is only natural that you want to make sales yesterday.
As a result of this impatience, some clients give up on a campaign within a day or two. This usually isn’t enough time to get the data needed. You need time to analyse what the data is telling you, and then make the appropriate adjustments from there.
You should also evaluate the typical lifecycle of your customers and the time it takes for a prospect to make a purchase. If the lifecycle is typically quick, then it may very well be a fairly short period of time before you see how effective your campaign is.
On the other hand, if your products or services have a 6 month lifecycle, it may take 6 months to truly analyse ROI. Many startups expect to make money straight away after posting an ad. When this does not happen, they think something has gone wrong. The key to success is patience and perseverance, especially if you are advertising for the first time.
Another major mistake when it comes to online marketing is spending too little on a campaign. While it is tempting to allocate a very small budget to an ad in the hopes of getting a lead, things rarely pan out that way. Your audience size and your product costs ultimately dictate how successful your campaign will be.
While you may strike it lucky at times, obtaining lots of leads in a matter of weeks on a small budget is unlikely. Even big corporations like Amazon allocate significant amounts of money to advertise products and obtain sales within days.
That does not mean that you have to spend as much as Amazon to get results. But if you don’t spend enough money on your ads, these platforms will ultimately distribute that budget in such a thin way that you may not even be able to generate a single lead per day.
If you are also using SEO, then you should also budget for paid tools, if you want quicker or more accurate results.
Similarly, ditching ads altogether and focussing only on organic campaigns may also be a mistake for most businesses. While it is entirely possible to build up a large following using organic content alone – this usually does not generate sales straight away.
If you are after actual sales and leads you can nurture, you will need to use online advertising. Even if you reach tons of people on organic content alone – sales are likely to take time. Utimately, even organic campaigns come with digital marketing costs involved. You have to factor in the costs associated with creating the kind of content and videos your audience will love.
This seems like an oxymoron. Of course, you are after sales. But if all you ever do is spam customers with ‘buy my products’, you are unlikely to get their attention. Your digital marketing should be about them, not you.
Market research from Yankelovich suggested the average customer saw up to 5,000 ads per day in 2007. After surveying 4,110 people, half of them said that advertising was “out of control”. Fast forward to 2021, it is estimated that the number has doubled.
So the last thing customers are likely to want to see is yet another constant bombardment of ads.
Online posts should always be focussed on adding value and providing information your customers are looking for. Popular content could include things such as tutorials, cheat sheets, ebooks, webinars, ‘how to guides’ and informative content.
Providing value also includes sharing content from other organisations that are relevant to what you sell. This does not mean sharing any content from competitors. However, sharing information from well-respected companies and authorities, in addition to your own content is also a great strategy.
As a general rule of thumb, the 70/20 rule will help you to achieve your aims. This means 70% of the content you provide should be purely focussed on value. The remaining 20% can be promotional content.
Regardless of whether you are creating organic or paid campaigns, reading data correctly is essential. Reading the metrics is only one part of the equation. Understanding what the insights are telling you about your digital marketing campaign is a different matter entirely.
This requires deep analysis and comparing results and digital marketing costs in order to decode what’s going on in your business. Alternatively, you can just hire a marketing agency that can do all of the number crunching for you.
Most of the marketing channels I mentioned above offer a variety of different options for setting up your campaign. Choosing the wrong type can really set your marketing back a step or two. For example, if your goal is to boost leads, choosing a brand awareness campaign is probably going to be unsuccessful.
Therefore you should ensure you pick the campaign that more closely aligns with your goals.
This is a very common query. What if you did create an organic Facebook campaign that got you hundreds of views in a matter of days? What if you chose the wrong campaign and still succeeded? Or perhaps you didn’t read the data at all and still made sales?
The truth is, you should always analyse the factors that made the difference between success and failure with every campaign. You should have an understanding of why a particular campaign has worked. If you experienced success despite doing all of the above, it is likely that you would have been successful anyway. Without A/B testing and experimenting with different aspects of your ad, it is difficult to tell.
It is also worth noting that online trends change over time. For example, the popularity of social media platforms fluctuates over the years. Organic content on Facebook may very well have been all you needed to get you record sales several years ago. Now it is highly unlikely without paid ads. This is because the Facebook algorithms will now only show your posts to 2% of your followers, unless you pay. That’s just one example of the changes that might affect your digital marketing strategy.
You are much more likely to increase your sales if you avoid the above pitfalls when creating a new campaign. The popularity of Facebook represents this principle rather well. In 2019, 26% of businesses reported that they planned to spend less on Facebook, according to Statista. Now in 2021, 93% are currently investing in the platform. This means that there was less competition on Facebook in 2019 than there was last year.
At one point, Instagram was the most popular social app among Gen Z users, with 33.3 million users. But now, it has been overtaken by Tik Tok, with 37.7 million users.
It is also worth noting that over time, social media platforms change their rules and prices. Groups that you may have been able to join in the past, change their entry requirements and may attract different users. Your business may also have changed slightly over time. This is why you cannot always fall back on old strategies that may have been successful in limiting digital marketing costs in the past. For marketing to be successful, your strategy needs to be updated and reviewed regularly to keep ahead of current trends.
It can be hard to determine exactly how much you should allocate towards digital marketing costs. This is why it may be helpful to have a general overview of what other businesses are spending. Of course, there is no single figure that will work for every business. But it will at least give you interesting insights into how much of a priority digital marketing should be given. It is worth noting that whenever you look at marketing spend, you should analyse ROI.
You should also note that marketing spend does not account for other factors. This includes the unique position of your business, target audience, industry and requirements.
According to Statista, online advertising spend experienced a 15.4 per cent growth in 2021. In 2020, the internet was considered the most important medium for advertisers. It accounted for 51 percent of total media ad spend.
Growth in digital marketing is expected to soar in 2022. Research from the CMI, showed that 75% of successful practitioners expect their budgets to increase in 2022 compared to 2021.
This seems to be echoed by marketing investment company, GroupM. It’s EOY report predicted that digital ad spend grew by 30.5% in 2021. It is expected to grow by an additional 3.5% in 2022.
These reports highlight the critical value of investing in your business during challenging economic times. While it is important to generate sales, it cannot replace the investment in long term brand building.
Over-indexing on sales to achieve quick wins can hurt your brand later on down the line.
Nothing breaks a budget like unexpected circumstances. This is why you should always account for emergencies when calculating digital marketing costs. Planning for unexpected events in advance reduces its impact.
Unexpected circumstances are any event that causes you to have to spend more money than you originally planned for.
It is also important to note that disruptions may not necessarily be negative. It could come in the form of a major new project or client that sucks up all your time and attention.
Alternatively, it may be due to new staff members joining or leaving the company. Perhaps you have recently received a funding boost. Or you may simply be restructuring or changing the way you do things at a company.
Whatever the unexpected event is, following the steps below will help you to remain prepared ahead of time. It will also ensure that your marketing efforts are not stalled or even thwarted by unforeseen circumstances.
Here is how you can mitigate the impact of unexpected events on your digital marketing costs:
Getting clear on your objectives and priorities at the very beginning will make it easier to identify which projects should be prioritised if any major changes occur. Having a strong mission will ensure that all tasks are organised in line with your overall goals and ethos.
Once your objectives and priorities have been identified, these should always be your first point of focus in your marketing. This means that when any major project or unforeseen circumstance occurs, your most important projects will already be complete.
It is also prudent to allocate a portion of your budget for unforeseen projects, or major projects that overrun. Setting aside a budget in advance will significantly reduce the impact of unexpected developments.
Carefully track the ROI from your marketing campaigns, analyse the metrics and cut anything that isn’t profitable. Cutting waste will save both time and money.
Predicting which marketing activities are going to yield the best results can be a challenge. Without a crystal ball, it can be difficult to determine ahead of time how successful each campaign will be.
However, there are metrics you can look at that can help you calculate which marketing activities are likely to yield the best ROI, for the best price.
According to a Google and MIT study, 89% of leading marketers use strategic metrics to measure the impact of their campaigns.
We look at some of the main ones below:
This refers to the amount it costs you to get a non paying user. For example, this may be a new subscriber, reader, registrant or fan. This can be measured by gathering together your sales data and marketing expense sheets. Then divide the total cost by the number of new customers acquired from the same channel and campaign.
This refers to the amount it costs to gain a paying user. The CPC will tell you whether or not your business can succeed. If your CPC is higher than your Customer Lifetime Value (LTV), then your business is unlikely to succeed.
While this metric is useful in helping you to understand how much you need to spend before you gain a lead; it is also important to understand how much each customer is worth. If your CPC is more than you are gaining in profit per customer, it is time to change track.
A customer lifetime value represents a customer’s value to a company over a period of time. To calculate this, multiply the average order total by the average number of purchases in a year. You then multiply that by average retention time in years.
This calculates the profitability of an investment. It is usually measured as net income divided by the original capital cost of the investment. The higher the ratio, the greater the benefit earned.
Engagement simply measures the number of interactions a user has with your brand. It can be measured in terms of the number of likes, comments, clicks and shares you get. All of those different things indicate interest by your target audience.
When calculating your digital marketing costs, you should always account for the level of engagement you get. This will give you an important clue as to how you should go forward with your digital marketing strategy.
Conversions measure when a visitor to your website completes a desired goal. A goal could be a purchase, number of leads, filling out a form or signing up to a product or service. Conversions can be tracked in a number of ways. It can be tracked by inserting code into your campaigns, using something called a UTM parameter. These can be created easily online. Some platforms will record the number of conversions you get, so all of that data is readily available to you.
There is no one size fits all that can help every company to calculate and reduce their digital marketing costs.
However, following the steps above can give you a more robust idea of how to create a marketing budget that works for you.
You may be tempted to just fall back on what has worked in the past. However, you should also factor in current changes that may impact that strategy.
This includes price changes, changes to your company or product, changes to online platforms and more.
The world of marketing is always changing – which is why it is important to regularly review and update your budget. You should also review the way you promote yourself on a quarterly or annual basis.
The key to success is to plan your strategy and budget in advance and familiarise yourself with key marketing metrics. You should also measure everything. Never rely on a single strategy even for marketing activities that are similar. Don’t be afraid to A/B test different ads, platforms and formats.
Following the above steps should give you a fairly strong idea of how much you can expect to spend. It will also allow you to see what proportion of your budget you should allocate to cover digital marketing costs.
At Markateur, we represent dozens of different companies of all sizes. Therefore the way we allocate resources and budget to each company will be unique.
However, there are a number of common factors that we always factor into the equation. This includes client budgets, expectations and digital marketing costs.
It also depends on the client’s target audience and which digital marketing platforms work best for them. Another consideration is the time constraints of the clients in question, current rules, regulations and trends.
Working out how much to spend can be a lengthy and involved process, which involves calculating risks vs benefits. While this is necessary, delegating the tedious tasks of making all of these calculations is a worthwhile investment. In the long run, Markateur helps you save you time and money. We do this by taking time off your hands so you can focus on revenue generating activities.
As experienced copywriters with many years experience in the industry, we have accumulated vast knowledge on industry best practice. We draw upon all of this to help you obtain the goals you want.