How Should You Budget for Digital Marketing?

Short answer: like you do for everything else–create an annual budget.

Determining Your Digital Marketing Budget

Determining Your Digital Marketing Budget

Search marketing channels and tactics proliferate so that only the largest companies can do it all in one year. Prioritizing and then estimating labor time and vendor costs will produce your annual budget, but that requires rare breadth and depth of expertise. Instead, look to the average of what businesses spend on digital marketing.

SBA.gov suggests 2% to 8% of revenue for marketing, not including sales people’s salaries, depending in part on how new your business is. Start-ups often exceed 40%.

This Gartner study on digital marketing budgets is one of the best and reveals that on average US companies spent 2.5% of revenue on digital marketinggartner.com digital marketing spend report.

Regarding the percent of marketing that goes to digital marketing, this article is worth reading: avalancheinternetmarketing.com – determine internet marketing budget. It shows the following average percent of revenue budgeted for marketing and then digital marketing.

  • B2B companies: 5% on marketing, 21% of that for digital marketing, or $105,000 per year per $10 million in revenue.
  • B2C (consumer) companies: 15% on marketing, 21% of that for digital marketing, or $315,000 per year per $10 million in revenue.

Of course no business is average. Myriad factors in the marketing environment and in the growth stage and kind of a business justify wide deviations from those averages. In 2012, Converse put 90% of its marketing into digital; Lexus 70%. My firm has a client in the housing business who, in the housing crisis, moved 100% of marketing into digital, mostly search marketing, and thereby survived to prosper when the market improved–with many competitors out of business.

It’s not clear to me whether the averages revealed in the above article include all website costs or only costs related to marketing the website, like conversion rate optimization. But even if it includes all website work, digital marketing consumes a substantial and rapidly growing piece of the pie.

In a sense, all web marketing, not just PPC, is a bidding environment. If your competition is behind the curve, you can spend less than the applicable US average.

My blog post about Resisting the Decline in Search Marketing ROI for Small Businesses and my Visibility Magazine article on the Freakonomics of search marketing show that if a mere 1% of 1000 competitors for your search terms invest sufficiently, your search marketing competition increases 100%.

In theory the day will come when the ROI of search marketing will be on par with non-digital marketing because enough firms do the math that shows how much to invest. This in turn will bid up the costs, and thus depress ROI, so that radio, TV, newspapers, magazines, trade shows and other “old-fashion” marketing will be equally or more cost-effective. That day, if it ever comes, is still a long way off. Meanwhile, smart marketers will increase digital marketing budgets, and earn handsome returns quickly.

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