How Much Should You Spend on Digital Marketing?
- Most businesses spend about 10-12% of their annual revenue on marketing.
- Of that budget, most companies typically spend 35-40% of that on digital marketing.
- We approach marketing scientifically, so your digital marketing spend is based on metrics like keyword volume and audience size.
- We always recommend that remarketing be used in parallel with paid search because those users have expressed interest in your brand already.
Depending on what you read, different research groups state that businesses should be spending approximately 10-12% of their annual revenue on marketing. These percentages aren’t stone-clad; the percent varies per industry and even by the product or service that’s being marketed. For a starting point though, 10% is a great place to begin. Of that 10%, most companies are budgeting anywhere from 35%-40% on digital marketing.
Determine Your Marketing Spend Scientifically
At Redefine Marketing Group we obviously value digital marketing and advocate for it’s long-term value to your business. We also realize that when companies first launch their marketing efforts, it can be daunting. If results don’t come right away, most businesses are inclined to pull back on their marketing budget. We approach marketing scientifically, so your digital marketing spend is based on keyword volume and audience size. We rely on tried and true procedures and calculations so we know we’re allocating the right portion of your budget on digital marketing.
As we’ve discussed previously, we prioritize search over social, video, display, or other types of paid digital marketing. We push search to the front because users who are looking for something specific are more inclined to click on an ad and are likely to do that immediately. So if you’re positive that paid search will be in the mix, how much budget should you allocate?
How We Determine Your Paid Search Spend
First, there are some concepts that’ll we’ll need to explain. The basis of paid search is that we bid on keywords that are relevant to your business. If your company sells running shoes, we might tarket keywords like running shoes, running trainers, or trail running shoes. When we bid on those keywords, and a bid wins, your ad is served. The thing to keep in mind is that there are only so many searches done for any keyword in a location during a certain amount of time.
Let’s use the city of San Francisco as an example in this case; there are on average 1,000 searches per month for the keyword ‘running shoes’ in San Francisco. If you bid on that keyword, you could never serve more than 1,000 ad impressions in San Francisco in a month. That is not even taking into account that other businesses are also bidding on that keyword. That means you can’t win an ad position 100% of the time or even have an ad served 100% of the time because other marketers will also win ad auctions. Within AdWords and Bing there is a measurement called search impression share, which the equation below represents:
Search Impression Share = Impressions Served / Total Eligible Impressions
This metric gives you an understanding as to how competitive your business is within a given area. We recommend at least a 25% overall search impression share for the area you’re targeting. That percent is essential when calculating a paid search marketing budget because we can pull reports on the number of searches for specific keywords before we launch a campaign and then use benchmarks for CTR and CPC to determine a minimum effective budget for paid search to reach 25% of available impressions.
Remarketing & Social Has a Place, Too
Now that the paid search budget is known, allocation of the remaining budget will go to other digital platforms. We always recommend that remarketing be used in parallel with paid search because those users have expressed interest in your brand already. Remarketing is usually a negligible portion of your overall digital marketing spend, although extremely important. We often recommend having 10% set aside for remarketing, but it may even be less at first because remarketing targets user who go to your website and that will increase as you add digital marketing.
The next paid platform we most often recommend after paid search and remarketing is Facebook; most other social media projection calculations are similar.
Facebook marketing works by targeting users based on their interests and online behaviors. Going back to running shoes, you might want to target runners within the city of San Francisco with Facebook ads. Before any social campaign begins, Facebook and other platforms like LinkedIn or Pinterest will tell you how large a target audience is. Facebook projects that there are 230,000 people in San Francisco between 21-45 interested in running.
Studies have shown that serving the same person the same ad over and over decreases their likelihood to click on it. Through our testing, we’ve seen that 3 of the same ads per person, per month, is the highest frequency to hit while still maintaining performance in a platform like Facebook.
Using the example audience above of 230,000 multiplied by three gives you on average the number of impressions available to serve based on our best practice, or 690,000 impressions. We apply benchmarks for CTR and CPC, much like search, to calculate the budget for this ad frequency. This budget amount is your maximum digital marketing spend on Facebook per month.
Now that we know your budget ceiling for Facebook, we also calculate the budget if you were only to serve ads to the 230,000 users once. A budget somewhere in between of those two numbers is what we recommend, depending on how much you have left after search and remarketing and depending on whether you want to add budget to upper funnel tactics like display, video, or even streaming audio.
What Should We Do With Leftover Budget?
If you have remaining budget left over from search, remarketing, and social, we recommend putting that remainder into one of those other platforms we just mentioned. In general, there is so much available inventory in those platforms that whatever budget you can allocate should help. You will likely not hit a budget ceiling unless your targeting is precise. These tactics work to make people aware of your brand and drive users to search for you later, so we employ them when we’ve maxed out other channels.
The projection process above allows marketers to reach a significant portion of consumers, so they’re spending the right amount in the right medium which ultimately has a positive impact on sales and leads. We are happy to work with you to figure out how much to spend on digital marketing. Reach out today!