As a business owner, let us say you have decided to invest in digital marketing & are ready to set aside a marketing budget. How much should you spend? What percentage of your total revenue should go into digital marketing? Is there an industry benchmark? What is working for others? The answer to these questions are crucial for your digital marketing success.
Digital Marketing is a Profit Center and not a Cost Center anymore:
Digital Marketing has evolved. There was a time when marketers could not justify the ROI (Return-on-Investment) of digital marketing, but that is fast changing. It is now a proven fact that investing in digital marketing produces profitable results (See 2015 Digital Marketing Trends report).
The CMO Spend Survey 2015 by Gartner, which we will use as a primary research report in this article, shows how majority of marketers (63%) consider digital marketing & advertising as a profit center and not just a cost center, in companies worldwide.
63% of marketers list digital advertising as a source of marketing P&L revenue, followed closely by digital commerce and the sale of data”
How much should you spend on digital marketing?
Now that you know it is profitable to spend on digital marketing, the question is how much do you spend.
Even though the answer to this question depends on many parameters like your overall strategy as a business, your vision, assessment of your current growth rate, revenues, capital, current P & L, etc., if you do some research on industry trends it is possible to arrive at an indicative percentage. This could help you start thinking in the right direction.
Let us consider 3 recent statistics, which points us towards a global trend in digital marketing spend (from The CMO Spend Survey 2015 by Gartner)
1. Marketing Budget = 10% of Company Revenue:
Marketing budgets remain steady at >10% of company revenue, and 50% of companies plan an increase in 2015”
2. Digital Marketing Budget = 25% of Marketing Budget
68% of companies still keep a separate budget for digital marketing, which comprises of 1/4 of the total marketing budget, on average”
3. Break up of the Digital Marketing Budget – Digital Advertising, Content Marketing & Website Development
Digital Advertising is again the highest area of digital spend (13% of budget), with content marketing and website development tied for a close second (12% of the budget)”
From the above 3 research statistics, we can infer the following:
- Marketing Budget could be 10% of the total revenue
- Digital Marketing Budget could be 25% of the above marketing budget
- Break up of Digital Marketing Budget
- 13% for digital advertising,
- 12% for content marketing
- 12% for website
- the balance 63% goes towards infrastructure and team costs – which might include hiring an agency, recruiting a manager, technology, software, digital marketing maintenance, management, measurement, monitoring, research, posting, engagement, etc.
For Example: Let us assume that your total revenue is $2 million, and if you decide to go by the above numbers, your marketing budget’s breakup will look like this:
- Marketing budget – $2,00,000 (10% the total revenue)
- Digital Marketing – $50,000 (25% of the marketing budget)
- Breakup of Digital marketing budget
- $6,500 for digital advertising
- $6,000 for content marketing
- $6,000 for website
- $31,500 for infrastructure and team costs – which might include hiring an agency, recruiting a manager, technology, software, digital marketing maintenance, management, measurement, monitoring, research, posting, engagement, etc.
- Breakup of Digital marketing budget
Startups – Special Situation:
The above numbers could be closer to reality for established small businesses than for startups. For startups, the marketing spend breakup might look different. Considering the suitability and overall low-cost structure of digital media (compared to traditional media) and considering the power of social media to spread any message and create awareness, startups might need to allocate much more than 10% of their revenues (or the available capital) for marketing. And much more than 25% of the total marketing spend for digital marketing. Digital marketing and social media tools have helped many startup take-off successfully. You can read about some useful digital marketing tips for startups here.
Hope this helps you to start thinking about digital marketing spends. Let us know if you need any help or specific advice on marketing budgets. We will be happy to help.
And if there are any other marketing spending patterns or trends that you have come across or follow in your business. Do share your thoughts in our comments section. Thank you!