Regardless of the size of the business, devising a solid digital marketing plan is critical. Your marketing budget is an integral component of your overall business strategy. To help realize business goals, the budget must be realistic and the outcome measurable – you will want the investment to translate to tangible results, such as improved brand recognition or increased revenues. Without a solid, well-defined digital marketing plan, it is possible for you to overspend on your marketing costs.
A digital marketing agency will probably advocate spending 10% of your revenues on growing the company and 5% to sustain it; in reality, however, a lot more funds go into the marketing budget as compared to growth and subsistence. The exact formula to determine just how much is an ideal figure to spend on marketing depends on several unique factors, such as the industries you do business with, the nature of your business, as well as your customer base. That said, there are some budgeting variables that are common to almost any type of business in almost any type of industry – taking these into account will help you decide how much marketing dollars ought to be set aside.
Underspending could be a waste of time and resources
It is crucial at this juncture to point out that spending way below your marketing budget is actually a waste of time and resources. To use an analogy, think about the business you are running: employees are a resource that you use to generate income, as most other businesses do. Underutilizing this resource just so that you can spend less money is tantamount to wasting the potential inherent in the resource. Your brick and mortar retail store may be operating in a prime location where your target customers would pass by often; but if nothing is being done to promote the most sought-after products you are selling, nobody will know that you exist – this wastes the location’s potential. When you do not invest, or fail to invest sufficiently in promotions and advertisements to grab your target audience’s attention, then this is akin to handing customers to the competition on a silver platter. This runs, definitely, contrary to good business sense. That said, however, it still pays to be prudent in spending – marketing dollars included – and not over-budget in one single aspect of the business. A systematic, disciplined approach towards setting a realistic marketing budget will help in advancing your business while ensuring continued sustainability for your business.
Devising a practical digital marketing budget
Let’s now examine the three major steps that you can readily employ to help you take charge of the budgeting process. By giving each step considerable thought, it will help illuminate the areas that need prioritizing and focus, while ensuring maximum return on investment for your efforts.
1) Evaluate your current financial situation
The first and most important step in creating a solid marketing budget is to assess your current financial situation. This takes into account your existing financial strength, as well as the projected revenue and costs that will accrue to your business for the next few months. Expected deviations from billings and collectibles should also be factored in, so that you can obtain a complete picture of your business’ financial health. With these figures, you will be able to have a clearer idea of how business performance and liquidity will turn out to be in the near, foreseeable future.
Once you can derive the amount of cash you can set aside for investing in your company, you will be able to allocate a specific amount to developing each department, including marketing. Prioritize and divide the money according to the business goals you wish to accomplish within a particular period or financial year. For example, if your top priority is to attract more customers, you might want to freeze hiring until your customer base has grown to a certain level. In this case, you will be allocating more budget to beefing up marketing at the expense of growing headcount.
2) How do you intend to spend the marketing funds?
After determining and allocating the amount of money you have set aside for your marketing funds, the next step of the budgeting process is to decide how you want to spend the money. This encompasses a few aspects: the activities you want to engage in, the frequency of these activities, and the period(s) at which these activities are to be carried out (for example, running a promotional campaign during festive seasons or important holidays to maximize revenue). These aspects are also highly correlated to the following three questions that need to be addressed:
- The size of your budget
- Past experiences
- Location of your target audience
Funds being a limited resource, you will want to organize your marketing expenses according to how much you have at the moment. Depending on the size of your budget, you can start off with low-cost marketing activities such as simple online display ads or email blasts to bring in new clients, to running budge-intensive programs, such as complex, high-visibility campaigns to attract certain customer segments. Past experience can be an excellent teacher, in terms of providing insights as to what works, what does not, and what needs to be tweaked to improve the quality of the outcome. Lastly, knowing where your target customers are is critical; it is pointless to use in-store marketing where your customers do not even visit stores in the first place!
3) Data assessment
The last and final step in creating a digital marketing budget is to analyze your overall plan and make the necessary adjustments to refine it. Deploy what-if scenarios and forecast how they will play out, and possibly, the effects they might have on your marketing decisions. This helps in assessing the validity of the plan, while keeping wastage low as you are only focusing on what is optimal. Ultimately, the goal of marketing is to bring in more revenue; if at any point of time you find that the costs incurred to generate the target revenue exceed your expectations, it will be prudent to halt the process and try another alternative.
Throughout the entire digital marketing campaign, monitor the progress and collect data about it diligently. Keeping a record of its performance will help you measure the effectiveness of this approach, as well as giving you an objective reference for future activities. Business acumen and experience, while important on their own, should be supplemented by facts that will make future decision-making even more robust. Analyze changes in revenues and determine if it has increased, remain unchanged, or decreased and link it back to the activities you have undertaken. From there, it becomes much easier to decide on the next course of action.
Formulating and improving your marketing strategy begins with creating a solid budget. However, setting aside a figure arbitrarily is detrimental to the business, and should be approached with caution. Once the plan has been firmed up, action needs to be taken and commitment to the plan is key. Measure, collect and analyze the data as the activity goes along, so that you have a feedback loop that helps you with the next decision to be made. When you have a budget to guide your marketing activities, it will help minimize the risk of overspending. In this aspect, a full service digital agency will help provide consultancy on planning your digital marketing budget through a complete analysis of your existing business, goals and constraints.