What’s a Reasonable Digital Marketing Budget?

What’s a Reasonable Digital Marketing Budget?

Digital marketing is a lot less expensive than the older methods of advertising that it replaced. Even so, it’s not free. In fact, some businesses spend about as much or more on online marketing as they did on cable TV ads and magazine slots 10 years ago. This is true even when you adjust for inflation. As a small business owner, you may have wondered how your digital marketing budget ranks against your competitors of equal and larger size. Are you spending too much or too little? Should you be looking at the dollar value or the percentage of revenue?

Recommended Allocation for General Marketing

The general rule of thumb is that a business should put 10% of its revenue toward its digital marketing budget. However, some companies spend more or less than this amount, depending on their size and existing connections in PR and marketing.

Their marketing style may also dictate the budget since some companies focus on strategies that require more investment of time than money. The CMO Survey estimates that the actual amount spent is closer to 11.1% on average.

One strong contributing factor dictating how much a company spends is the type of business. Companies marketing to other businesses tend to spend more on marketing, with 16% of revenue being the norm. Meanwhile, companies marketing to consumers spend anywhere from 9.3% to 14.9% on their marketing budget.

In addition to this, the industry a company belongs to influences the percentage of revenue spent on marketing. See below for a few examples:

  • 5% in education
  • 8% in communications and media
  • 7% in tech, biotech and software engineering
  • 1% in consumer-packaged goods
  • 1% in mining and construction
  • 5% in energy

Recommended Allocation for Digital Marketing

Those numbers focus more on what a company allocates for its overall marketing budget, but what about digital marketing? That depends on the marketing strategy of the specific company. Small businesses do tend to spend a higher percentage of their marketing budget on digital methods. This may sometimes happen because the dollar value is smaller.

Online marketing tends to deliver a higher ROI for businesses. This is especially the case when it comes to search engine optimization, pay-per-click ads and social media campaigns. For this reason, digital marketing budgets have now crept toward a grand total of $100 billion spent worldwide. One study estimated that Britain and the U.S. alone spent $52 billion on online marketing in 2018. This showed a 44% increase over what U.S. and British companies spent in 2017.

Threats Digital Marketers Need To Consider

The study also tackled another problem not addressed often enough in the marketing community. How will companies handle the new data privacy laws in California and the European Union? These restrict companies in terms of how they can collect and use consumer data to keep ads relevant and target the best potential customers.

So far, tech giant Google has been on the receiving end of the biggest data privacy fines. In January 2019, the tech industry cringed when France fined Google almost $57 million over the use of personal data to customize its ads. Then in March, the EU fined Google $1.7 billion for its allegedly “abusive online ad strategies.”

This is the third multi-billion-dollar fine Google received from the EU in recent times. The tech industry believes that not only may more fines follow, but other companies may be next. This may greatly decrease the availability and effectiveness of digital marketing tools in the future, especially PPC ads.

What Advertisers Are Focusing on Now

To better arrive at a cost point that you can use as a benchmark, it’s also a good idea to learn what advertisers are spending their money on. This makes it easier for you to compare apples with apples and oranges with oranges.

Generally speaking, companies spend 42% of their marketing budgets on online marketing campaigns. Experts believe that by 2020, this will grow to about 45%. Most of this money goes to PPC ads on Google, Facebook, Bing and YouTube.

The majority of what remains of online budgets tends to go toward social media content. Marketers have a strong preference for focusing on Facebook, Instagram, Twitter and YouTube. Less popular platforms, such as Snapchat, Quora and Pinterest, tend to fall at the bottom of the list for most companies.

In a more general sense, the new focus of marketing agencies includes the use of the following tools:

  • Data-driven marketing
  • Artificial intelligence
  • Content creation
  • Short videos
  • SEO

Making Room for Mobile Optimization in the Budget

In 2019, it’s surprising to find that many businesses don’t have a website optimized for mobile devices. These websites may range from inconvenient to downright impossible to view on a phone or tablet. The font may be too small and you may have to scroll from side to side just to read a full sentence. Some don’t even allow scrolling.

This is problematic for two main reasons. Mobile devices account for 59% of visits generated organically via search engines. They also account for 64% of paid traffic. For this very reason, 87% of marketers intend to increase the amount of the marketing budget that they invest in mobile ads. Most of the focus seems to be on video platforms and social media.

The Bottom Line

Online marketing is a multi-faceted tool that has leveled the advertising field for businesses of all sizes. California’s CCPA and the European Union’s GDPR may negatively affect the use of personal data to fine-tune ads in the near future. Still, most companies don’t plan to cut their digital marketing budgets any time soon.

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