Tim Priebe

Determining your online marketing budget

There’s an old saying in business that says “What gets measured gets managed.” Are you running your organization’s marketing that way?

A well-planned budget is one of the most important things you can do for your marketing. If you spend too much, you’ll stagnate because you don’t have enough money to develop in other areas. Spend too little and you’ll cut yourself off from the growth that good marketing could give you.

There are a couple of rules of thumb that can help you determine what your budget should be.

Marketing as percentage of revenue

The United States Small Business Administration suggests that businesses of under $5 million in revenue per year allocate 7 to 8 percent of their resources to marketing. That also assumes margins of 10 to 12 percent, though. You may have to eat more cost and lower your margins to get a reasonable marketing budget if you’re not working with that sort of money.

Marketing depends a lot on the industry. In general B2B requires less percentage of revenue than B2C. It also costs less to market a company that’s been in business for a while and has an established brand than it does when a brand is starting up. Some companies may allocate up to 40 percent of their budget to marketing when starting up if they’re in a hyper-competitive industry. Though that’s an extreme case, you may find that you need to spend more to get started.

Look at your industry first. Figure out who your competitors are, how competitive the market is and how much effort you’re going to have to put in to change consumer attitudes. Do research. Don’t just go in blind.

Then figure out your best marketing mix. Many companies allocate 10 to 20 percent of their marketing budget to social media, but your mix may vary. Maybe you do a little more print. Maybe you’re an ecommerce company that wants to scale fast, so you spend more on paid ads on sites like Facebook or Google. It’s all going to depend on your industry and your competitors.

Return on investment

Once you’ve established a marketing budget and a percentage of revenue, you need to be able to measure where your money is going.

Some marketing initiatives are hard or impossible to measure, like blog content, SEO, or print media. These are long-term awareness, branding and SEO plays, not something you can measure short-term ROI on.

But some things you can measure. Say you were to run a text message campaign with a coupon code for a pizza place. How would you figure out the effectiveness of the campaign?

There’s a simple rule of thumb: revenue to cost ratio.

Simply put, it’s the incremental revenue driven by a measurable marketing campaign divided by the cost to run the campaign. For most companies getting a 5x return is a good result, and anything over 10x is fantastic.

Keep track of your marketing campaign costs and revenue. Then measure and manage.

As your business expands, you might be able to expand into something like attribution modeling or other more fine-grained measures of results. But your rule of thumb should still hold for much of what you do.

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