How To Decide a Digital Marketing Budget

Several things are unique about digital advertising. One is that everything is trackable. Every dollar spent, every ad displayed, every click that happens, every customer that comes to the website, and every purchase that occurs, can all be traced back to its source. Everything has value.

This is different from other forms of media. We don’t always know how many people looked at a piece of direct mail, or a billboard, or even a TV commercial. We can estimate, and often we can track some form of return on investment. But there is no exact tracking function in these media. There is a lot of guess-work.

Because of this, we see more value (or at least, more efficiency) in digital marketing because we directly track our results, and more specifically, we know EXACTLY how much return we are getting on our investment (ROI).

Now, that does NOT mean that you should automatically push your whole budget into digital. On the contrary, it might mean that you don’t spend ANY on digital marketing if that is what the data is telling you.

That’s the thing about digital marketing: it is forcing us to change the way we THINK about marketing.

There is no longer a reason to just throw money at a project and then just wait for the bump in sales. There isn’t even a strong argument for a simple brand awareness campaign. Yes, there might be a time and place for that, but there has to be more strategic measurement, more calculation. Digital does not allow us to skip those steps.

So, when you’re sitting down with your digital agency, trying to hash out a monthly budget, there are a few things to consider. Here is a simple way to think through them:

  1. How much can you afford to spend?

    • Simple. Usually, your boss decides this. OR if you ARE the boss, you know exactly how much you have to invest in something that can potentially bring in more money.

  2. How much do you need to get back from this investment?

    • Often, breaking even on advertising seems like enough. It isn’t. You might as well have saved the money and tried something more productive.

      1. NOTE: it’s okay to start at break-even, but you don’t want to stay there!

      2. Make sure your strategy accounts for this!

    • Think about some of your other costs.

      1. Consider at what point do you start to make a profit?

      2. Don’t forget the management fees from your agency.

    • Once you think you are close, break it down to the purest form you can. Also, give it the highest level of observability that you can.

      1. For example: For every dollar that you spend on advertising, you need to make three dollars in revenue. We call this a 300% return on ad spend (or ROAS).

      2. This makes it easy for you to know whether or not your advertising is successful.

      3. It also gives you a bottom line that ties easily into your year-end sales calculations.

  3. DON’T EXPECT THE ENTIRE BUDGET TO BE SPENT RIGHT AWAY

    • We aren’t talking about direct mail where we budget out production and mailing costs and we are on our way.

    • A good digital marketer will use what we like to call “optimization techniques.”

      1. The digital marketer will slowly test and find keywords, ads, and bids that operate AT OR ABOVE the ROAS goal (remember we can track those things all the way down to that level!) that you have set.

      2. Once they find these successful parts, they will push more of the budget into them, while trying to find more and more heat in other places within the account.

        • This means that early on (often within three months of starting an account or significantly different budget level), the entire budget will not be spent because there are a strategy and goals to be met.

        • This way we never waste money, and you always get the return on investment that you need to justify your advertising dollars.

      3. Eventually, your analyst will tell you that there are either new opportunities to spend more and get a better ROAS; or that for now, it’s best to stick with the amount and strategy that you have, because there aren’t any better options.

        • Sometimes, depending on your industry, the opportunities are endless (literally spending millions of $’s per month!). Sometimes, the market just hasn’t caught up to the digital world yet, and so you find a couple of things that work, and you stick with them while everyone else catches up (maybe you spend a few hundred $’s per month).

        • And either is OKAY! Just so long as you have a strategy, and goals that you stick to strictly. Sometimes these can be flexible. But you have to know what they are!

  4. Commit to the plan.

    • We usually suggest giving a window of three months to dictate whether or not performance is as effective as you need it to be to continue.

      1. The first month is tweaking and finding the “heat.”

      2. The second month begins the “optimization process.”

      3. The third month should begin seeing full results.

  5. Enjoy the spoils!