How Much Should I Budget for Marketing?

How much should I budget for marketing?

The perfect digital marketing budget is never finalized. Rather, it’s a frequently updated amalgamation of allocations that is regularly analyzed and optimized to produce the greatest returns. As marketing technology tools and trends change and evolve, so, too, do marketing budget priorities shift.

Savvy marketers are betting more heavily on the software, people, services, and ads that take advantage of digital’s potential. Companies are increasing their marketing budgets for digital marketing quarter-over-quarter at a rate unseen in nearly a decade.

Here’s how top marketers define, track, and optimize their digital marketing budgets.

How do you create a marketing budget?

A marketing budget typically range from 5 to 25 percent of a company’s revenue or revenue targets, depending on company size, stage of growth, and the importance of marketing on sales within the company’s industry, among other factors. Your company’s growth stage is the most important factor in deciding the size of your marketing budget: companies seeking to maintain their market positions budget 2-10% of revenue goals towards marketing; companies with growth targets of more than 50% (fast-growth stage) marketing budget 15-30% of projected revenue.

Once a baseline figure has been established, set aside a small portion as a just-in-case measure. Eugene Feygin, SEO Program Manager at Quill.com, who increased SEO revenue by more than $20 million year-over-year, suggests allocating 10-15% of initial marketing budget towards emergency funding. “We always have an ad hoc budget for an emergency scenario,” Feygin says. “When something out of the ordinary happens—like a module breaking or indexing issues—we can always hire an agency or a contractor to fix it quickly using the rainy-day fund without worrying about budgeting.”

Next, make allocations based on your company’s objectives and the programs that can best help you achieve them. Determine whom you are trying to reach and focus on the channels that deliver proven return-on-investment (ROI) by connecting you to your target audiences.

Luckily, search engine optimization (SEO) and search advertising are high-performing strategies with relatively low costs, so even digital marketers with a limited marketing budget can be successful.

Since joining customer engagement software company Astute Solutions in March 2016, Assistant Manager of Digital Marketing Natalie Skarzynski improved organic traffic from 5% of all traffic to 30% (a six-fold increase) and grew lead generation by 173%.

“We’re heavily focused on adding names to our database of quality leads,” Skarzynski says. “Our expenditures are for SEO and pay-per-click (PPC) ad bids. 75% of the budget goes towards PPC with the other 25% to SEO software.”

Marketing agencies also tell their clients to spend on PPC and SEO.

Jeff Selig is Vice President of Search, Social, and Analytics at Overdrive Interactive, the digital agency that helped GE grow their organic search traffic by 286% and increase lead flow by 500% for its Centricity Advance Product line. Selig advises clients to invest in SEO and paid search for the best ROIs. “Organic traffic is number one in terms of marketing value,” Selig says.

A combination of SEO and paid search has potential beyond the sum of its parts. “A search engine results page (SERP) is like beachfront property,” Selig says. “The more of it you control, the more valuable it is for your brand. If you hold two of 14 positions on the first SERP—one paid and one organic—you control a significant percentage of that page.”

Diversification is also a consideration when planning a marketing budget for your marketing mix. High-performing marketing teams employ an average of 14 marketing tools. Adopting new tools as they arrive can prove fruitful, but be judicious in which channels you go after. “You can’t boil the ocean, Selig says. “Pick and choose based on what creates return, then distribute the budget to cover,” Selig says.

Regardless of your initial allocations, prepare to pivot quickly. For Quill.com’s SEO program, Feygin creates an aggressive marketing budget but spends conservatively to ensure strategies perform as expected. “We use a circulating budget model,” Feygin says. “We stagger services or software for a few months to see if they do what they’re supposed to do. When we invest, we expect to see returns within six months. If a solution doesn’t work, we get out of it. If it performs and you can prove it to management, you’ll get additional funds to double-down.”

How do you track a marketing budget?

Optimization requires tracking and testing, both of which are easier to accomplish with digital marketing strategies than with traditional offline means. Follow the performance of your digital marketing efforts closely, tracking how users find you and how they interact with your company channels.

“Digital marketing is all about researching and testing,” Selig says. “If you’re not aligned with testing, you’re never going to know what works and what doesn’t.”

For tracking, set goals in Google Analytics or use other measurement platforms to determine the sources and quantity of sales and leads on your sites. Compare how effective your paid search efforts are in driving conversions with how well your organic search traffic converts.

When beginning a new campaign, start small with narrow targeting. Once the tactic has proven successful—i.e., that the amount spent on a typical conversion is less than what the conversion is worth—scale up, either by increasing marketing budget spend on the proven strategy or by adding a new tool.

“We use analytics to find out how many qualified leads our campaigns generate,” Skarzynski says. “As a customer moves through the sales process, we tie actions back to the referring source and what we spent to get it.”

Tracking can provide actionable data beyond campaign effectiveness. “It’s not just numbers,” Skarzynski says. “We dig into trends.”

More sophisticated tracking such as cookies enable insight into how well marketing efforts are working overall. “Organic search is the beginning of the buyer’s journey,” Selig says. “But once a user has been cookied, he or she can be targeted with ads. And we can see how many times the user comes back to our site through organic, paid search, and directly. Then we add up how much it cost to drive the user to convert to determine the ROI value of the eventual transaction.”

“Every dollar spent is a dollar towards a case study,” Feygin says. “Each campaign is an experiment to test out what will happen when you invest in a certain strategy. Even if it fails, you learn.”

How do you optimize a marketing budget?

With data from tracking in hand, identify which campaigns are successful and which aren’t. At a minimum, the value of the returns should equal costs. Ideally, campaigns will pay for themselves and then some.

“Create a value set proposition,” Feygin says. “For every dollar that goes in, you want five dollars coming out. Continue the campaign so long as the analytics work out.”

Even SEO, the cornerstone of a successful long-term digital marketing strategy, should prove its worth quickly. “When we hire an agency or service provider for SEO, we expect to see trends in the goals we’re going after as soon as three months into the campaign,” Feygin says. “It’s aggressive for SEO, but we want to feel confident moving forward. If we hire an agency to do link-building, for example, but the quality of the links isn’t what we were promised, we’ll get out of it.”

Focus on what works best for your business. Your analytics data allows you to discard the programs that aren’t performing and to fine-tune the ones that are. It should also garner attention and gain you resources to pursue winning strategies more aggressively.

“The data is what you show to management to prove your case and get additional funds to go further,” Feygin says. This is crucial when seeking year-end marketing budget.

A digital marketing budget is an ongoing process. “Budget should be shifting and evolving based on campaign initiatives,” Selig says.

Optimizing for the greatest ROI means concentrating on what works while simultaneously experimenting with emerging technologies. Connecting content marketing efforts to ROI and capturing funding for SEO success both require frequent assessments and adjustments.

“You must continually analyze what's achieving results, and why," Skarzynski says. "You can’t set a campaign and then forget it and assume it’s working."

See how expanding your marketing budget to include SEO efforts can increase organic traffic!