How much should we spend on digital marketing?

January 20, 2017 by nishantoommen

If your resources are scarce then it is necessary to plan and allocate your budget in a way that it aids in getting better ROI. A marketing budget helps in financial risk management and reduce cash overflow. For that, you need to create a clear picture of where you are heading (road map) and what you intend to achieve in a limited time, say one year. So the first question that you should ask is how to create a digital marketing plan and based on the plan how much should I allocate to different marketing campaigns. In this article, we will discuss how to calculate the budget for different social campaigns like SMM, PPC, and Email Marketing.

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How to Calculate Email Marketing Budget?

Emails are the best and cheapest platform through which you can reach out to your audience. Stats published on campaignmonitor.com clearly says that email marketing gives you an ROI of $38 for every $1. A personalized email is prone to give a CTR of 14% and increases the conversion rate by 10%. There are lots of online tools to calculate your budgetary expense. Still, I prefer the old school, It helps to knowing the process in detail.

Consider you have a mailing list that consists of 2 million people. Blatantly we can admit that everyone in the mailing list won’t fall into a single category. Definitely, you will be having a funnel with prospects in awareness stage, consideration stage, and decision stage with varying buying behavior.

Let’s assume that your objective is to generate $20 million. The conversion rate on awareness stage is 1%, consideration stage is 3%, and decision stage is 5%. Out of the 2 million people, 50% (10,00000) of them are in awareness stage, 30% (600000) of them are in consideration stage, and 20% (400000) of the in the decision stage. Then the total no:of people converting into paying customers will be,

Conversion in Awareness Stage – 10,00000 x 1/100 = 10,000 (People)

Conversion in Consideration Stage – 60,0000 x 3/100 = 180000 (People)

Conversion in Decision Stage – 40,0000 x 5/100 = 200000 (People)

So we have a total of 390,000 people who will convert into paying customers. We mentioned earlier that the ROI on email marketing is $38 per $1 spend.

Total ROI = 3,90,000 x 38 = 14820000

So in order to make 14820000, you should allocate a budget of $3,90,000. Considering that you are doing the email marketing.

How to Calculate PPC budget?

Pay Per Click is one effective way to drive traffic to your website. It is simple because based on the amount of money you spend on Paid Ads the number of visitors to your website will increases, kind of directly proportional. It has its pros and cons. For example, If your end goal is to increase conversion and you bid for a keyword “Online Marketing”, it’s obvious that you will end out losing all your marketing budget and the conversion rate will be meager in number. Wondering why? To know the answer you need to create a buyers persona and find which keyword falls in the decision stage and which one will give you better return on investment.

Let’s consider that your end objective is to generate 200 customers and the conversion rate is 2%.

Note: When you are using a tools to identify the bid amount, please keep in mind that the actual bid amount tends to differ from the bid amount shown on tools. The bid amount can also be affected by geography, quality score, etc. Remember not to fall into the pitfall of ego based bidding.

Traffic required to meet your goal = customer need/ conversion rate

Traffic required to meet your goal = 200/0.02 = 10,000, So out of 10,000 people who clicked your Ad only 200 people got converted.

Now it’s time to know how much money we should spend in order to get 200 customers. Assume that the bid amount is $10 per click. Here the total money spent on converting 200 customers is

Total Expense = 10,000 x 10 ,

Total expense = $100000

How to Set a budget for Social Media?

Social media is a briskly moving marketing channel, that’s one good reason why 92% of retail brands keep their engagement rate high on social platforms. Roughly 7 out 10 internet users are active on social media. Around 2.1 billion people in the world have social media accounts. These stats shows the importance of why you need to reserve an online marketing budget for social media.

Let’s see on percentage wise how to split social media budget.

Visual – Graphics: 40%

Visual graphics play an important role in social media. Tweets with images inside are likely to get 150% more retweets. So it is necessary to invest in buying some tools that help in creating compelling images. Piktochart and canva are few tools that can be used for creating images. You can also buy images from online marketplaces fiverr, Zeerk, etc. Through a $10 subscription on stock photos, we will be able to get access to a gallery of photos.

Advertising on social platforms: 40%

All social platforms provide some or the other advertising options. The best thing about social media is that the advertising cost will be much lesser compare to other alternates. Most social platforms come up with free trail and other offers.

Automation: 10%

There are lots of tools available online which helps to automate and schedule posting times. Since social media is all about engaging with your target audience it’s necessary to constantly show your presence on social media. For eg: Hootsuite allows you to automate the whole social media process across 3 platforms, If you need more then obviously you need a premium version. For a seamless flow across all social media, it is better to get the premium version of Hootsuite and connect it will all your socials media platforms.

Response: 10%

To keep the engagement rate high and to interact with your target audience continuously you need a tool that sends you the notification whenever your brand is mentioned.

To Compete with multinational conglomerates and local businesses, it is a necessity that you strategically reserve an online marketing budget on your own. Dedicate a budget solely for the growth of your firm. Don’t throw out promising figures without a strategy in place. Your Budget should be designed to drive an entire year of campaign choices.