We get the question all the time, “How much should we spend on our digital marketing budget?” So, we’ve put together an answer that will work for small companies and large corporations alike, based on actual data that is easily obtained, and goals you want to achieve. We’ve outlined the exact steps to take to easily figure out the digital marketing budget you’ll need in order to see the results you want.
Figure Out the Website Conversion Rate
In order to effectively create a budget you first need to understand your website conversion ratio. This is the comparison of users that visit your website versus the number of visitors that take the action you are seeking (i.e. fill out a contact form, request a demo, complete a sale, etc.). This number will be imperative in establishing your overall budget because it will let you know how much web traffic you need to drive to your site in order to hit your goals.
For example, let’s say you have a website that sells headphones, and for every 100 people that visit your website 5 people purchase at least one pair. This means that you have a 5% conversion rate (please know that conversion rates vary widely based off of industries, products, and many other factors, and there isn’t a “ideal” conversion rate but you should always be testing ways to improve this metric).
(It’s also important to take into consideration that if you have a website that current customers visit, for instance to get support, you want to make sure you separate the traffic that exhibits current customer behavior from those that don’t, in order to truly understand your conversion rate. Also, monitor this metric on a fairly regular basis since it can change often.)
Establish Marketing Goals
Once you understand how effectively your website converts visitors, you can set more realistic goals and better understand just how much traffic you need to drive to your site each month. Using the example above, let’s say you sell headphones for $100.00, and you want to make $10,000/month. This means that you need to sell 100 pair of headphones, so you need to drive 2,000 people to your site every month to reach this goal (Web Traffic x Conversion Rate x Price = Total Sales).
Keep in mind this number can fluctuate if customers typically buy more than one product, but for illustration purposes we’ll just keep it simple here.
Research Marketing Channel Costs
There are quite a few ways for you to spend your marketing dollars online, and understanding where to put your money should involve an understanding of your target audience, their demographics and psychographics, and how you can use this information to target effectively (we’ll cover this topic in an upcoming article).
For now, let’s assume that you’ve chosen to use Google Search ads as your only channel of digital advertising and you want your ad to appear anytime someone searches for the keyword “headphones.”
The first thing you’ll need to do is set up a Google Ads account. From here you can research the keywords that you select and identify the cost-per-click (CPC). This is how much you will be charged by Google every time someone clicks on the ad that you set up for that particular keyword. To go along with the example we’ve been using, we’ll say that every time someone clicks on your ad for the “headphones” keyword, Google will charge you $1.00.
Set Your Digital Marketing Budget
Now that you have the data you need to make an informed decision on how much you should spend on digital marketing, it’s time to come up with the budget. You know that you need to drive 2,000 people per month to your website in order to sell 100 headphones. At $1.00 per visitor, you would need to spend $2,000 per month in Google Ads.
What Do I Do If Your Can’t Afford to Drive the Traffic You Need to Meet Your Goals
Many times when performing the research to set your digital marketing budget, people quickly realize that they need to spend more money that makes sense, or then they are willing to, in order to hit their targets. Below are some things you can do to help reduce the amount of money you need to spend.
- Improve your website conversion rate
- Quite simply the better your conversion rate is the less traffic you need to meet your goals. This is best accomplished by looking to see where people are exiting your site, how long they are staying on each page, and a/b testing.
- Research different platforms
- Maybe Google Ads are too expensive, but ads on a social media platform could still work for you.
- Think about using retargeting campaigns. These types of campaigns target people who have already been to your website but didn’t convert. They are useful in getting people who were already somewhat interested in your company back to your site for another shot at converting them.
- Begin building your own email marketing distribution list
- Try using interesting content, newsletters, or coupon codes and get visitors to input their email address in order to receive the discount or information. This way you can also connect with them via email campaigns.
Key Take-Aways
Digital marketing is a great way to drive website traffic, but understanding how much traffic you need in order to hit your goals is a key factor in setting your online marketing budget. Keep in mind that there are many ways to drive traffic to your site, some more expensive than others. Finally, above all else, constantly be evaluating and testing things you can do in order for your website to convert visitors to leads or better yet, customers!
It is vitally important to understand these basic concepts early on if you are planning on incorporating any sort of digital marketing into your business. This will help you factor in how much you should charge in order to make your desired profit margin.
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