How to Set a Marketing Budget for Digital Campaigns

In marketing, the adage is you have to "pay to play." And businesses are taking this more seriously than ever. In fact, marketing spends have hit 10% of overall revenue — and it's expected to near 14% before early 2023.

Whoa. We know what you're thinking: That's a lot of money. But what's right for you? After all, you know marketing is essential. But knowing where to get started can feel overwhelming.

This worry is normal. At Zoe Marketing & Communications, many of our clients grapple with setting a marketing budget. Even if they've dabbled, there's that looming question. "How much of my profit do I have to put back into marketing to keep growing?"

We're here to guide you through this topic. In this blog, you'll discover:

• The point of a marketing budget

• How your business and audience goals are the foundation of budget planning

• Some numeric guidelines for how much to invest in your marketing 

• How to find out what your competition is up to (and why that matters)

• The basics on figuring out what a customer is "worth"

• Your next steps to setting a marketing budget that works for you

Ready? Let's take some of the sting out of setting a marketing budget!

First things first — the entire point of a marketing budget

Think of marketing as a steady drip, vs. a faucet you turn off and on. In other words, marketing is a long-term play. 

That means a marketing budget does more than keep you on track financially. It's an investment in your growth.

Your marketing budget will help you know when to make those spends (monthly? quarterly? yearly?), where to make them (targeted digital ads? email marketing? social media?) and — as we'll see in the next section — why to make them.

Business and audience goals are the foundation of your budget 

A marketing budget begins with understanding your business goals — and who you're trying to reach. Ask yourself, "What results do I want this marketing campaign to deliver?" It's like starting at the end, then backtracking your process to get to that result.

Understand your business goals

Of course, the ultimate goal is the bottom line. But business goals also run deeper than profits. For example, consider:

• Building your "branding" or visibility

• Reaching high-quality prospects or leads who are more likely to convert

• Engaging with (and retaining!) your current clients

Know your audience

Who is your target audience? They're the people you're delivering your marketing messages to. And knowing them is essential to spending your marketing money wisely (and not wasting it). 

Are they the household decision-maker? What are their interests? Where do they live? What is their "buying intent" — in other words, how likely are they to purchase what you're selling?

Lean into market research and trends to start. But then, dig in deeper. Talk to or survey your current customers, and create "buyer personas" to guide your marketing spends.

Some numeric guidelines for how much to invest in your marketing 

Here at Zoe, we focus on small- to medium-sized businesses. If you're in that camp, read on for insights on your marketing investment.

Overall spends as a percent

Broad strokes, there are percentage ranges for marketing budgets. These are the oft-cited guidelines from the Small Business Association:

• Small businesses should spend 7-8% of their revenue on marketing

• Mid-sized companies should spend 10-12% of their revenue on marketing

You'll notice that's in keeping with the "10%" stat we gave back at the top of this blog. On average, in 2022, companies are right about in the middle — 9.5%.

Remember, these are just guidelines. Those rates might be higher depending on your goal and your industry (i.e., if there's more competition).

Also, they're something to strive towards progressively. It's a mindset. And, if you haven't invested much in marketing before, it's a mindset shift.

Specific spends by channel (for newbies)

A quick note, first: If you're just starting out, you need numbers. Get your bearings fast with keyword ads. These target people who are really interested in what you offer.

How? When someone searches for a phrase you've put money behind (typically with Google Ads), your ad may pop up. Since these searchers have a "high intent" (i.e., they're searching for what you're selling), your odds of getting clicks and conversions are higher.

So what are good "starting out" spends? At Zoe, with our small- to mid-size clients, we often run campaigns within these ranges:

• General pay-per-click (PPC) marketing: 5%-20% of your monthly ad spend (this includes those keyword ads, along with Google display ads and social media ads — read the next bullet for a bit more on that)

• Social media PPC marketing: $200-$400/campaign (specifically for Meta, aka Facebook and Instagram, which is great for broad reach and awareness)

• Email marketing: $400-$1,000/campaign (powerful for marketing to folks who have given you their email but aren't quite ready to buy)

• Local SEO marketing: $300-$500/month (to help you show up more prominently in Google Maps and Google Business Profile — fka Google My Business)

• Content marketing: $2,000-$3,000/month (this is what the average Zoe client spends on a professionally written 600-800-word article that's optimized for SEO and promoted through the above channels)

Remember, these are average entry-level ranges we've found to be effective. The idea is to start small and then "scale up," based on your numbers, especially for PPC. And keep in mind that some industries — injury law and real estate, for example — are more expensive.

What is your competition up to?

Another key point: It helps to know what you're up against. The higher your competition, the more you'll need to spend to compete and reach that audience. 

A simple way to find out is to open up an "incognito" browser and search for what you offer — "braces for my kids," for instance. On that first page of Google, look at who shows up in the:

• Paid ads at the top

• Google Business Profile (fka Google My Business) section

• Organic search results

These factors — especially the first two — give a sense of which competitors are likely outspending you.

(Pro tips: Search in the morning, before they've spent their advertising budget for the day. Also, use an incognito browser to avoid your own search history clouding your results.)

The basics on figuring out what a customer is 'worth'

Last but not least, once you've marketed for a while, you can start to understand how much it costs to gain a customer. This important budgeting metric is Customer Lifetime Value, or CLV.

The questions you're answering here are: What's it cost to have a customer? What's a customer worth to me? And how much am I willing to spend?

This gets heavier into math. But in a nutshell, these are the eight steps:

1. Know your total revenue over a period of time (often about six months to a year).

2. Know your total number of sales over that same time.

3. Know your total number of customers over the same time.

4. Determine your Average Purchase Value, or APV. This is revenue divided by number of sales.

5. Determine your Average Purchase Frequency Rate, or APFR. This is number of sales divided by number of customers.

6. Determine your Customer Lifetime Value, or CLV. This is APV times APFR.

7. Determine your Average Customer Lifespan, or ACLS. This is CLV divided by number of customers.

8. Finally, determine your Customer Lifetime Value, or CLV. This is CV times ACLS.

Once you know how much marketing money it costs to get one new customer, you can see how many marketing dollars it'll take to hit your revenue goals.

Next steps to setting a marketing budget that works for you

Whew! Quite a bit goes into creating a realistic marketing budget. But you now have a better flavor of what it takes. In this blog, we've covered why a marketing budget is essential in the first place — and how your business and audience goals are the engine driving it.

We also got into nitty-gritty numbers. You know marketing should be 7-12% of your revenue budget, and you have a sense of how much to invest in channels like Meta, pay-per-click and email marketing. We also clued you in to how to scope out your competition — and, once you have enough data, how to figure out that crucial customer lifetime value.

So what's next?

• Start with determining your business goals. That's where it all begins.

• Also, take a look at short-term vs. long-term marketing. You'll likely want to account for both in your budget.

From there, do an honest dive on marketing costs. These services require time, attention and expertise. That could mean reallocating/adding personnel or using an agency like Zoe Marketing & Communications. Reach out to us any time; we're ready to help you find direction with a full client needs analysis.

Keep in mind that inaction has costs, too, as your competitors continue to invest. Those "pay to play" numbers are increasing. Make sure you stay in the game!