How much should your small business spend on digital marketing this year?
It’s a question a lot of companies are grappling with. In the wake of last year’s turbulent times, many are still finding new ways to adapt to whatever their reality is now.
Marketing spend is often one of those items that gets targeted for savings, but what if you want to see results?
Digital marketing has become very necessary for businesses looking to improve their reach. This form of marketing covers a lot of scope though – some activities require budget (like ad spend), while others can be done by employees in-house, without always needing extra budget (like posting on social media or starting a blog).
This leaves the question, how much do you really need to spend on digital marketing to see results in 2021?
Table of Contents
Why it’s important to keep marketing
First of all, let’s touch on marketing budget and why it’s important to still have one. In tough times, many companies retrench marketing in an effort to make savings. Marketing may be seen as a luxury that should only be used during flusher periods, but does it make sense to cut back in uncertain times?
There are a few examples that show taking the opposite approach can pay off. One that is widely cited is the example of two competing cereal companies – Post and Kellogg in the early 1930s. These two great rivals had held similar market share and were strong competitors.
When the depression hit, Post pulled back its marketing budget in an effort to slim its outgoings and ride out the tough economic period. Kellogg however, took the opposite view. They pushed ahead with marketing, even doubling its budget and investing heavily in radio advertising. During this period, the brand released its new Rice Krispies product.
The move worked for Kellogg – by 1933, while the economy tanked, its profits had risen by almost 30 percent and it had cemented themselves as the dominant player in the cereal market.
It seems that Kellogg took a much bigger risk by spending money during that difficult period, but it makes sense when you think about it. Which company was everyone now hearing from? Who was more likely to be on their minds if they were thinking of buying cereal?
On the other hand, pulling back marketing budget should be looked at as risky, too. Most companies have worked hard to get to the position they’re in now – if you go off the radar for a period, people start to forget. You just might find you have to work extra-hard to claw back a position in the market when you do decide to spend on marketing again.
In our view, marketing remains essential. Sure, you might need to cut back some budget depending on the current situation of your business, but it doesn’t make sense to cut all marketing. You might find you’re also cutting off your supply of customers.
Where should your marketing budget go?
Ultimately, marketing budget should go toward activities that help you to reach your goals. What is it that you want to achieve this year? Revenue growth? Growth of your email list? Brand recognition? Different types of digital marketing activities can help with those goals.
For example, let’s say you want to outrank competitors for certain SEO keyword phrases. Your ultimate goal is to rank near the top of search results for the term/s because this will naturally get you more search traffic to your website. This means you need to devote at least some marketing budget to SEO. You might look at something like Link Building for SEO to help boost your site authority, or Google Adwords to ensure that your ad is placed near the top when people search for the keyword phrase that is relevant to your products or services.
Competitor analysis should always play a role in marketing budgetary decisions. If you have a competitor outranking you for some relevant local keywords, you’ll want to boost your paid search advertising in the short run, until you can outrank them organically in the long run.
Are you unsure how to do a digital marketing competitor analysis? We can help! This is a key step of our free marketing consultations. Plus, we put together a list of the best free and paid SEO tools that can help you collect this data.
Here are a few other suggestions to help you prioritize and focus on where marketing spend should go:
- Clearly define your target demographic and find where they are online. Those places are where marketing budget should go. (For example, it wouldn’t make sense to target Snapchat or TikTok if most of your customers are outside of the demographics that predominantly use them. Sites like Smart Insights regularly post data on social media use and trends).
- Identify your key challenges. Are there any barriers in the way of you achieving your marketing goals?
- Look at where competitors are spending their marketing dollars – what insights can you gain?
- What “must do” tasks do you have requiring a budget? For example, if your website needs work done to optimize the user experience, that should be prioritized because there’s no sense spending to send traffic to a less-than-optimal website!
- Is your target market mostly local? Then local advertising initiatives are your best bet to start with.
- What resources do you have available? This plays a role in what is feasible for your business to take on. Marketing campaigns take research and careful crafting to be successful. Do you have someone in-house who knows digital marketing? Can you hire an agency? Do you need extra help with tasks that no one in-house has the bandwidth for?
Do bigger budgets always win?
Competing with larger businesses with bigger marketing budgets can be tough for small businesses. They seem to flood every platform and it might seem like an impossible task to compete.
Do bigger budgets always win though? The answer is no, not if you’ve done your homework, identified your target market and crafted messaging that will appeal to them. It’s more a matter of being wise about how your marketing dollars are spent, being very targeted rather than taking the “spray” approach that many big companies do.
Smaller businesses can find advantages in their size. For example, they tend to be more nimble than big businesses and able to adjust their strategy quickly. For example, you might spot specific customer pain points more quickly and adapt an offer to them.
You can find ways to be visible online with a consistent strategy. Remember too, people like to buy from small businesses! There’s a growing movement of people who prefer to “shop local,” so this could potentially be to your advantage too.
How much should you spend?
Many businesses find setting a marketing budget to be challenging. They’re just not sure what a reasonable amount means. A good place to start is with a percentage of revenue. If you can commit to investing a certain percentage back into marketing, you’ll have a figure to start with.
Getting into specifics, here’s what we’ve found:
- If you can spend 6 – 9% of revenue on marketing, this tends to be enough to maintain your current position.
- If you can spend 10-14% of revenue on marketing, this will grow your current position in the market.
- In dollar value, that obviously varies, but we’ve found a minimum of somewhere around $3000 per month will produce sustainable growth over time if invested wisely into marketing.
Another factor to consider is that the amount you need to invest to get results can vary widely from industry to industry.
An example is if you’re targeting highly competitive keywords – you might need to spend more if those keywords are used by multiple competitors. On the other hand, a small local law firm might get good results spending $1000 per month targeting local keyword searches.
Focus on your “Blended Lead Cost”
Trying to figure out how much you should spend on web advertising is a stressful exercise for small businesses. You need to get your name out there and compete, but it’s not like you have a slush fund to burn. Every dollar you spend has to count.
The biggest stressor is that online ads can look too costly to be a viable option. In fact, you’re likely measuring your ad performance too narrowly.
Think of how you buy services for your business. Do you click on a banner and immediately sign up? Probably not. So don’t expect that buying behavior to apply to your own ad campaigns and don’t measure your ROI on that limited of a basis.
When you’re searching for a vendor yourself, you’re going to check out a business multiple times before you decide to reach out and buy. The same is true with your customers, and clicking on your ad is likely one of a number of touchpoints in their buyer journey.
Here’s a typical example of how this works in the wild:
There’s actually a whole suite of analytics products dedicated to solving this issue of “multi-touch marketing attribution.” Don’t freak out; you don’t need to buy another tool in order to figure out how much you should spend on ads. Sure, those tools are impressive and they might make sense for you as you get more sophisticated, but there’s a more simple (and cost-effective) way to take a more holistic view of how your ads contribute to tangible results.
The metric you need to focus on is your “Blended Lead Cost”
It’s myopic to view your paid and unpaid sources of traffic separately. As you see above, the customer journey is complex. A visitor who found you through an ad could easily come back and convert after multiple visits via direct or organic.
You need to measure your results as a product of all your marketing efforts.
A focus on blended lead costs helps solve the problem of “leads from ads are too expensive but I can’t scale my free, direct, and organic leads.” By focusing on the blended picture, you’re likely to find that as ad traffic goes up, overall traffic to your site goes up. This makes sense; you’re raising overall awareness of your brand.
For example, at Pronto we had a really hard time getting leads to convert from display banners, so we decided to test a reduction in banner traffic. Lo-and-behold, pretty soon we saw a marked drop in leads from direct and organic. We hypothesized that banners were increasing the number of people seeing our brand and as a result, typing in our URL directly or company name into their search bar. So not only did we turn the display back on, we increased the budget to get more traffic and we soon found we got even more leads overall at a blended lead cost we could afford.
You’ll likely find that the blended lead cost is much more tolerable in terms of ROI, and as a result, you can actually commit more ad budget. When you are able to commit budget to ads consistently over time, you get the benefit of seeing trends and can optimize related channels. If you’re staying under your target blended lead cost, you have lots of room to test.
What should you be spending on digital marketing in 2021?
Enough that you’re able to successfully achieve your goals. We’ve established it’s important to keep marketing, even if the temptation is to pull back the budget during uncertain times. History tells us that if you have a good product or service that customers want, you won’t lose with strategic marketing spend.
Bigger doesn’t always win. If you’re a small business with a limited budget, you can compete with careful research and planning. If you’d like to know more about how to get digital marketing working well for you in 2021, talk to us at Pronto Marketing. You can book a free consultation here.