In today's fast-paced and technology-driven world, digital marketing has become very important. It helps businesses reach their target audience using various methods, such as SEO, social media marketing, email marketing, and more. When creating a digital marketing strategy, a budget is one of the most essential elements. 

A budget considers the resources available for digital marketing and how to allocate them for the best results. This article will guide you on the importance of a budget, how to create one, and how to use it to avoid digital marketing traps.

Benefits of a Digital Marketing Budget

Here are the benefits of a digital marketing budget.

Better Resources Allocation

A digital marketing budget is essential as it is more than just numbers. It is a plan for how businesses allocate resources to achieve their goals. It shows the priority marketing areas businesses should focus on and how they can make informed decisions about resource allocation in different marketing channels. Additionally, with a well-structured budget, you can align your digital marketing strategies with your overall business goals.

Better Tracking of Business Expenses

With a digital marketing budget, you can understand the resources to allocate to different  online campaigns, such as:

• SEO
• Content creation 
• Email marketing
• Influencer marketing

Businesses can, therefore, track their marketing expenses and determine if their strategies are working. We recommend you read our guide on TikTok influencer marketing.

A Digital Marketing Roadmap

A budget acts as a compass to show you how to achieve your marketing goals. It provides the roadmap for your resource allocation to different activities and channels. You can use this knowledge to plan and execute strategies to reach your target audience.

You can also use this knowledge to determine how to reach prospective customers effectively, create high-quality content, and determine if your strategy is working.

Drives Business Growth

When you invest in digital marketing, you can expand your reach and attract customers. When you allocate the budget correctly, you can target a particular demographic, optimize your campaign, and reach prospective customers.

Proactive Digital Marketing Approach

A budget enables you to plan and set clear objectives. You can also use it to set success KPIs. It ensures the strategic allocation of resources to allow you to stay ahead of the competition. It can also enable you to try out new tactics and strategies.

Stay Ahead of Emerging Trends

You can determine the budget to allocate for specific innovative ideas, try out new platforms, and stay abreast with digital marketing trends. Businesses can, therefore, adapt to the changing customer behaviors and preferences. Therefore, a budget is a crucial growth driver, helping companies achieve their digital marketing objectives.

Steps in Creating a Digital Marketing Budget

Now that you understand the benefits of a budget and the key elements you need to budget for, here are the steps to follow in creating a digital marketing budget. These are:

Define Your Digital Marketing Objectives

You should begin by determining what you are trying to achieve with the digital marketing effort. Is it to generate leads or to increase conversion and website traffic? Having a goal is essential in directing your digital marketing steps. It will enable you to understand where to focus your resources and the right channel to budget for. 

For instance, you should allocate most of your budget to influencer marketing and social media advertising to increase brand awareness. However, you can focus on content marketing and pay-per-click advertising to generate leads. If you want to build credibility, you can use content marketing. On the other hand, TikTok advertising has a good ROI and, therefore, can be a good choice for increasing sales.

Ensure that your digital marketing goal is part of your larger business strategy. If you are marketing on multiple channels, you need to determine the budget to allocate to each channel. While this will depend on your individual needs and industry, a suitable threshold is spending 50% of your budget on search engine optimization, 25% on PPC, and 25% on social media advertising.

The business goal will help you determine your key performance indicators. It will enable you to measure the results of your marketing efforts. The KPIs could be:

• Lead generation.
• Increasing website traffic.
• Increasing conversion rate.
• Click-through rate.

While the goal will help you track the success of your campaign, it will also significantly impact your marketing budget. You can use the data to determine its success if you have well-performing campaigns. This can also provide leverage when bargaining for your future digital marketing budget.

Understand Your Sales Funnel

Also known as a sales cycle, this is the process your customers go through before making a buying decision. Before you create your budget, you need to understand their steps. You can then boost every step of the sales cycle with the right strategy to convince leads to turn into repeat customers.

When you understand the sales cycle, you can get a clearer picture of how to spend your digital marketing budget to get a good return on investment. There are four main stages of the sales funnel. These are:

• Awareness. You can use various digital marketing materials, such as ads, video content, and landing pages, to build awareness.
• Interest. To draw interest in your brand, you can use social media content, outreach emails, and blog posts.
• Decision. Videos, tutorials, and webinars are excellent materials for this stage.
• Action. Use testimonials, discounts, and freebies to encourage prospects to take action.

When considering a digital marketing strategy, understand the stage you want to focus on. You should also use marketing materials to encourage your audience to move to the next stage.

Determine Your Available Marketing Resources

Many digital marketers suggest that brands should spend 7% to 10% of their overall marketing budget on digital marketing. However, this figure is not cast in stone as bigger businesses can spend bigger budgets than smaller ones. Similarly, your industry will also determine how much you spend. 

For instance, keywords in the home and medical service usually have an extremely high CPC (Cost Per Click) compared to those in the food and beverage industries. That means you need a higher digital marketing budget if your business is in a very competitive industry.

Remember that while you will incur upfront costs in your digital marketing if you plan your campaign well, you can reap huge returns on investment. Therefore, it's possible to earn more than you spend. Your pay will depend on your financial muscle, target audience, industry, and the customer's lifetime acquisition value. 

Review Your Previous Results

The performance of your previous campaigns can provide essential insights into your future campaigns. Having data to backup your campaign can help you understand what worked and what didn't in the past. It will help you decide the strategies to use in the upcoming quarter. For instance, if you have been running Facebook ads without any  positive results, it might be time to consider using TikTok advertising.

Your previous results can help you understand whether your current campaigns will work and how much you will likely make from them. If you are trying to increase conversion, you can determine how much you will make using this formula.

Number of conversions = Audience size X conversion rate X CTR

To determine the value you get from the marketing, you can compare the sales you make from the conversions. For instance, if you spent $5,000 on your social media campaign in the previous quarter and made a revenue of $10,000, this is a great channel to invest in. Once you know the effectiveness of each marketing channel, you can decide on a good way to allocate your budget.

Choosing a Digital Marketing Channel

As noted earlier, your digital marketing budget will depend on your chosen channel. Here  are some of the expenses you should consider for each digital marketing channel:

Social Media Marketing

This involves using social media to interact with your current and potential customers. The goal could be to drive sales, increase traffic to your site, and interact with customers to build brands.

 If you plan to market through social media, you should budget for:

• Content creation.
• Ad placement.
• Creating and running a profile.
• Market research.

Content Marketing

This refers to the creation and sharing of valuable and relevant content. This could be blog posts, white papers, emails, videos, and newsletters. You share the content with your current customers and leads. When budgeting for content creation, you should consider the following:

• Content creation, such as videos, blog posts, and images.
• Hiring freelance creators or paying internal staff.
• Link building or cost of paying to post on external websites.

Email Marketing

This form of marketing aims to make people in your email lists aware of new products. An email marketing budget may include costs associated with:

• Curation and management of email lists.
• Design & development.
• Cost of email marketing tools and software.

SEO

Search engine optimization (SEO) is the process of increasing the visibility of your site on search engines. When budgeting for SEO services, you should factor in the following:

• Content creation and curation cost.
• Link building.
• Keyword research.
• SEO tools.
• Technical SEO.

Pay Per Click

PPC is an online advertising method that allows you to pay when someone clicks on your ad. When budgeting for PPC ads, you should consider the cost of:

• Keyword research.
• Market research.
• Ad placement.
• Content generation (video, copy, images etc.)

Search Engine Marketing

SEM is the process of advertising on search engines to help your site appear on the top research results. When budgeting for search engine marketing, you should factor in the cost of:

• Keyword research.
• Ad placement.
• Link building.
• SEO tools.
• Technical SEO.

Consider your goal when thinking of the best method to use. As noted earlier, the amount you spend will depend on your target audience, industry, how long you will run the campaign, etc. Remember to be detailed enough, as this can make your budget more accurate and help you avoid unexpected costs.

Other Digital Marketing Costs

There are several elements that you should take into consideration to ensure the effectiveness of your digital marketing budget. These elements will determine the amount of money you are going to spend. These are.

Media Costs

Media costs are usually the biggest factor when creating a digital marketing budget. This cost will depend on the other marketing goal and the channel you plan to use to achieve this goal. For instance, if you want to make sales, you can focus on PPC advertising, a great conversion tool. On the other hand, if you are trying to build awareness, you can focus on social media ads.

You can use historical data and estimates from different channels to determine how much you will spend on media costs. However, since every social media budget is unique, there isn't a one-size-fits-all budget you should allocate. You can try advertising on several channels to determine the one that brings the highest conversion at the lowest cost.

Digital Tools

Another critical cost in budgeting is the cost of digital tools. You may need different tools for a practical budget. These may include the cost of uploading and showing your image creatives to the target audience. Consider the value you will deliver from the tool and whether it deserves a budget.

Agency Fee

You must budget for the agency fees if you use a third party to run your digital marketing. Many agencies charge hourly depending on your needed services, such as media buying, booking, creative asset management, optimization, and reporting.

Some agencies also charge fees depending on the media spend. This method may not be suitable as it does not consider the campaign's performance. It may also not offer a clear picture of the number of hours they will invest in your digital marketing campaign. That means they may not have the drive to improve performance. Therefore, an hourly rate is usually a better model.

When thinking about agency costs, you should factor in the following:

• Freelancing and agency fees.
• Salaries for in-house team members.
• Software and tools.
• Market research.

Creative Production

Depending on the social media platform you plan to use, this can be a significant or minor cost. For instance, if you use Instagram advertising, you probably need a video ad budget. However, you only need to create a blog post using content marketing. Other creative elements you should budget for are website images, email formats, and advertising banners.

You will pay the video production, account manager, and designer fees. Therefore, you should remember that specific media options require different creatives. You should have a budget for your preferred platform.

Additional Expenses

Remember to budget for any additional costs that may require additional spending. This keyword research tool could increase the cost of your competitor's bidding at a higher rate. Therefore, ensure that you have extra room in the budget to seize any opportunities.

Create an Experimentation Budget

After choosing a marketing strategy, you must keep trying new techniques. Because marketing keeps evolving, new trends emerge, and consumer behavior changes. Therefore, set aside a budget for trying out new strategies. Pay attention to the digital marketing field. 

Study your competitors' strategies and consider ways of outperforming them. You can also try out their strategies that will work for your business. However, when experimenting with new techniques, you should only invest money you don't mind losing so that you don't affect your business’ finances.

Making Budget Estimates

Marketers are often afraid of putting actual numbers into their budgets. However, with a bit of information, this should not be difficult, as there are several methods you can use. These are:

Affordable Method

This simple method requires you to estimate how much you can afford to spend on digital marketing. While this is a rough estimate, it is usually subjective rather than scientific. However, this can be an excellent strategy if you are getting started with digital marketing.

Percentage of Sales Formula

This involves looking at your previous years or projected sales for the current year to determine your budget. A figure commonly used in this method is 10% of sales.

Competitive Parity Formula

As the name suggests, the formula involves estimating your competitors' spending and matching that number.

Goal and Task Formula

This formula involves determining your goal and doing extensive research to determine how much you can spend to achieve it. It is among the most effective budgeting methods. The only downside is that if you are a small business, you may not have the resources required to perform the research.

However, you can use data from various sources, such as historical data, channel cost, and target audience. Prioritize channels that align well with your goals, have strong performance, and are likely to be effective in reaching your target audience.

Monitoring and Adjusting Your Budget

Remember that a digital marketing budget isn't a one-off affair. To remain effective, you must monitor the budget and adjust constantly. Keep tracking your advertising analytics to enable you to make decisions to optimize your budget. Continually monitoring the budget will help you notice the areas of improvement to make the necessary changes. For instance, if a channel isn't delivering results, you can allocate funds to a more effective one and optimize the campaign strategy.

Additionally, you can determine if your budget allocation is effective when you track key metrics such as click-through rate, cost per acquisition, and conversion rate. This data can enable you to make more informed decisions and allocate funds more effectively to achieve results.

Remember that even if you make the process continuous, it also requires better planning, setting goals, and monitoring. You should then optimize your digital marketing strategies to achieve your desired outcome. You can define your marketing goals, allocate funds for different channels, and adjust your budget depending on the performance.

Finalizing the Budget

After creating your budget, you must take it to the senior management for approval and feedback. To increase the chances of getting approved, you must provide the reasoning and data for the budget. Ensure that the budget is tied to the overall goal of the business, as this will prove that it brings value.

Conclusion

Creating a digital marketing budget that aligns with your goals is essential for maximizing your return on investment. With careful and strategic planning backed by a focus on cost-effectiveness, reaching your target audience within your budget is possible. You can get the highest return on investment when you continuously monitor and improve your budget and campaigns.

If you are starting with creating a budget for your digital marketing campaign, our detailed guide will help you make a budget that will provide you with good returns.