Digital marketing budget allocation in six steps

Do you want to allocate your digital marketing budget across channels? Read on the learn how to do it in the smart way. 

The relevance of online marketing has grown significantly as compared to traditional channels. Data from The CMO Survey highlights that digital marketing spending currently accounts for 57.1 percent of total marketing budgets and grows with agility. This additionally brings forward the question of the optimal digital marketing budget allocation as a slice of the total marketing spend.

If you feel confused about allocating your marketing budget across digital marketing channels, you’ve come to the right place! 

We’ll be breaking down the process to optimize your marketing budget allocation across different channels for the best results. 

What is budget allocation in online marketing?

Budget allocation is the practice of allocating money to different departments or projects. Within marketing, it also means deciding how much you will invest in different marketing channels.  

The playing field of online marketing is vast, and budget allocation for digital media includes many possibilities. A business can decide to invest in search engine optimization (SEO), social media ads, video marketing, and much more. And even within these possibilities, marketing teams have several subsets to explore.

For example, say you decide to invest in social media marketing. You will still need to decide how much of the overall marketing budget will go into salaries, ad spend or agencies. Further, there's a choice between content creation for organic engagement or paid advertising.

How much should you be spending?

If you are a digital marketer who wants to make the most out of the marketing budget available, thinking about budget allocation is a must. But how much should you be spending on marketing?

There is no golden formula to guarantee your success – much to our dismay.  However, there is data available that can provide some clues on effective allocation.

• A Deloitte survey in 2022 highlighted that marketing budgets as a percent of overall budgets average around 11.8 percent.
  
  
• The US Small Business Administration and Counselors to America’s Small Business suggest marketing expenses should be between two and 10 percent of company revenue.
  
  
• Several other studies suggest between five and 10 percent of the company revenue on ad spend for the highest return on investment. 

Important note: these studies and estimates speak about the entire marketing budget and not specifically digital marketing. The suggested budgets for marketing activities also tend to vary across company size and industry.

What to consider when allocating your digital marketing budget?

When allocating your digital marketing budget, you should first speak to your Chief Marketing Officer or other senior stakeholders to get an idea of your company’s annual planned expense levels and the demarcation for marketing expenses. 

This can provide clues on the possible permissible range for your digital marketing budget. With that number as a starting point, you can plan to subdivide that budget across the varied digital marketing channels. 

Here are six key factors you can consider to guide your allocation effectively:

1. Learn the core business priorities you need to focus on

First, you must learn about your company’s overall objectives and the direction your management is considering to achieve them. 

Next, figure out the current and future priorities the marketing team plans to focus on. What is the marketing strategy for the next months and years? Ensure that you gather a holistic picture, including any support the other teams may need from marketing pursuits. 

Once you have this information, align on the degree to which you need to support the different priorities you’ve noted with digital marketing. Doing this will give you a good idea about how to balance your budgeting activity across the various one-off and ongoing digital pursuits. 

An example: 

Suppose you’re planning the online marketing budget allocation for a B2B SaaS company. When you align with the different stakeholders, you find out the following: 

• The marketing strategy revolves around strengthening the brand and acquiring leads.
• Further, a new product launch is expected at the end of the quarter. For that, you’ll be expected to help generate awareness and leads. 
• Aggressive talent acquisition drives are also expected around the same time, for which you’ll need to support with pushing out hiring ads across social media channels. 

So, when you allocate the marketing budget for digital, you need to account for all of these objectives effectively. A good way is to split the expenses between specific one-off, time-sensitive activities, and ongoing pursuits, like email marketing or search engine marketing. This can help you determine how much budget you have for ongoing activities on average every month. However, while doing so, make it a point to keep some extra funds aside for any unforeseen needs or overages.

2. Examine strategies that will help meet the business goals

Usually, most digital marketing expenses primarily focus on brand building, generating leads, and navigating sales. For each of these, different goals and metrics capture actual performance. 

For example, branding performance can be measured by social engagement, followers on social media, or even longer-term measures like net promoter score. Lead generation may be measured by the number of account signups or people subscribing to your email newsletter. Similarly, sales can be captured by total purchases, average order value, etc. 

These three measurement strategies can affect how you perceive the ideal spending for regular marketing activities. 

For example, if your organization requires marketing to generate immediate and measurable short-term results, you should allocate more budget to lead and sales generation tactics. However, if it’s a well-established company and you’re required to now work on strengthening the brand position against primarily generating sales, you can allocate more funds for brand building.

3. Review the performance of previous campaigns for success insights

Once you know all the goals and expectations, the next step is to closely watch out for past performance and use data to guide your planning. 

Discover and learn more about what digital marketing tactics and strategies have been tried, what’s been skipped, and the results thereof. This helps budget where there’s the maximum scope of contributing positively to the bottom line. 

It is wise to track the performance of your campaigns regularly so that you can pause underperforming campaigns and channels in time. However, channels and targeting options can change. So if a channel didn’t perform a while ago - don’t overlook it. Run another experiment, perhaps with different creatives or targeting, to verify if the channel works for your business. It's about running experiments, tracking performance, and ensuring that progress trends upwards and not downwards. 

4. Address the marketing budget allocation by channel

Once you’re clear on the objectives and the extent to which they should get budget priority, next is dividing the funds in the right proportion at the right digital channels. 

Unfortunately, there’s no easy answer to what is the best place or channel for digital marketing. It varies across industries, company sizes, who the target customers are, and where they’re likely to notice your efforts. The channels also depend on the goals defined.

An example: 

For a large business selling educational courses, a strong omnichannel social media marketing approach across LinkedIn, Instagram, Facebook, and YouTube, along with running search engine ads, can be a good idea. However, for a small eCommerce business selling DIY craft kits, focusing heavily on only Instagram may work better due to a limited budget, smaller addressable market, and business capacity.

A helpful way to pick the proper channels is by building buyer personas and studying customer behavior data to guide the appropriate channel decisions. Another good way to know that is by conducting customer and stakeholder interviews to learn their preferences directly. 

However, you must note that your channel strategy is a vast subject in itself. We’ll discuss how you can develop your digital marketing channel strategy in a separate blog post.

Also read: The art and science of developing a marketing channel strategy

5. Mae sure to estimate all marketing costs

When budgeting initially, most digital marketers often make a common mistake. They focus too heavily on advertising costs and overlook other aspects, such as content marketing costs. Discovering allied costs at a later stage often emerges as an unpleasant shock, derailing the plans or overshooting the budget significantly.

Holistic digital marketing budgeting requires you to consider all the costs. Some of the costs to consider include:

• Salaries to hire full-time employees for the digital marketing team
• Payment to any freelancers or consultants hired
• Cost of different tools and technology that the team uses. Examples: CRM tools, SEO Optimization Tools, Video or Design Creation tools
• Website or app costs
• Digital marketing research costs
  
  

If you plan to create a marketing budget, make sure you take the above costs in consideration.

6. Keep room for adjustments depending on ROI

The beauty and challenge of digital marketing strategies are that there’s always room for surprises. Nobody knows a campaign will be viral before it turns viral, right?

You have to start based on some calculations and analysis. However, your plans shouldn’t be set in stone and must be iterated based on actual performance. This may or may not differ from expectations. So when you budget, you need to keep room to allow flexibility.

If a campaign or channel continues to fail, you should pause it and reallocate your budget to something else. Alternatively, if something is performing well and yielding excellent results, you can ask senior management for a higher budget. If they cannot provide more budget, you can devise a plan to shuffle and shift existing resources from less-performing to higher-performing campaigns.

Please note when you measure results, you must tie back efforts to the goals they’re focusing on - as per the assigned expectation. For example, suppose you decide x percent of your budget is to improve branding and y percent for lead generation. You should be careful not to compare the ROI of your branding pursuits with your lead generation pursuits and shuffle budgets across goals if the different plans are hitting their specific targets. 

How to allocate marketing budgets across multiple marketing channels?

Now, once you’ve allocated your digital spending across projects and initiatives, there’s still work to do. You must choose how to allocate your online marketing advertising budget across different channels for the best results. 

For example: if you’ve decided to use YouTube, Instagram, LinkedIn, and Reddit, how should you split the ad budget across them?

The first step is revisiting your overall marketing strategy. That will guide you on how to split ad spending budget across the short, medium, and long-term goals. 

Using the 70-20-10 distribution rule

With that as a starting point, you can distribute your ad budget across channels following the rule of 70-20-10 distribution. This means spending:

• 70% of the budget on proven channels you are confident will work. This knowledge will come from past performance studies.
• 20% of the budget on channels you expect to work on but are still figuring out. You can derive these clues from your market and competitor research.
• 10% of the budget for 'out there' ideas you want to try or test, including areas where you lack experience. This marketing mix can be guided by research, intuition, or both.

If you split this way, you can ensure that you clock in certain average returns and keep room to generate some positive outliers.

Bottom Line: Prepare your digital budgets holistically

To wrap up, you'll achieve the best results when you align your marketing budget to company goals and how to reach your target audience in the best way. That comes from carefully drilling down on objectives by collaborating with stakeholders, assessing past performance, and considering holistic costs instead of just ad spend.

So, keep analyzing your performance data and make the necessary changes to reap the highest ROI. If you do that regularly, you'll avoid unpleasant surprises and be a winning marketing organization. Good luck!