BLOG: How to Budget for Digital Marketing Campaigns

by GSV Operations

With annual budgeting season here, companies everywhere are examining their marketing spend to develop a plan for the future. With manageable spend control, customizable audience targeting, and the ability to tie back ROI, digital marketing is an integral part of most every company’s marketing strategy. In fact, the amount spent on digital ads is projected to exceed $680 billion in 2023.

A general rule of thumb is to spend 6-9% of revenue on marketing in order to maintain the status quo. To grow market position and share, that spend percentage might jump to 10-14% of revenue. Even before breaking out the budgeting spreadsheet, marketers should examine certain metrics in order to form the basis of a reasonable target spend.

Customer Lifetime Value (CLV)

The first metric is understanding the customer lifetime value (CLV). For example, if you have a software product that costs $100 per month and your average customer uses it for 3 years, your average CLV is $3,600. Knowing CLV keeps you better informed of what you would be willing to spend to achieve your growth goals.

Customer Acquisition Cost (CAC)

Through testing, the next metric to understand is the Customer Acquisition Cost (CAC), which will inform the second half of the equation. A great way to test is to create a basic campaign and run that on multiple channels to determine the spend needed to get a lead or purchase. Some popular ad channels for SaaS products include Google Adwords, Capterra, Facebook retargeting, and LinkedIn, but there are many others worth exploring. Once you run a test to determine cost-effectiveness of each channel, you can make a strongly informed decision on what kind of budget you should use to drive engagement.

Setting the Budget

For example, if you know that spending $200 on Google Adwords views/clicks (CAC) drives the win of a customer that is worth $3,600 over their lifetime (CLV), then you can feel confident in spending that money. However, if the cost per win is $1,000, you likely should decrease the budget and focus on other channels. The definition of a good return on investment (ROI) depends on how aggressive your growth goals are. Most businesses look to see something around $5 won to $1 spent (5 CLV to 1 CLC) as a healthy benchmark.

Once you have CLV and CAC defined by doing some initial ad testing, you can set a spending budget. The other primary cost besides the direct ad cost is the labor of executing the creative content for the campaigns. This typically includes the cost of a landing page or destination for ads, as well as the strategy and execution of the ad on each channel. This is highly variable depending on the resources used. A freelancer, for example, is typically less expensive than engaging a digital marketing agency or hiring a full-time employee. That said, a ballpark cost would be around $1,000 to create a landing page template and 15-20% of your ongoing ad spend as a retainer.

Finally, it’s important to re-evaluate spend and channel allocation regularly. Figuring out what works best and refining the process will continue to drive more leads and improve ROI. Consider reviewing specific campaigns every two weeks once they are up and running.

And remember, the biggest budget doesn’t necessarily always win. Small businesses with a limited budget can compete with careful research and planning. Knowing the target market and crafting messages that appeal to that market is also key. Doing the homework and being nimble to adjust strategy quickly can put companies of all sizes on a more level playing field.