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How much should I spend on digital marketing?

August 9, 2018 ark-com

Marketing is a key component of any business, but for a small and medium enterprise, finding the balance between spending and return on investment is tricky.

And marketing has changed a lot in recent years.

Not so long ago, marketing was about advertisements in magazines, radio, and TV. Only a few businesses were spending money on online marketing, and even then it wasn’t a significant percentage of their budget. Social media wasn’t even a thing people considered when planning a marketing strategy.

How to work out a budget

Five years ago, about 25% of the average company’s marketing budget was allocated for online use. Today it’s almost 50%. That’s because businesses have realised that with the right strategy, they can get more return online for less spend.

But how do you work out what to spend in the first place?

The answer is to work backwards.

Work out what each customer is worth to your business and work your way back through the process of winning a new client. Once you know how much the average client spends with you and the margin you make on that spend, you can decide how much it’s worth to attract new clients.

The Al Bundy Scenario

Here’s an example. Let’s say you sell shoes, and on average each customer spends $100 when they visit your website and you make a 10% margin on that spend.

Ok, so now we have a figure for each customer. The question now becomes, for each visitor who comes to your website, how many of them actually buy shoes? In other words, what’s your conversion rate?

Let’s say it’s one in ten. This means that to break even, you can’t spend more than $1 per visitor ($100 spend times 10% [your margin] times 10% [your conversion rate])

Of course, there’s no point in breaking even, but this is how you work out the value of each visitor. Once you have these figures, it’s then possible to create a budget for your digital marketing – a starting place to increase sales and profits.

Ark Advance can help

When it comes to digital marketing, we can help you create a budget that makes sense, formulate your online strategy, and set goals for conversion.

The next step is to bring that conversion rate up, so instead of one out of every ten customers buying shoes, it’s one out of eight.

On top of that, we work on bringing the average value of a customer up, so instead of spending $100 they’re spending $120.

This is how you slowly use the internet for your business, by building up from a solid foundation and setting achievable targets and goals.

Contact us today if you would like to know more about how we can help your business with its digital marketing strategy.

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