How to Set Expectations for Digital Marketing Costs

How to Set Expectations for Digital Marketing Costs

By Jessy SmulskiMar 12 /2020

Asking C-suite for the right size marketing budget is a classic case of Goldilocks. Aim too high, but fail to deliver on KPIs and stakeholders will pile on the pressure. Lowball the estimate, and you risk inadequacies in your future budget (not to mention quality issues). Marketing leaders need to get the number just right to set realistic expectations with higher-ups. But, how are you supposed to make an educated guess when you don’t know how much digital marketing costs?

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How to Set a Realistic Digital Marketing Budget

1. Make Friends with the Finance Department

Marketers mended the disconnect with sales and managed to get chummy with IT. Now, it’s time to woo the folks in finance. Why? Because building ROI models without input from the CFO doesn’t make financial sense. CFOs want to grow the business. You want to grow the business. CFOs want to invest money in the right places. You want to invest money in the right places. It’s kismet! However, you can’t just hand them a list of activities and ask for a chunk of money. Instead, bring them into your strategy development process, allow them to understand the full scope of the marketing mission and how that mission supports company growth.

2. Consider Your Organization’s Size & Revenue

Brand equity is an important factor when setting the right financial expectations. Just like in sales, it’s less expensive to keep an existing share of the market than it is to earn a new one. If your organization is five years old or less, plan to allocate more than the average percentage of annual revenue to marketing. If your organization is established in the marketplace, you can safely target the standard percentage.

3. Set Your Baseline Amount According to Spending Trends

This doesn’t necessarily mean you should follow the averages to a T, but you can use them as a starting point. According to Gartner’s CMO Spend Survey 2019-2020, the current average marketing budget was 10.5% of total annual revenue, down from last year’s 11.2% average. However, over 60% of CMOs expect their budget to increase in 2020, blaming the slight decline on uncertain economic times. Keep this in mind as you budget. What you ask for this year may impact what you get next year.

4. Define How Much Digital Marketing Costs

Once you define a realistic budget for marketing, you need to figure out how much of that budget should go toward digital marketing activities. Experts recommend around 45%-55% of the total marketing budget. However, Gartner’s research suggests that 62% is closer to the latest spending trend.

How to Set Expectations for Digital Marketing Costs-1Of that 62%, CMOs divvied up their digital marketing budgets between four core activities, each with its own set of spending priorities:

1. MarTech: 26% of Digital Marketing BudgetHow to Set Expectations for Digital Marketing Costs

  • Market research
  • Analytics
  • Digital commerce
  • Marketing automation
  • Artificial Intelligence

2. Paid Media: 26% of Digital Marketing Budget

  • Content creation
  • Social media advertising
  • PPC
  • Display ads

3. Agencies: 22% of Digital Marketing Budget

  • Brand building
  • Content marketing

4. Labor: 25% of Digital Marketing Budget

What good is a digital marketing strategy if you don’t have a quality team to execute the plan?

  • Talent
  • Training
  • Management

How Much Digital Marketing Costs

Let’s say your organization’s annual revenue is $500,000,000. Below is a rough budgetary breakdown that illustrates a realistic starting point.

Projected Marketing Budget…….. $52,500,000

Digital Marketing Budget………... $32,550,000

  • MarTech......................... $8,463,000
  • Paid Media………………….. $8,463,000
  • Labor………………………….. $8,137,500
  • Agencies……………………….$7,161,000

From here, you can adjust the figures based on your sales and marketing goals, competitive landscape, commercial vertical, brand equity, and other factors. Of course, knowing how much digital marketing costs is just the beginning. You still need to pitch your spending plan to the C-suite and sell your case with convincing evidence. Having the CFO on your side will help support your cause. For additional advice, download this free guide: How to Present Marketing Data to C-Suite

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Jessy Smulski
The Author

Jessy Smulski

Jessy turns everyday industry talk into simple, insightful, humanized conversation. Often described as bold, empathetic and charmingly sarcastic; her writing style reflects her personality and reads like a friend telling stories over supper. When she isn’t writing, you can find Jessy backpacking the Midwest, snowboarding the Rockies, or capturing life through the lens of her camera.