The Financial Costs of Digital Marketing

financial costs of digital marketing

financial costs of digital marketingWhat are the financial costs of digital marketing?

When it comes to the costs of marketing, the answer is surprisingly complex. Indeed, digital marketing is less expensive, on the whole, than traditional marketing, where a single Super Bowl ad might cost $5 million or more when you include production costs like actors and a director. Still, you can’t (or at least shouldn’t) think you can do digital marketing for free. Among the financial costs of digital marketing are:

  • People, which are likely one of your most significant expenses. Go cheap by hiring your neighbor or a cousin, and you’ll find your marketing program fails to deliver ROI.
  • A website, which costs money to design and host. You’ll have start-up costs as well as ongoing costs for your website. Again, go cheap with crappy hosting (especially sites like Wix, Squarespace, etc.) or an unprofessional design, and it’ll cost you big time in poor performance.
  • Images, videos, etc. for your content.
  • Advertising such as Google Ads or ads on social platforms.

Your exact marketing expense relies on the realities of your budget and even your industry and niche. For instance, if you’re in an industry with more competitors, expect to spend more on your marketing. The same is true if, maybe even more so, if you introduce a new brand into a crowded market or if you have a “new to the world” product that requires a lot of marketing to help consumers understand how the product solves their problem.

If you choose a particularly narrow niche, expect to pay more to get your name out there. So looking at a clearly defined price tag for your digital marketing is nearly impossible. However, the following factors help define and break down your costs, helping guide your marketing strategy for maximum impact.

“It’s important to remember your competitor is only one mouse click away.” Douglas Warner III, Former CEO, J.P. Morgan Chase & Co

Budgeting methods

Of course, you can’t just start spending money on digital marketing or any kind of marketing for that matter. You need a budget to help guide tactics, favoring those that deliver the highest ROI (return on investment). That’s one advantage of digital; you often get a bigger bang for your buck, which explains why firms increasingly shift more of their budget to digital and away from traditional marketing.

Percentage of sales

This is a typical budgeting method because its simple to implement. A firm budgets a certain percentage of anticipated (or projected) sales as the marketing budget. Industry standards, often available from third-parties, guild firms on the proper percentage. For instance, a firm might decide to budget 5% of projected sales as the marketing budget.

Match your competition

Matching your competition is another easy way to determine your marketing budget. Again, third-parties offer guidance regarding your competitor’s marketing spend, including SEC filings for publically-traded companies.

The assumption behind this budgeting method is that parity translates to similar ROIs, which is a dubious assumption, to say the least, as each competitor faces contextual differences such as brand image, distribution intensity, loyalty, etc.

All you can afford

This is another frequently used budgeting method. Using this method, firms determine how much of their overall budget they can dedicate to marketing. Unfortunately, this method suffers from the biggest problem in that there’s no attempt to tie budgets to performance. Marketing also competes with every other budget item for money using this method, which often results in too small a marketing budget since marketing generates returns that are hard to quantify, especially when you use traditional marketing methods.

Objective/ task method

This method is the most accurate and effective budgeting technique. It’s also the most complex to apply.

The objective/ task method requires a firm to determine the desired outcomes from their marketing activities. Then, using historical data (or estimates from similar operations in other firms), the company determines the budget necessary to achieve the desired result.

For instance, assume the firm wants to sell 5000 units of product. They determine that their last campaign generated sales of 4000 units at the cost of $3540. To sell 5000 units would cost:

5000 = 3540/4000 or $4425

Digital marketing is perfect for implementing the objective/task method since this form of marketing allows tracing of marketing activities to sales. With traditional advertising, it’s challenging to make this correlation since so many factors beyond advertising impact sales.

Once you’ve developed a rough budget, consider these other factors that impact success.

The essentials

The size of your customer base, as well as existing awareness of your brand impacts how much you spend on your marketing. Established brands allow a lower marketing budget because they already have brand awareness and brand loyalty. In a digital world, creating or extending brand awareness and brand loyalty, then translating that into sales involves several factors related to content marketing, including:

These four tasks are, at a fundamental level, all that digital marketing boils down to, and that means that there are some clearly defined methods for achieving those goals.

“Content builds relationships. Relationships are built on trust. Trust drives revenue.” Andrew Davis, Author & Keynote Speaker, Monumental Shift

How to accomplish the essentials

There are, essentially, three different methods for achieving those four marketing goals, and your budget will directly influence the one that you choose. You need to decide between:

  • Doing your marketing in-house (either personally or by recruiting a dedicated team of marketers)
  • Agency collaboration, where you work alongside digital marketing specialists
  • Outsourcing your entire digital marketing strategy to an agency

Knowing which option is most suitable depends on your goals and skills, as well as awareness of the pros and cons of each approach. Trying to make do with what you can afford, doing your own marketing, or hiring an unskilled kid to run digital often means you fail to reach your goal, wasting a lot of money in the process. If you’re serious about the business and hope to make it a successful venture, skimping on marketing just isn’t feasible.

A business loan helps pay for the shortfall between what you need and what you can afford, so you get the returns you need to run the business and pay back the loan.

The benefit of borrowing is you get a faster return on your spending because you’re expending the financial costs of digital marketing necessary to reach your goals and ultimately generate the profit you need to sustain your business.

“Discoverability equals sales in the digital world.” Dev Chandan, Founder, Dev Chandan

Marketing to existing customers helps reinforce their loyalty (or at least preference). It acts as a reminder to existing customers. Reaching new customers is a no-brainer that every marketer accepts as necessary. Reaching these different groups (as well as other niches within your market) often requires different messaging and means of separating them across groups. This may increase the financial costs of digital marketing.

Need marketing help to plan your business strategy?

We welcome the opportunity to show you how we can make your marketing SIZZLE with our data-driven, results-oriented marketing strategies. Sign up for our FREE newsletter, get the 1st chapter of our book on digital marketing analytics – FREE, or contact us for more information on hiring us.

Hausman and Associates, the publisher of MKT Maven, is a full-service marketing agency operating at the intersection of marketing and digital media. Check out our full range of services.