Decide on Your Online Marketing Budget
In this article, I will try to help you figure out how much of your online marketing budget should be allocated to which channels, and understand the reasoning behind it. For example, small businesses typically start with a marketing budget of around 20% of their sales. But if your business is web based, you should probably dedicate a major part of available resources for online campaigns.
But let’s do this by the numbers, so you know exactly how much money you should be spending on each channel.
Calculate Your Online Marketing Budget for Email Marketing
Statistics from Convince & Convert show that 44% of email recipients made at least one purchase through promotional emails, so this is something you cannot ignore in your digital marketing plan.
FulcrumTech data shows that the average return on email marketing is $44.25 for every dollar spent. Let’s do some reverse engineering on this. Say your objective is to generate a profit of $221,250 (under the condition that $44.25 will be the average return for every dollar spent). This means your requirement is 5,000 conversions (5000 x $44.25 = $221,250). Assuming a conversion rate of 5%, your target audience has to be at least 100,000 people. If your conversion rate is lower, the number of people in your mailing list has to be even larger.
So now we come to the core part of how to calculate your online marketing budget for email marketing. How much does it cost you to build and maintain a list of 100,000 or more email subscribers?
Email Marketing Consultant Jordie van Rijn has explained the importance of Cost per Mile (CPM)/ Cost Per Thousand (CPT) in email marketing. CPM is the variable part of pricing and it is calculated based on the price for sending a thousand messages. For example: With a CPM rate of $20, it will cost you $200 to send 10,000 emails. That means sending one email will cost you 200 / 10000 = $0.02.
Now for the fixed costs. Let’s consider that you are doing your email marketing campaign on your own, and you have a database of 100,000 subscribers. Since you have the database with you, the only inherent cost (for managing a list of this size) will be $475/ month with MailChimp, around $300/ month with Moosend, and with Campaign Monitor the price will be $1000/ month.
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Online Marketing Budget for PPC
The three most critical decisions you need to make in PPC are:
- What is your goal with this PPC campaign?
- Are you bidding for the right keywords?
- How much should you bid for each keyword?
Everybody wants to do well on Google Adwords and get a handsome ROI. But if you are new to PPC, I suggest you learn on platforms such as Taboola or Outbrain. CPC for both the platforms ranges in between $0.25 – $0.35. Let’s consider the CPC is $0.30, and the CTR is $0.75% with 50% revenue share. Then the total amount spent on getting one page views will only cost you (0.30 x 0.0075 x 0.5) ie, $0.001125 per page view to publisher. When converted to thousand page views it is $1.25.
Let’s assume a scenario where you prefer to bid on 100 keywords with a combined search volume of 500 per day. So the cumulative search volume for 100 keywords for a month will be 15,000. Based on statistical studies, PPC accounts for around 33% of the clicks for a keyword, leaving the remaining 67% to SEO. So the potential PPC clicks you get for your search keyword is 4,950 a month (15,000 x 0.33).
In reality, a high CTR is not possible since it is determined by factors like how aggressive and creative your paid campaign is (The release of extended text ads at the end of January may have an influence on competition). In general, a CTR of 9% is used to project the probability of paid clicks an ad will attract if it falls in the top 3 bid position. Then the number of people that click your ad will dwindle to 4950 x 0.09 = 445. Use Google Adwords to determine the bid price for the keyword you need. Let’s consider the price as $4, then add 15% of $4 as Google click fees. Therefore the average CPC for one keyword will be 4+(4×0.15)=4.6. Multiply average bid with total number of clicks (4.6 x 445). This will give you the expected monthly expenditure on PPC – $2,047. Considering a conversion rate of 10% (44 out of 445). So out of 445, these 44 clicks determine your ROI.
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Online Marketing Budget for Social Media
The Fuqua School of Business has conducted a study which found that social media spending was around 9% of the total marketing budget. Based on stats published by Content Factory, an industry average of $4,000 to $7,000 is spent on social media, which is around $ 200 to $350 a day.
How is this much money spent every day on what is essentially a freely available and accessible platform? Let us find out by investing $100 in social media.
Plan A: $50 – Graphics/ Images. Visual content has great importance in social media, but it’s hard to find quality content that you own and can share. You can take help from designers on third party sites like Fiverr ($25), The Noun Projects ($15) and Death to the Stock Photo ($10).
$40 – Advertising/ Reach. Twitter ads ($20), Facebook ads ($20). Moz found that investing $1 per day on social media ads increases your audience by 4,000 people.
$10 – Analytics. Use tools like Chartbeat ($10) for real time analytics.
Plan B: Keep it simple – Facebook Ads ($40); Twitter Ads ($40); and Linkedin Ads ($20).
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Online Marketing Budget for Referrals
You’ll get some referrals without any marketing spend, but it can be taken to a whole new level with a formal program to attract referrals and reward the referrers. This is an affiliate program, and here’s how you can calculate the marketing cost of this kind of program:
Price x Commission Rate = Total Marketing Cost
First decide how much commission you should give away. Fixing your commission plays an important role in determining your budget. If you need to promote your affiliate program through PPC and other campaigns, then a sophisticated marketing plan along with a dedicated budget for the individual platform has to be allocated. The below equation helps you in determining the cost involved in acquiring customers through PPC.
PPC+ (Price x Commission Rate) = Total Marketing Costs
For eg: Consider you are selling a product worth $200 with 1% commission. If the average cost per click is estimated to be $1, then the cost of acquisition will be:
Cost of Acquisition = 1+(200×0.02) = $5
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