How to Set a Digital Marketing Budget

Britton Lorentzen
Designer, marketer, and owner.








Published: March 13th, 2017

Digital marketing can be intimidating for small businesses. Small business owners try out digital marketing through Google or social media and end up spending a ton of money without any positive results. There’s an effective way you can set a digital marketing budget without losing a ton of money. Here are some of my tips for how you can set a budget that is appropriate for your business and sales strategy.




Take a Look at Your Cash Flows

The first thing you should do before setting any kind of marketing budget is learning how money is being spent and earned in your business. This includes educating yourself on how often you’re circulating through product and how often you’re reinvesting into your operations. These statements will give you a high level overview into how much profit you’re making on a monthly basis and how much you’re willing to give towards digital marketing. It’s more helpful to get into more specifics with your cash flows by identifying products that are circulating more often and what products are sitting on your shelves. Once you have a good idea of your financials, you can dive into the next step in setting your budget.




Set Up Your Business Goals and Objectives

What is the reason you want to use digital marketing? Some businesses use it to build brand awareness while others use it to advertise their product and increase sales. It’s important to identify what your objective is and how valuable the result is for your business. If you’re looking to build brand awareness, it may be more difficult to set your budget based on brand equity compared to advertising your products for sale. Brand equity rests on how you and your audience perceive your brand. Some folks might say your brand is worth nothing while you value it at $100,000 or more. Brand equity can be a fickle subject and usually isn’t a good option for setting a budget for your small businesses. This brings us to the next step in setting your marketing budget.




Set Up a Budget That Fits Within Your Profit Margin

Costs of digital marketing tend to be taken out on a monthly basis. With this in mind, it’s important for you to identify what your margins are for each product. Here’s how it would break down:

Let’s say that you sell a product that costs $100. In a given month, you typically sell 1,000 units which results in sales worth $100,000. Out of those sales, 30% of the sales represent your profit which results in a gain of $30,000.

Let’s say that you want to increase your sales by 500 units and you’re willing to spend $5 per product to obtain those new customers. Out of the $30,000 profit you made from the 1,000 units, you’re willing to dedicate $10,000 to obtain new customers. Running the numbers will show that you’ll need to earn about 334 customers to earn that $10,000 back. This gives us a goal of converting at least 3 out of every 5 customers into sales from our advertisement. If the campaign doesn’t work, you still earn a profit of $20,000 assuming that circulation of your product stays at 1,000. If the campaign is successful, you can earn up to an extra $5,000 which gives us a little over 15% increase in your profit.




Do you have experience with setting a digital marketing budget? What are your thoughts about the tips I laid out above? There are all kinds of strategies out there to set a digital marketing budget. This strategy isn’t the master strategy for all digital marketing. However, it’s a great starting point for small businesses to try out digital marketing and see if it works for them without losing a bunch of money in the process. If you need support setting a digital marketing strategy, feel free to send me an email at Britton@EmpacDesign.com and we can get something set up for you. If you have any questions, let me know via my email or twitter page. Hopefully you found this article helpful and I look forward to talking with you all again soon.

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