Setting a Digital Marketing Budget

Digital Marketing - Study Notes:

Setting objectives

Objective setting is a critical managerial task. It’s important that you set objectives at the beginning of the budget allocation process. Clear goals can provide you with a sense of direction and give you something to aim for. You can also use them to evaluate success and measure achievement.

Be sure to monitor your progress toward your goals on a consistent basis. The more often you monitor progress, the greater your chance of successfully accomplishing your objectives.

You can use KPIs to measure your progress. Choose the most suitable KPIs for your business and your specific situation. You could choose cost metrics, sales metrics, or measures of satisfaction to do this.

Frequency

Also, consider the frequency of your goal setting: How often should you actually set goals? This depends on the organization you work for. Take time to assess whether your business requires goal setting on a weekly or a monthly basis. When making this decision, think about the speed at which the business changes, stock rotation, seasonality, timing of new product launches, and other factors.

Using analytics tools

Managers can use web analytics tools to help them measure their goals and objectives and report on progress to date. These tools can provide valuable managerial insights, so it’s well worth learning how to use them. You can use the insights gleaned from analytics tools to drive better planning and decision-making across all types of marketing initiatives.

For example, if you have a low clickthrough rate on a paid social campaign, what sort of adjustments might you make? What sort of testing might be called for? Being prepared to make data-driven decisions and adapt quickly and decisively will ensure that all your initiatives get the best possible results.

With analytics tools, you can analyze marketing performance reports, such as paid media reports or web analytics reports, to determine the overall success of a campaign. Then, you can adjust tactics to remedy underperformance and optimize positive results. You can also use analytics to instill a data-driven marketing culture, which can help you collaborate more effectively with peers and agencies.

Budgeting tools

When it comes to creating an advertising budget, you can use different methods and tools.

Percentage of sales method

One commonly used tool is the percentage of sales method. Using this method, you set advertising budgets based on a predetermined percentage of past sales or a forecast of future sales.

The percentage of sales method is the method most commonly used by small businesses and it’s very popular with advertisers.

The key advantage of this method is its simplicity: it’s easy to understand and easy to implement.

However, it’s not suitable for everyone. It’s particularly unsuitable for new businesses or businesses with low current sales, as it can be very difficult to make accurate financial forecasts for these firms. In addition, it can be too simple a solution for complex budget decisions. The percentage of sales method is best suited to mature organizations that show steady growth.

This method is particularly effective when it comes to comparing a company’s sales with those of its competitors. Most players in the advertising industry use this method. It can reveal if competitors are getting a better return on investment from their activities than you are.

Affordable method

The affordable method involves setting advertising budgets based on what the company thinks it can afford to spend. So, if there’s no money available, the company simply doesn’t engage in advertising.

The affordable method is flexible, and like the percentage of sale method, it’s easy to understand and implement. It’s often used by small companies or by start-ups with limited funds.

However, this method can be unreliable. It’s not based on any underlying data but on what a company ‘thinks’ it can afford. As a result, a company using this method may find that it overspends or underspends.

Objective and task method

With the objective and task method, the company’s advertising budget is based on set objectives, like sales or profits, and the tasks that must be performed to achieve them. The sum total of the costs of each task provides you with your advertising budget.

The objective and task method is used by most large businesses. It’s goal-specific and more scientific and logical than other methods. It gives a big-picture view of the organization and encourages large businesses to focus on more than just last year’s sales figures.

However, this method can be time-consuming to implement. Also, it can be difficult to accurately work out the budget necessary to accomplish goals. This can sometimes result in a huge, impractical budget that the company can’t afford.

Competitive parity method

With the competitive parity method, a company’s advertising budget is based on the spending of its competitors. Essentially, you determine the percentage of sales that your competitors allocate to their advertising budgets, and you allocate the same amount to yours.

However, when using this method, it’s important not to follow your competitors blindly or unquestioningly – after all, their goals may be different to yours. It’s better to use a competitor’s advertising budget as a starting point for your own budget planning and then adapt it, if necessary, to your own situation.

The competitive parity method is relatively simple to use. As the budget you arrive at is directly related to your competitors’ activities, it can help you defend your market position. Most FMCG companies use this method.

However, this method has disadvantages too. When you use this model, your company becomes a follower, not a leader in your sector. Competitor budgets can be difficult to estimate – and the amount of money they’re spending may not be available to you. And finally, this method is unsuitable for new market entrants, as it can be difficult for them to match the advertising spend of more established companies.