by Anna Covert, author of “The Covert Code: Mastering the Art of Digital Marketing”,
You’ve created a business plan and are feeling pumped. It’s time to share it with the world and start to generate revenue.
At that point, a question arises: “What should our digital marketing budget be and how will we measure results?”
Three common ways exist for planning your company’s marketing budget. The first is a “percentage off the top” model where companies allocate a percentage of gross revenue generated over a fiscal period. For example, 3 to 10% of total earnings in 2023 will become your 2024 marketing budget.
The second approach is the “all you can afford method,” and the third – and my recommended strategy – is called “objective task budgeting.” With this strategy, we build a budget to support clearly identified sales goals (KPIs). Then we spend what we must to generate the website traffic needed to support each initiative: new sales, enrollments, locations, SKUs, subscribers, additional team members, or a set number of reviews or social media followers, etc.
Once that’s done, ask yourself: “What is a new customer worth to me?”
Determining your customer’s worth relates directly to your objective task budget and creates benchmarks to evaluate your marketing mix. To determine the value of a new customer, ask yourself a few questions and separate them by each product or service offering (such as homeowners, business owners, single customers, or wholesale customers).
For example, a car dealership might determine that a new customer is worth, on average, $3,000 per car sold. The likelihood of the customer buying a car in the future is high, as most customers are loyal to a brand. So, we may predict a sale every five to 10 years (or three with a lease). It’s unlikely that they will refer a friend without a strong referral program in place. But if there is one, what percentage of customers will refer a friend? To simplify this for your planned marketing, let’s just look at hard metrics for the cost to acquire that first-time customer.
When analyzing our conversion rates, let’s assume that, out of 20 appointments, we sell five cars. That means our conversion rate is 25%. If our annual goal was to make $3 million, we would need to sell 1,000 cars, which would require 4,000 appointments. How much are we willing to spend on marketing to achieve this desired goal? Let’s say we are willing to spend 3%, or $90,000 of the $3 million.
That breaks down to $7,500 per month — so that should become our budget, right? Wrong. One of the biggest mistakes clients make is spreading their budget evenly over a fiscal calendar.
The reason you don’t want to do that boils down to a concept called “the threshold of indifference,” which directly relates to impression share and critical mass messaging (it takes at least seven impressions before a consumer moves down the purchase funnel from awareness to action). If your company is not targeting the right audience with enough impressions over a short period of time (frequency), then you will never be “relevant,” and essentially will waste your money.
An example might be a company that has an annual marketing budget of $60,000 and so allocates $5,000 per month, spreading the money over a few initiatives: $2,000 in Google Ads, $1,000 in social media, and $2,000 in digital radio. The result may be that they never build enough impressions to their target audience to reach scale, essentially staying below the threshold of indifference. Their audience won’t remember them. Now let’s say we take that same budget and spend it on one Super Bowl ad? Boom! The result is that all those highly captivated eyeballs generate instant brand share of mind.
Beyond allocating your budget and identifying how you will measure results, another common mistake is to let the ad exchange platform bid on your behalf. While it might seem attractive to use “smart” bidding, ask yourself: “Does the platform really know how much a customer is worth to you?” The answer is no.
With transactional marketing where a credit card is measured, machine learning helps provide meaningful and actionable statistics on the ROAS result of your ad spend. That being said, the platforms do not take into consideration returns or average cart values, which can skew results. With B2B or other B2C companies that require a discovery call and a form of scheduler is used to capture the lead, the ability of a platform to measure the accurate cost-per-lead, cost-per-demo, and cost-per-opportunity-won is simply not possible.
The last tip is to always ensure that you pick digital partners/platforms that block bot traffic and allow you, the business owner, to prove that your impression ran and how much of it was viewable by the end user. As we learned above, every impression matters and to move the customer down the purchase funnel from awareness to consideration, intent to action, you must have data that is trustworthy and actionable.
If the numbers aren’t adding up, have the confidence to press the pause button and reevaluate; i.e., if we feel confident that the traffic is human and that they are seeing us enough times, why are they not converting? Could it be the website design, ad copy, or sales process, or could it be something related to socio-cultural or world events?
Think big and remember that the customer’s online journey is fluid. That means that while we can track marketing channels, it’s not always “pure” and you need to express this to leadership early on.
For example, let’s say that a customer looking for a car searches in Google and up pops our ad. They click, arrive at our website and shop around for a while. They leave to continue their online research. Now they see a remarketing ad from our company. They click again and still don’t request a test drive. They leave a third time, and they see another ad on Facebook with a low interest promotion. They click and on this website visit, they convert by filling out a leads form, or scheduling a test drive. Congrats!
Now remember that online everyone wants to take responsibility for your conversion. So, if you’re looking at each platform’s data over 30 days, you will see Google Ads, your remarketing partner, and Meta all taking credit for that lead. But you didn’t have three leads, you had one and all three of these digital media channels were responsible, right?
Then, let’s say the customer took one last step before conversion and returned to the site organically (not from an ad click). That last click will be attributed to nonpaid media, but we know that’s not how the customer initially found us, which can impact marketing data when ingesting the lead into the final CRM. To protect your investment, always make sure to pick “data-driven” attribution models to allow for an easier way to measure all your marketing efforts. Also remember that digital marketing, unlike traditional, is an ever-changing environment.
Costs change in real time based on season, competitiveness and global events. Even the weather can and does impact your ability to drive results.
Anna Covert, author of “The Covert Code: Mastering the Art of Digital Marketing”, is the founder of Covert Communication, the largest digital marketing firm in Hawaii. Over the past 20 years, Covert has become recognized in the industry as an authority in digital advertising, having worked with hundreds of companies worldwide in a wide range of industries.
