How Much Money Should You Invest in Online Marketing in 2018?

Just a few decades ago, a local business used most of its marketing budget on billboards, local newspaper or radio ads. The most visionary managers even dabbled in TV ads, but it was limited. And this went on for years on end. Business owners knew their budget each year, and the costs were predictable for each marketing channel.

 

Now, creating a marketing plan for a local business is completely different. Managers no longer spend the majority of their marketing budgets on radio jingles, posters or pamphlets. As people moved online, and are glued to their smartphones, marketers have followed them. And businesses followed the marketers. In 2018, online marketing will eat up a large chunk of a company’s marketing budget. Spending on digital marketing has grown consistently by double digit increments every year, confirming how important online marketing is for every business.

 

But how much should you spend on online marketing in 2018? Let’s have a look:
 
Firstly, let’s look at the statistics:
 

  • companies spend an average of $75,000 every year on digital marketing, or about 35 percent of their overall marketing budgets; this is an increase from just 19 percent in 2011;
  • 70 percent of small businesses will increase their digital marketing budgets;
  • 62 percent of small businesses invest 4 percent of their total revenue in digital marketing;
  • the average small business invests about $400 every month in digital marketing, according to a study done by BrightLocal;
  • in 2018, small businesses will spend 41 percent of their marketing budget on online marketing, according to a study done by Forrester Research;
  • social media advertising will have a 17 percent compound annual growth from 2017 to 2021, and is expected to represent 25 percent of online marketing spending in 2018;

 
How much should you spend?
 
According to SBA (Small Business Administration), businesses should invest something between 7 to 8 percent of their gross revenue on marketing, if they are generating less than $5 million a year and have a net profit margin of 10 to 12 percent. Businesses focused on B2B invest 6 to 7 percent of their revenue on marketing, while B2C companies spend 7 to 9 percent.

 

These numbers are helpful, but don’t exactly show how much you should spend and what channel should you focus on. According to recent statistics, 41 percent of total marketing budgets will go to digital marketing. So, in broad strokes, your digital marketing budget should be about 3 percent of your total revenue (41 percent of 8 percent = 3 percent). If you divide this number by 12, you get a rough estimate of your monthly digital marketing budget.

 

  • a local restaurant with an annual revenue of $1 million will have a digital marketing budget of $2,500 per month, or $30,000 per year;
  • similarly, a small auto repair shop with an annual revenue of $2 million will have a digital marketing budget of $5,000 per month, or $60,000 per year;
  • a micro business, with an annual revenue of $200,000 will have a digital marketing budget of $500 per month, or $6000 per year;

 
The costs of digital marketing
 
Prices vary wildly across multiple agencies, depending on the volume of work, type of strategies used, retainer or project based. Prices also vary if you choose a subscription-based plan or an hourly rate. Here are some of the common prices, according to survey done by Moz, which includes over 600 agencies:

  • hourly rates hover around $76 to $200/hr
  • project-based plans go from $1,000 to $7,500
  • monthly retainers range between $250 to $500 per month, and can go up to $2,500 to $5,000 per month.

 
Conclusion
 
Budgeting your digital marketing strategy can be difficult for many business owners. There are, however, some important aspects to focus on. Your digital marketing budget should be roughly 40 percent of your total marketing budget, according to market trends. Similarly, 3 percent of your total revenue is a good starting point, but keep in mind that this figure will likely go up, considering how rapidly the online world is evolving.

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