The UK digital market reached £40.5 billion, spread across paid search, video and social.
Many businesses throughout the UK base their digital marketing budget off the previous year’s numbers. Most will increase the budget slightly and then hope better results follow.
Whilst this is a common approach, it is not strategic. With AI having a bigger influence over marketing and new channels appearing, what worked a few years ago won’t necessarily work for your company now.
So, how should you divide your digital marketing budget?
Before allocating any of the marketing budget, the first thing to take into consideration is your business objectives as they will have a direct influence over where money goes.
Prioritising business goals when distributing the budget ensures the allocated funds are focused on the desired growth the firm is looking for.
Demand creation is what companies use to create awareness and interest in the product or service they offer. Demand capture is a strategy designed to take advantage of the awareness demand creation generates.
Having a combination of both demand creation and capture is the best strategic approach. But how much of the budget should be allocated to each approach?
For businesses just starting out, more of the budget should be assigned to creating demand. This is top of the funnel marketing as there isn’t initially an audience to capture, so you need to generate awareness first.
This is compared to more established businesses who may focus more on bottom of the funnel marketing. This means setting aside more budget on demand capture to attract customers who already have increasing interest in your products or service.
Both tools are required to make new opportunities whilst producing conversions.
Paid search is mainly text-based advertisement, tailored towards providing instant answers and solutions. Essentially, it is a responsive approach to demand.
It fits into your marketing budget by responding to users actively looking for information about the products or service you offer.
Customer intent is higher with paid search which is why a proportion of the budget should be allocated to make conversions.
Paid social enables businesses to reach a more targeted audience base, so you will be able to easily reach your intended demographics. This makes paid social the most effective for building brand awareness and engagement.
This is another channel in which you should allocate a larger amount of your marketing budget too as it gets your company in front of both large and niche demographics.
Social video is most effective for top of the funnel marketing as it raises awareness and increases understanding of your brand.
It fits into the marketing budget because it attracts customers attention through storytelling and targets the ideal profile you are able to pinpoint via social media.
Whilst paid search, social and video are important factors to consider when dividing up the marketing budget, organic marketing channels can be just as beneficial.
It allows companies to produce relevant content to engage with the target audience, without relying on paid social. Organic channels can help you make genuine connections with your customers, building long-term relationships and brand loyalty.
A budget should be a flexible tool that adapts to business changes. Every firm will have their individual budget and allocations of money, but how established a business is can also impact this.
If you’re a new business, you may not have the same level of brand awareness compared to a company which was started 10 years ago. As a startup, you’re still finding your way, so without previous data to use as a guide or compare against, it’s difficult to decide the amount of budget you should allocate.
The longer a business has been running for, the more it learns and adapts. As a matured company, you may have achieved or adjusted your original business goals over the years to adapt to your growth and goals. You also have access to information from previous years, after already exploring the variety of marketing channels available.
When the previous year was a success, it is tempting to reallocate the same amount in the hopes of achieving the same results.
However, this approach is a common cause of budgets being wasted. Naturally, some channels will perform better than others, yet this accomplishment can hide the platforms which didn’t deliver results.
Reevaluating each marketing activity can help you identify where performance was high or low and whether the budget should be adjusted.
It is also important to note that marketing is also constantly changing. Customer behaviour and algorithms change frequently, so what worked last year may not deliver the same results for you now.
Evaluating customer economics can be used to help guide a budget and to understand how much is being spent on generating new clients.
Customer acquisition cost can be used to determine how much the business can afford to acquire a customer whilst maintaining healthy profit margins.
Using the customer acquisition cost alongside other customer measurements, like customer lifetime value, conversion rates and profit margins, can give insight into whether the budget is sustainable.
If it costs more to gain a customer than their lifetime value, it may be worth restructuring the budget.
Whilst investing the money into channels that increase conversions seems obvious, it is also important to set aside some budget for experimental platforms.
Marketing changes quite frequently and with the AI becoming a more prominent figure, new ways to advertise and reach audience is different compared to a couple of years ago.
Whilst using the same platforms year in and year out may work for you, there may be other activities that prove more cost-effective and still generate the same or more conversions.
Having allocated money set aside for trying new channels gives you options to expand the reach and potentially capture audiences before competitors do.
Whilst your budget should be reviewed often, it does depend on the marketing channels being used.
For companies using paid campaigns, revisiting the budget weekly will reduce the risk of money being wasted. Compared to overall budget pacing, it is recommended to review this monthly.
Overall, for strategic planning, the budget should be reviewed annually or, for channel reallocations, it should be done quarterly.
Anya is a Marketing Executive at Logic Design & Consultancy Ltd. and has a Bachelor of Science (BSc) degree in Psychology. Anya has a passion for reading and writing which is reflected in her strong written skills that can be translated across different marketing campaigns.
View all posts by Anya Mistry-Shah
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