3 Ways to Determine your Web Marketing Budget

If your business survived (or thrived?) 2011, you one of the goals you probably set for 2012 was to “get serious” about marketing on the web. That is a fairly broad goal, and without some boundaries, you will quickly feel overwhelmed.

The first decision you have to make is to determine what you plan to invest. How much time are you going to invest? How much money should you spend? (Equally important, of course, is who should you trust with your web marketing dollars?) For today, let’s focus on your financial budget.

Here are a few approaches you can use to determine your internet marketing budget:

1. Percentage of Past Sales – Cash Available method
Service businesses tend to be especially cash dependent. In these situations, what you should invest is often a matter of what you can legitimately afford to invest. I recommend a marketing spend of 10% of gross revenue for growth-oriented service businesses. Of course, you probably will want some of that money for offline marketing. Given the growing influence of the internet when selecting a service provider, however, you should plan to spend at least 40% of your marketing budget for web-related assets.
Example

A 3-person lawncare company grosses $375,000 in sales each year. (HUSTLE) Using our example above, 15% of $375,000 is $37,500. That represents the total marketing budget of the company. The web marketing portion of that marketing budget is $15,000. (37,500*40%)

2. Percentage of Profits – Cash Flow driven method
Our next example is just as simple, especially if you are focused on selling one particular service or item. In this example, you invest a percentage of your profits from each new sale back into the web marketing activities that generated the sale. This means more profitable marketing activities receive more ongoing investment than less profitable activities.
Example

A carpet cleaning company sells a “whole house” carpet cleaning service for $299. From each sale, the initial owner profit is 20%, or $59.80. The owner wants to grow his share in the local market quickly, and he is reinvesting 35% of all of his profits back into proven marketing platforms. For each sale generated from Facebook advertising, for example, the owner adds another $20.93 into his Facebook account. ($59.80 x 35%)

3. Planned Sales – Confidence required method
This last approach is the way most consultants talk about marketing investment. In this method you review the projected sales and marketing percent of sales required. Then you simply invest accordingly. Most new business owners lack the capital and confidence required for this approach.

Example
A new restaurant is opening in June of this year. During the 4 months leading up to the launch, the owner contracts a web marketing firm to build his website, plan his social media campaigns, and build a launch kit for his business online during the pending grand opening of the restaurant.
Which of these budgeting methods is best for you?
If you are planning to improve your web marketing in 2012, you will need to invest the help of a professional. That professional will need to be given some investment boundaries and results objectives. Which of these budgeting objectives works for your business? How have you determined your internet marketing budget in the past?

by Jeremy Powers
After nearly a decade of branding and marketing for large companies, Jeremy is now Principal at Winding Staircase, where he wants to help you with marketing your company.

  • I’ve never owned a business, but I’d think #1 would be the safest option.

  • Amber – The first method is the one I see used most frequently by bootstrapping start-ups. Unfortunately, it can be a self-fulfilling prophesy. Without marketing, there are often no sales to generate new marketing dollars.

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