Mastering Digital Marketing Budgets: A Quick Guide for Small Business Owners

We often come across small business owners that are a tad confused about where to invest their limited marketing budget, how to analyse performance and from there how to make improvements.

In today’s digital age, having a well-thought-out digital marketing strategy is crucial for small business owners. However, crafting an effective plan requires more than just allocating a budget and implementing campaigns. It involves proper planning, strategic testing, performance evaluation, and continuous improvement.

Another key thing is that digital marketing budgets should be flexible. We have live data on sales and leads so there is no need to set fixed budgets months in advance and stick to them blindly even when current trading suggests otherwise, we need to adjust to make the most of all opportunities and to be defensive when necessary.

In this blog post, we will guide you through the process of planning a digital marketing budget, running tests across various channels, evaluating performance on a like-for-like basis, and leveraging insights to iterate and enhance your marketing efforts.

1. Defining Your Digital Marketing Budget:

Before diving into the intricacies of planning your digital marketing budget, it’s important to understand your business goals and objectives. Consider the following steps to define your budget:

a. Set Clear Objectives: Determine your primary objectives, such as increasing brand awareness, generating leads, driving website traffic, or boosting conversions. Aligning your budget with these objectives will help you allocate resources more effectively. For most small businesses you will need a direct and positive return on your investment to ensure that the marketing is sustainable.

b. Assess Your Financial Capacity: Evaluate your financial resources and determine how much you can comfortably allocate to your digital marketing efforts. Consider your overall business budget, revenue projections, and potential return on investment (ROI) from marketing activities. Be conservative – It may take a few months to get the marketing working efficiently so plan for this – just invest enough so that you end up with enough data in order to understand what is happening and to make improvements from there.

c. Consider Channel-Specific Requirements: Different digital marketing channels require varying levels of investment. Evaluate which channels align with your goals and estimate the associated costs, such as social media advertising, search engine optimization (SEO), pay-per-click (PPC) campaigns, content marketing, email marketing, and influencer partnerships. Start in a highly focused and targeted way on all channels – no wasted budget.

For example Google Ads is keyword based so it is great if you have products or services that sole a problem that people are searching about on Google. On Meta Ads (Instagram & Facebook) people are not actively searching for a solution – the ads interrupt them whilst they are socialising with friends or being entertained so the ads and strategy need to account for this mindset.

2. Running Tests across Different Marketing Channels:

Once you have allocated your digital marketing budget, it’s essential to experiment and test different channels to identify the most effective ones for your business. Follow these steps to conduct meaningful tests:

a. Identify Key Performance Indicators (KPIs): Determine the metrics that align with your goals. These could include click-through rates (CTR), conversion rates, cost per acquisition (CPA), return on ad spend (ROAS), or engagement rates. Clear KPIs will help you measure the success of your tests accurately. Most small businesses should not focus on impressions or clicks as these do not reflect success in any way. Focus on leads and sales.

b. Set Up Controlled Experiments: Run campaigns simultaneously across various channels to gather data. Ensure that each test has controlled variables and is executed for an adequate duration to collect sufficient data for analysis.

c. Utilize A/B Testing: Within each channel, experiment with different ad variations, targeting options, or content formats. A/B testing allows you to compare the performance of different elements and optimize your campaigns accordingly.

d. Monitor and Analyze Results: Regularly monitor and collect data from your campaigns. Use analytics tools and tracking platforms to evaluate the performance of each channel and gather insights about audience behavior, engagement levels, and conversion rates. Google Analytics is great for this as you can see the traffic and sales/leads from all of your marketing channels.

e. Once you have sales/leads data coming in you can see which marketing channels, campaigns and ad sets are performing best so you can start adjusting your strategy and budgets using this information. Where you have strong performance AND further room for growth you should invest more and in areas that are not working you need to pull back, analyse why and make changes.

3. Evaluating Performance on a Like-for-Like Basis

To evaluate the performance of your marketing channels effectively, it’s crucial to establish a fair comparison by examining metrics on a like-for-like basis. Consider the following steps:

a. Standardize Metrics: Convert raw data into standardized metrics, such as cost per click (CPC), or cost per conversion (CPCo).

b. Use comparative metrics – Click through rate (CTR), Conversion rate (CVR), cost per conversion (CPCo) and Return on ad spend (ROAS).

c. Calculate Return on Investment (ROI): Assess the revenue generated from each channel and compare it against the investment made. ROI provides a clear indicator of the effectiveness of your marketing efforts.

d. Analyze Channel-Specific Metrics: Look beyond ROI and assess other channel-specific metrics. For instance, measure engagement levels, reach and frequency as well as impression share. These insights will help you understand the scale of the opportunity in each of the channels as well as their unique strengths and weaknesses.

Just use a simple spreadsheet to do this – something like this:

If for example you know that you need to get sales at under £50 each because you know the average order size is roughly £x – you now know what is working well so you can put more budget itno that and you can also see what needs to be improved upon most urgently so you know where to focus your time and efforts.

4. When to scale/pull back

A few weeks ago I was discussing the Google Ads budget with one of our clients who had set the budget to a fixed monthly amount for the year.

This is fine for a starting point but when you see that there is further opportunity available or else you are failing to achieve the desired ROI/ROAS there is a need for flexibility.

For Retail Clients we like to recommend a tiered budgeting system.

For example a client initially has a £2,000 monthly budget and we know that their Target ROAS (return on ad spend) is 400% – basically they have a 25% net margin after production, delivery costs and returns etc and can make a small profit if they achieve this.

We analyse the performance on a rolling 7-day window.

If the ROAS over the past 7 days is greater than the target then we increase the spend and if it is lower than the target then we reduce the spend.

Something like this:

You need a few caveats/considerations:

  1. What is the goal of this marketing channel? For most of our customers, channels like Google ads and Meta Ads are new customer acquisition channels rather than profit taking channels so the focus is on winning new customers over taking profits – we just need to achieve better than break even on the ROAS whilst gaining as many new customers as possible. For other channels like email marketing the focus should be more on profitability.
  2. Cash flow – Short term scaling may require a little extra cash so you need to be sure that you do not put pressure on other areas of the business through your scaling efforts. For most retailers, sales recorded in your analytics tools will be in the bank within 5 days so there should not be an issue. B2B companies that have a longer sales process need to be more considerate of this constraint.

If you want to discuss a better way to manage your Digital Marketing budget so that you can grow your sales faster then please get in touch.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.