You know you have to spend money to make money. However, if you spend too much relative to earnings and earnings before interest, taxes, depreciation and amortization (EBITDA), you may lose some love from your shareholders. For public companies, this could mean the board loses confidence in management and ultimately cost you your job.
On the other hand, in our increasingly digital world, not investing in digital marketing will almost guarantee that your competitors will outsell you. According to the latest marketing trends, demand for inbound marketing will continue to rise, with 27% of marketers using it for the first time in 2022 and more than a tenth of marketers making it their single biggest investment this year.
How much should companies spend on digital marketing?
Size is one of the main factors in determining your digital marketing budget. For Small to Medium Business (SMBS) solutions, the US Small Business Administration recommends allocating 7-8% of your gross revenue to your marketing budget. Digital marketing budgets account for an average of 45-50% of the total marketing budget – in terms of focus, video marketing is number one.
Examples of digital marketing budgets
A company with $5 million in revenue will allocate $350,000 to its overall marketing budget, with $157,000 or more invested exclusively in digital marketing.
Meanwhile, a company with $50 million in revenue will spend $3.5 million on marketing. More than $1.5 million of that budget will go exclusively to Best Data Driven Digital Marketer .
For Fortune 500 companies and established brands, total digital marketing spend could drop below 5% of revenue. And for many nonprofits that need to share their story in today's digital environment, 5-15% of the operating budget is common.
Digital marketing budget for non-traditional organizations
The key factors in gaining support for a digital marketing budget and setting your company up for success are the mission and value of your business model and how well that message is communicated by the leadership team. This is especially true for non-traditional organizations.
One example is the online brokerage Robinhood. With a mission to “democratize finance for all” and a value proposition that provides commission-free trading, this company has acquired more than 20 million customers in a short span of time.
Digital and paid marketing efforts accounted for approximately 42% of Robinhood's budget in 2020, up from 72% of the budget in 2019 ($33M), despite showing no profit at the time or in their short-term projections. This is a testament to how a strong value proposition can garner budget support from senior management, as it gives them confidence that the investment will return on time.
Digital marketing budget for value companies
Value companies are mature companies that are constantly growing, and although their market value may be lower than their true value, their earnings are still very important to stakeholders.
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