How Much Should You Spend on Digital Marketing in 2020?

How much is the cost of digital marketing? The answer can greatly vary with every business, yet we all know that if we are not careful, it can get real expensive, real fast.

So, how can we monitor and optimize our digital marketing costs?In this guide, we will discuss the necessary principles and steps to make sure you are making the most of your money with your digital marketing investments.

Let us begin by discussing the main principle behind digital marketing pricing.

The Idea Behind Digital Marketing Cost

To truly understand the cost of you digital marketing initiatives, we should first understand the factors that might drive the price.

In general, an effective strategy should covers:

  • Doing various research from market research, competitive analysis, A/B testing, buyer persona research, and many more
  • Finding the right, valuable information for your marketing activities
  • Attract your prospects by developing a well-planned content marketing. This covers your social media channels, blog, sales pages, lead generation devices, and others to name a few
  • The execution of your strategy, covering all the aforementioned things above
  • Monitoring your campaign(s), various testings, and executing various tweakings when they are necessary

So, what are the costs of all the above activities? If you can do them properly, it should be totally FREE. Yet, not everyone of us has the expertise to do all of those efforts. Or, we simply don’t have the luxury of time. To tackle these limitations, there are generally three different approaches, and this is where the cost comes in. They are:

  • Do it the hard way and learn the skills yourself. This approach will require a lot of time and money, but will be a great long-term investment
  • Invest on the right person (or the right team). This is generally the most affordable approach, but might require a long time
  • Outsource your efforts, or invest on paid options that can replace the marketing initiative(s)

The third point might be a little confusing, so let’s use examples to illustrate:

  • Content marketing is a powerful lead generation device, but not everyone can do it properly and it will require a relatively long time. Instead, we can invest on paid advertising to generate leads
  • Market research can also take a long time to accomplish, but instead we can purchase a research report or outsource to a research agency
  • Since we don’t have the expertise to develop an optimized website, we hire a specialist to do the job

Those are just a few examples, but you get the idea. So, digital marketing pricing will be tied to two major factors: time and skill. The faster a marketing initiative is showing results, the more expensive it will be. The more difficult a marketing tactic is, the more expensive the price will be to outsource it.

So, which approach should we take? Most businesses will combine building its own time with outsourcing some of the initiatives (or purchasing paid options). Yet, the answer will be tied on the next question: how much SHOULD I spend on marketing? Which will be discussed after this.

How Much Should You Be Spending On Digital Marketing?

First, let us define the term ‘marketing budget’ clearly. Your marketing budget refers to all costs for marketing activities, including but not limited to promotions and advertising, public relations, SEO costs, social media marketing, sponsorships, influencer marketing,and anything else that falls to this category.

If you are outsourcing all of your marketing strategy in an all-in-one package, the cost will be your marketing budget. Yet, if you are hiring an in-house team, generally the cost will be tied into your human resources cost.

So. how much should your marketing budget be? According to the U.S. Small Business Administration,, small businesses making under $5 million a year should spend 7-8% of revenues for marketing, while bigger businesses making above that number should spend no more than 5%. The revenue here can be actual and projected, but there can be many other factors that can alter this number.

For example, newer businesses will need a higher marketing budget to introduce their brand. Also, some industries and/or niches will require a higher marketing budget: generally, the more common/easier to produce your product is, the more you should spend on marketing.

So, you should spend at least 2-5% of your gross revenue on marketing. Newer businesses might need more, and can spend up to 20% of their total gross revenue. On the other hand, the recommended maximum for established businesses is 12%.


Marketing Infrastructure Pricing

There can be exceptions to the above rule: when you are investing on infrastructures and marketing foundations. This cost will occur when you just start the business, and probably every few years when you are updating some of them. For example, we should keep our website up-to-date with today’s standard, both performance-wise and design wise.

When this cost occurs, you will most likely exceed your usual marketing budget, and it is perfectly fine. In most cases, your marketing infrastructures will consist of:

  • Your brand
  • Your marketing strategy and tied-in information (information from marketing research, competitive analysis, etc.)
  • Website design and maintenance
  • Digital marketing tools (link to guide)
  • And other things with similar nature

Having a functional marketing infrastructure will not only ensure the success of your marketing campaigns, but can also improve the cost-efficiency of your digital marketing in the long run. Let us illustrate with an example.

Suppose, a company named X has a sub-par, non-optimized site that can only convert 1 in every 5,000 visitors. So, the conversion rate of the site is 0.02%. Let’s say the average monthly visitors are 2,000, so the company will only make 1 customer every 2 and half months. So in this case, if we are spending $100 a month in digital advertising with 1,000 monthly visitors, the customer acquisition cost (CAC) is $2,500.

On the other hand, if the monthly visitors number stays intact, and we spend the same amount of money in advertising, the cost will be much lower with an optimized website able to convert 1 in 200 visitors.


How To Optimize Your Digital Marketing Cost

Now that we’ve understood the right amount of digital marketing budget according to your revenue, and the importance of having the correct infrastructure, here we will discuss how to optimize your budget, and especially where to spend it.

There are a few key areas to discuss here, and let us begin with the first one.


1. Clarify Your Goals

The first step toward developing a marketing budget is determining clear marketing goals for the year. All your goals should have predefined success measures (KPI). The more specific your goals are, the easier it will be to measure your progress through various metrics.

Also, although it’s not directly related to optimizing costs, it is wise to make sure your goals are realistic enough to achieve. Having goals that are too massive to achieve might hinder the morale of your team, as they miss that sense of achievement. To tackle this issue, you can break down those big goals into smaller, more realistic milestones.

Here are some common marketing goals, and how to measure them:

  1. Increase leads generated by the website. This goal can be measured by website traffic. If you want leads from specific locations, you can use geographic data
  2. Business growth in general, measured by total generated leads and revenue in sales
  3. Increase brand awareness, measured by total mentions and engagements
  4. Acquiring new customers, can be measured by tracking conversions from newly generated leads
  5. Growing market share, measured by your sales revenue compared by the industry’s total revenues
  6. Improving customer relationships and satisfactions, measured by the number of good reviews, churn rate, and social media engagements among others

Those above are just some of the common examples. Again, the key here is to be as specific as possible, and to make sure you can measure your progress, as well as your spending and ROI.


2. Check and Re-Check Your Infrastructure

The next step here is to examine your marketing infrastructures, which we have briefly discussed above. As we have mentioned, if your infrastructures are working properly, you can save a lot of money in marketing spendings.

Different businesses might require different marketing infrastructures, and different areas to optimize. Yet, here are some key considerations and questions to answer:

  • Your branding and design should be up-to-date with the current standards. Also, your brand should properly identify your company to consistently generate similar brand image across all channels and media
  • How is the state of your website? The easiest way to assess this is to look at your competitors’ sites. A simple Google search will show your top competitors according to your target keywords
  • Across all channels, are you providing clear paths for conversions and lead acquisitions? Make sure all  ?
  • Last but not least, do you have a clear, measurable marketing strategy?


3. Spend Your Budget

With your goals set, your infrastructures in place, and success measures ready, it’s time to allocate your marketing budget according to your goals.

First things first, your first priority should be the weaknesses in your infrastructures, which we have discussed above. As we have stated, these weaknesses can cause further leakage in your spending, so we should address them first.

Remember that more often than not, spending on your infrastructures will be done with fundings outside your existing marketing budget. So, if you have decided on say, 7% of your total revenue as your marketing budget, you can still use all of it for day-to-day marketing spendings.

Remember that your infrastructures will only be useful when you have ongoing marketing activities. For example, a super-optimized site that can convert visitors really well won’t have much use if you don’t have any activities to drive traffic like content marketing or advertising.

How should you spend your budget? There are many factors that can affect this decision from your business model, industry, and competitive situation among others. Yet, there are 5 key areas to focus on:


1. Your Brand Strategy

This area includes items like:

  • Brand strategy and design
  • Outsource consulting
  • Website, landing pages, microsite developments and maintenances
  • SEO

In general, this area will include activities that will define your brand as a whole, and generally most of these activities are long-term investments. This are should take the majority of your marketing budget, even can exceed 50% of your total digital marketing cost.


2. Online Activities

Including initiatives like social media marketing, PPC campaigns (paid search), email marketing, content marketing, webinars, and so on.

In general, this area should take around 20-30% of your total marketing cost.


3. Promotions

Including various online (and offline, if you want) advertising costs. If you are doing the other aspects correctly, you can grow your business without too much investments on advertising. Aim to make promotional budget under 20% of your total digital marketing cost.


4. Public Relations

PR placements are still very relevant even today. You should invest on press releases, build relationships with the correct media, and submit your brand on relevant awards and recognitions. Budget allocation for this aspect can be fairly small, around 10-20%.


5. Events

Offline events can be effective in assisting your digital marketing strategy. You can allocate 5%-10% of your total marketing costs here.


4. Track, Analyze, Adjust

The last step in optimizing your digital marketing pricing is to constantly measure your progress, according to the goals you have set up above. If there’s any activity with less than desirable ROI, you will need to adjust or optimize your tactic.

If you have a working digital marketing infrastructure, the ROIs of your initiatives will be more optimized. The key here is to constantly monitor your progress and adapt with the changes.


End Words

Although the cost of digital marketing pricing can be very expensive if you are not careful, there are ways to optimize it to make the most of your investments. The keys here are to build a working marketing infrastructure, plan your budget properly, and monitor the ROI of each marketing activities.

About the author

Mike is a lead SEO strategist at Nine Peaks Media. With over 10+ years of experience in SEO and Inbound Marketing, he helped hundreds of B2B and SaaS businesses rank on the first page of Google.