At some point during the process of starting your online business, you will encounter one of the most important decisions that small and medium-sized businesses face: “How much should I spend on online marketing?”
Many online startups have difficulty figuring out the answer to this question. Calculating a budget is based off a number of factors such as how much you realistically can afford to spend, how quickly you would like to grow, your annual budget and the lifetime of your customer. Unfortunately, some of these questions cannot be accessed until after you start your business. However, we have developed some key guidelines that you can follow to ensure you get your marketing and advertising started on the right track.
Calculate 10% – 25% of Your Annual Budget
Before you can determine the perfect budget, you will need goals. Before you can achieve anything, you need to have a realistic idea of what you want to achieve. Are you looking to grow quickly? Are you more comfortable spending conservatively? In either case, a general rule of thumb to follow is 10% of your total annual budget. You would divide 10% of your annual budget across 12 months. However, within the first 2 months, you should spend more than any other month throughout the year. A good figure within the first 2 months of your site launch would be 25%.
Plan to Track and Adjust Your Budget
After beginning your marketing efforts, it is also very important to track the revenue and cost to be able to determine if you are making more money from a visitor that it costs you. If you spend $1000 a month only to get back $500, you would cut back your marketing budget. If you spend $1000 and it brought back $1500 you should go all in – especially if it is within the initial months.
Understand that Marketing is an Investment; Not an Expense
Small businesses often estimate sales revenue, costs of goods, overhead and salaries first to determine a marketing budget. Anything that is “leftover” is typically considered available funds for marketing. This is not a very wise idea; especially if you are a new competitor in the marketplace. You will have to spend more aggressively to establish your business at a quicker pace. The whole point of marketing is to increase leads, sales and generate overall revenue. Without a proper time and financial investment, your business will not show large results.
Realize the Hazards of Underspending
Some companies may underspend thinking that not to spend means to save. This simply isn’t true because although it is good to save, this idle money is not working for or making money for your business. The trick is to spend your money wisely on a tailored marketing plan aimed at fulfilling goals. In the best of times and in the worst of times, marketing efforts are directly correlated with your revenue.
If aggressive spending makes you uncomfortable, you can still market your site in baby steps by using organic growth methods, but be aware that eventually you will hit a brick wall. To rely on organic growth alone means that you are comfortable risking potential business simply due to the fact that a large percentage of customers cannot easily discover you. Is that risk more comforting?
To become a highly profitable online business, you must know how to allocate adequate funding to marketing each year. If done properly, marketing can bring back solid returns.
Have questions, need more advice or want to share your own personal experience? Let us know! If you are unsure about your methods or where to start, you may also contact us by phone or email for more information regarding search engine optimization.