Marketing is essential to build brand awareness and increase company revenue. CMOs and marketing managers know they need to optimize their brand’s message in the marketplace and they may have ideas for how to do it but deciding which ideas are the winning ones and how much to spend to develop and implement them are challenging tasks. The latter questions imply a need for a financial media budget tied to planning marketing objectives.
A marketing media budget is the total money allocated to growth and promotion-related efforts over a defined period, such as one month, one quarter, or one year. The size and complexity of a marketing budget will vary by the size and complexity of the business, which can include some of the following traditional and digital marketing components: Website design and development - PPC ad campaigns - Social Media campaigns - Email marketing campaigns - Content creation for content marketing campaigns - Print, TV, radio, direct mail and other traditional campaign channels - Tools and software used for marketing-related efforts, etc.
Developing a marketing budget allows to properly size a spending budget to fit and optimize the attainment of desired business’ goals. The reward is to grow the business at the right pace while remaining solvent for sustainability. Keep in mind that if the budget is too small, one may fall short of growth targets and/or lose market share to competitors or if the budget is too big, one may have to cut back elsewhere to avoid going under.
Budgeting follows a Resource Based Theory (RBT) under which a firm with competent internal resources could maximize the benefits derived from acquired marketing and digital tools to optimize their spending in these when competent internal marketing staff exist to use these tools effectively and efficiently. Otherwise, firms with financial capacity but without internal competencies must subcontract intelligence and know-how. The leverage thus acquired yields a sustained competitive advantage (SCA) according to Research Based Theory marketing research.
CMO Survey and Forecast for 2023
The importance of budgeting in marketing plans and marketing practices for traditional and digital marketing sustainability and competitive efforts in leading firms is evident in the CMO Survey findings. A CMO survey conducted by Christine Moorman at Duke University with the support of the AMA represented by Bob Lusch, then Chairman of the AMA Board and other organizations. About 320 top marketers responded to the survey; ninety-seven percent (97%) of them were in VP and above positions. Leading results indicated that spending on marketing analytics as a percentage of the marketing budget hit an all-time high of 8.9% after a decade-long level of 6%-7% (Moorman, 2022) as shown in CMO survey results.
In the results page, Moorman (2022) asserted: “The pandemic’s acceleration of digital marketing investments has pushed marketing budgets as a percent of company budgets up to the highest level in CMO Survey history. This level also corresponds to the growing importance of marketing in organizations, which has increased in more than half of all companies during the pandemic. Marketing budgets as a percent of revenues revert to pre-pandemic levels, reflecting the 12.3% growth in revenues over the last year from the 0.3% increase reported in February 2021 at the height of the pandemic” (Moorman, 2022, p. 2).
Forecasting from leading marketers attested “a 10.4% growth in marketing spending over the last year, predicting this level will decrease and start trending toward the pre-Covid level of 5.8% growth in the next year. Brand, CRM, and innovation investments follow the same pattern—all growing, but reverting to levels closer to pre-Covid levels. Traditional advertising spending returns to negative growth after temporary lifts across the last two CMO surveys, restarting a decade-long decline. Mobile spending as a percent of marketing budgets is flat at 13.7% and has returned to pre-pandemic levels (13.5%) after climbing to a high of 23% during the pandemic. Spending on social media has also been flat at 14%-15% of budgets over the last 18 months, coming off a June 2020 Covid splurge when spending reached 23.2% of marketing budgets” (Moorman, 2022, p. 2).
Figure 1 illustrates marketing budgets allocation across firms and industry sectors.
Fig. 1 CMO Survey Slide 10.
Figure 2 illustrates digital marketing budgets allocation across firms and industry sectors.
Fig. 2 CMO Survey Slide 14.
Budget Decision Process Returning to our original premise: CMOs and marketing managers know they need to optimize their brand’s message in the marketplace and they may have ideas for how to do it but deciding which ideas are the winning ones and how much to spend to develop and implement them are challenging tasks.
Let us review the process of such decisions via one common digital practice and the allocation rationale for its budgeting recognizing a digital marketing budget is an ongoing project requiring constant analysis. This practice applies to an organic vs paid social media strategy. To create a paid social media strategy, you’ll want to start with two critical items: An objective and a budget. Just setting the objective for your paid social media strategy gives your subsequent tactics a direction to work with and a goal to achieve
Value Decision Rationale
The amount of money spent on paid social media ads has been steadily climbing since 2019, and now, with businesses preparing to spend nearly a fifth of their ad budgets on this pay-to-play promo, it’s clear that social media ads are becoming a staple in marketing strategies across small and large businesses. However, let us recognize that paid social media helps with targeting audiences and driving sales just as organic social media does.
The advantage to paying for this type of value? Speed to market, campaign sustainability, and good old fashioned message frequency.
Conversely, organic social media traffic can take days to build due to the algorithms at work behind the scenes of the most popular social media sites. If you’re running a short campaign, that ramp up time can cost you visibility and leads. Paid social media can get you started with an extra boost at a speed that organic posts just cannot match. Pay-per-click advertising, branded or influencer-generated content, and display ads are all examples of paid social media. You’ll know a paid social media advertisement when you see one based on the “sponsored” or “promoted” tag near the post.
Paid Social Media Strategy Budget
Paid social media advertising is one of the least expensive types of advertising available in the traditional and digital market. The pay-to-play model for these channels makes them flexible enough to target only the people your business wants to attract, therefore you only have to pay for those you have the ability to reach.
Unlike TV or radio ads that are priced based on the length of the spot and the time the ads will air; social media ads are priced based on the length of the campaign and the potential number of impressions. This gives these types of ads a much more favorable KPI to track as suggested in — The Beginner’s Guide to Cost Per Acquisition (CPA) — as opposed to traditional ads that can only vaguely track cost per million impressions. Paid social media ads can start as low as $1 because of the bidding model and lottery system some platforms use to bring ads onto users’ newsfeeds. Spending for this type of advertising is virtually unlimited, but you can set a limit that will stop the campaign from spending more money than you’ve allowed.
Platforms of choice for Paid Ads are Facebook, Twitter, Instagram and LinkedIn. Let us recognize that each paid social media platform has unique features that sets it apart from competitors. However, there are three key characteristics of a converting paid ad that you’ll want your platform of choice to support: visual content, easy access to lead capture forms, and enough space to include enticing ad copy.
Paid media includes PPC advertising, branded content, and display ads and is an essential component of revenue growth and brand awareness for any online businesses. One of the most significant factors of a paid media budget is ad spend. The most common way to determine ad spends is by measuring cost per click (CPC). CPC is the amount you pay each time someone clicks on your ad on a platform such as Google, Bing, or Facebook. Benefits expected: increase brand awareness, engaged audiences where they are most receptive, and ultimately driving more sales and revenue.
Paid Ad Budget Performance Metrics
Paid Media KPIs All the Formulas in Detail You Need to Know on One Page
Cost per click (CPC) Target a good cost per click (CPC) value on your click-to-ads
Click-through rate (CTR)
Cost per acquisition (CPA)
Return on investment (ROI)
Paid Media Budget Performance Formulas
CPM (Cost-per-Thousand Impressions)
Formula: CPM= Media Cost / Impressions x 1000
This formula is a performance based pricing model that tracks and measures cost effectiveness of online impressions, which are sold by the thousand. The CPM formula is the most common pricing model used in the media industry.
Formula: CPC= Media Cost / Clicks
This calculation will help you understand and compute how much you will pay each time your audiences engage with your media or advertisement by clicking on it.
Formula: Media Cost / Number of Defined Acquisitions
This is a pricing model in which payment by your company is based solely on your audience completing a qualifying action(s) that you define. Some examples of actions are completing a sign up form, filling out a survey, or even completing a purchase. In this situation, your KPI (Key Performance Indicator) will be the “action” that needs to be completed. For this model, that means whatever you are measuring to judge the success of your campaign is what you will divide into your media cost.
These models are essential to fully comprehending a campaign’s success.
Formula: CTR= (Clicks / Impressions) x 100
The click through rate model is simply a ratio of exactly how many advertisements are seen by audiences, in comparison to how many people are actually engaging with your advertisements by clicking on them. Calculating your click through rate is one way to measure the effectiveness of your advertisements.
Formula: Conversation Rate= Number of Desired Actions Taken / Visits x 100
This formula calculates the percentage of audience members who take a desired action defined by your company such as purchasing a product, registering for a membership of some kind, or subscribing to your company’s newsletter. In order to achieve a high conversion rate, the interest level of the visitor needs to be high. This can be improved by making sure your advertisements are reaching the visitor at the right place at the right time in their path to purchase. Your company will also need to ensure that the offer is attractive enough for the visitor to actually complete the desired action. Typically, smaller, less-intensive actions have higher conversion rates.
Return on Paid Media Ad Investment
ROI for social media = (Value achieved – investment made) / investment made X 100. Social Media ROI is a measure of all social media actions that create value, divided by the investment you made to achieve those actions. As long as your ROI is more than 0, your investments are making your business money. A negative ROI means that your investment was greater than the value it generated (a.k.a. you lost money).
Ad Impressions gives you the total number of times your ad is viewed, while Ad Reach is the number of people who have seen your ad. When you take the ratio of Ad Impressions to Ad Reach, you get Ad Frequency, which is essentially the number of times each unique user views your ad. Audience Growth Rate
To calculate your audience growth rate, track your net new followers (on each platform) over a reporting period. Then divide that number by your total audience (on each platform) and multiply by 100 to get your audience growth rate percentage.
Reach = impressions/frequency Digital marketing teams, therefore, focus their efforts on increasing their campaigns' reach to ensure that as many potential customers see their clients' advertisements as possible. Determining reach is important for digital marketers because it can gauge how effective their marketing campaign is.
BUDGET PER CENT SPENDING ALLOCATIONS
There are several methods that businesses use to calculate a hard budget number and this depends on the size of the business. Percentage of Revenue Approach
In general, most small businesses allocate between 7 to 12 percent of their total revenue to marketing (in this case, total revenue refers to all of the money generated through sales before expenses are taken out). This approach is flexible because it will grow along with revenue, increasing your marketing presence as your business expands. The U.S. Small Business Association recommends that you should only utilize a percentage of your revenue for marketing if your margins fall at or above 10 to 12 percent.
Goal-Based Fixed Approach
This is a budget based on research and or expectations on a new business investment. Do your research and find out what type of campaign will have the best impact. Work backward by first determining what you hope your marketing will accomplish. Be specific — do you wish to gain a set number of followers on social media? Increase sales by a certain percent? Increase your search rankings? Once you know your targets, a strategy is easier to craft.
The how much question in the latter case could be based on WOM by asking other business owners in a similar bracket what they typically spend on marketing? Research your competitors and calculate their budgets.
Return on Investment
Calculating ROI also gives you a better understanding of how your campaigns impact your overall budget.
The diverse marketing strategies, tactics and tools available in a market with ongoing unpredictable change as its only constant renders media budget decision making into a balancing act. Regarding media budgeting a benchmark practice such as Paid Media Ads makes one realizes that when spending too much, you'll break the bank, but spending too little, no one will know that your products exist. Setting a clear plan outline for the budget, whether it's based on fixed income or a percentage of revenue is another decision, which may make it easier for allocating resources and measuring the results of your chosen campaign.
I hope this content raises more questions than provides answers. I look forward to your engaging comments and follow up inquiries.
Moorman, C. (2022, September). The CMO survey. Retrieved from https://cmosurvey.org/results/
Kozlenkova, I., Samaha, S., & Palmatier, R. (2014, January). Resource based theory in marketing. Journal of the Academy of Science, 42(1). doi: 10.1007/s11747-013-0336-7