As more companies make the move to paperless communication and ecommerce stores, traditional advertising is quickly losing ground to digital marketing. Even small local businesses are making the shift.
The catch, though, is that there is no simple formula for success. Throwing money at your digital marketing team won’t guarantee more profit—businesses need to be deliberate about how they use their funds. If you aren’t being savvy with your resources, you risk losing even more money in the process.
Today, we’re examining some trends and calculations that can be used to inform marketing budgets, so that you can determine how to best allocate your company’s digital marketing spend in the new year.
Calculating Your Budget
Let’s review some calculations that you should always have at the ready when determining your budget, so that you can keep up with the competition this decade.
Customer Lifetime Value
In the marketing world, customer lifetime value is a company’s prediction of the net value that is attributed to a customer for your entire relationship with them. In simpler terms, it’s the monetary value of your relationship with a customer. Calculating a company budget with customer lifetime value in mind is crucial, because it shifts the focus from quarterly profits to building a long-term relationship with your buyers.
Much of calculating a customer’s lifetime value depends on forecasting, which means predicting how long you’ll retain that customer (in years), your company’s future revenues, delivery costs, and the net present value of those future amounts.
In equation form, the calculation looks a little something like this:
(Average Monthly Revenue Per Customer * Gross Margin Per Customer) / Monthly Churn Rate
In this case, churn rate describes the number of customers who end their relationship with your business in a given period.
Certified Public Accountants (CPAs)
If you haven’t already, you should consider investing in the services of a certified public accountant (CPA) for 2020. These professionals are strategic business advisors who can provide insight into a variety of business-related issues, such as taxes.
One of the key objectives of a CPA is to help individuals, organizations, and businesses reach their financial goals—so if you have the means to enlist their services, you should do it.
Return on Investment (ROI)
Return on investment (ROI), in its simplest form, is a ratio between net profit and investment cost. It helps companies review how efficient an investment may be. A high ROI, for example, means that the investment produced favorable gains in comparison to its cost.
A typical ROI calculation may look a little something like one of these:
- ROI = (gain from investment – cost of investment) / cost of investment
- ROI = (revenue − cost of goods sold) / cost of goods sold
Why Does All of This Matter?
If you’re not of a financially-inclined mindset (and let’s face it, many of us are not), it can be easy to get bogged down by all of the numbers and equations that are required to springboard your business to success. But a little paperwork goes a long way, especially when you consider the following:
- Marketing makes up over 10 percent of a company’s budget, and sometimes even as high as 14 to 15 percent.
- Detailed research from the U.S. Small Business Administration suggests that companies should use 7 to 8 percent of their revenue on their marketing budget.
- In 2018, the average digital marketing budget (compared with the overall marketing budget) was 41 percent. In 2019, it inched up to 42 percent. For 2020, it’s predicted to leap to a whopping 45 percent.
Clearly, digital marketing is only growing in importance, and businesses across the country are increasing their spending to take advantage of it. Allocating a good chunk of your budget towards digital marketing should make seeing returns all the easier for you. After all, posting a well-timed social media ad saves money, paper, and labor for your organization, rather than painstakingly creating a traditional offline advertisement.
What’s more, you can’t track your company’s success as easily with traditional marketing methods, but the internet offers a whole host of methods for reporting on successes (and disappointments). Who doesn’t want to know for certain if their digital marketing is profitable? And who wouldn’t enjoy the convenience of being able to see what kinds of visitors are clicking around on their site?
Connect With Snap Today
Here at Snap, we’ve stacked our team with talented experts in digital marketing analytics, PPC management, and SEO. For insights into the most financially-savvy practices for your business, as well as guidance in how to maximize your digital presence, we’re here for you. Contact us today to learn about how we can allocate your digital marketing funds in a way that’s both smart and productive.