A business owner asks how much he should spend on digital marketing. A friend gives him a number, an article gives him a percentage, and an agency gives him a proposal. None of the three knows anything about his profit margin or what a customer is worth to him. The answer that fits your company comes from your own figures, and you need four of them, known or estimated.
How do you calculate a digital marketing budget for your business?
Start from the number of customers you want and work backward. The four figures are: customer value (your profit from a customer after costs), the share of your inquiries that become customers, the amount you're willing to pay to win one customer, and the number of new customers you want each month.
Here is a hypothetical example. A company makes JOD 600 profit per customer and is willing to spend a quarter of that, JOD 150, to win one. One in every five inquiries becomes a customer, so the acceptable cost per inquiry is JOD 30. To get ten customers a month it needs fifty inquiries, which puts the ad spend ceiling at about JOD 1,500. After a month of campaigns you'll know your real cost per inquiry and can compare it with that ceiling.
- Profit per customerWhat you earn from one customer on average
- Acceptable cost per customerThe part of that you're willing to spend to win them
- Close rateHow many inquiries become customers
- Acceptable cost per inquiryCost per customer multiplied by the close rate
- Monthly budgetInquiries needed multiplied by their cost
What if you don't know your numbers yet?
Start with a test budget for one or two months. Its first job is to tell you your numbers, and profit comes after that. Estimate the cost per click in your field with Keyword Planner in Google Ads, which shows an approximate range for appearing at the top of the page for each keyword in the country you choose. Multiply that rough cost by the number of clicks you'd need before inquiries start coming in, and you'll see whether the amount is enough for a real test.
During the test, record every inquiry, where it came from and what happened to it. After two months you'll have a real cost per inquiry and a real close rate, and you can go back to the calculation above with your own figures.
What does a marketing budget cover besides ads?
Ad spend is only part of the budget. Count the things that make the ads work alongside it:
- Content production: photography, design, video and copywriting.
- Landing pages and changes to the website.
- Campaign management and monitoring, in house or through an agency.
- Tools for email, scheduling and design.
These costs vary widely between a company with a photographer and designer on staff and one that buys everything from outside. Add them up monthly next to the ad spend, so you aren't surprised to find your real cost per customer is higher than the ad platform shows.
Many companies put the whole amount into ads and then run the same design for three months because nothing was left to produce another.
How should you split the budget between channels?
Put most of it on the channel closest to the inquiry and a small part on experiments. For a local service people search for, Google search ads are usually that channel. For a product people understand from a picture, it's Meta ads. For selling to businesses, it's LinkedIn, email and content.
| Part | Why | Example for a local service |
|---|---|---|
| Main channel | Brings in most inquiries right now | Google search ads |
| Remarketing | Brings back people who visited but didn't inquire | Google and Meta ads to website visitors |
| Experiments | Tests a new channel or message | Short Instagram video |
| Content and tools | Feeds every channel | Project photos and service pages |
The proportions between these parts shift over time. At first the experiment share is larger because you don't yet know what works. Once a channel proves itself, it takes the biggest share.
When should you raise the budget, and when should you drop a channel?
Increase spend on the channel that brings inquiries below your ceiling, and do it gradually. A big jump in budget can push your cost per inquiry up, because the platform starts reaching less interested people. A moderate increase every week or two, watching cost per inquiry after each one, gives you a clearer picture of the point where the campaign stops being profitable.
Stop a channel, or change how you use it, when cost per inquiry stays above your ceiling after enough testing time and real adjustments. Check first that tracking works, though, because many channels look like failures only because their inquiries aren't being recorded. We explain this in paying for ads and getting no leads?
Should the budget stay the same all year?
No. Most industries have seasons when demand rises and others when it slows, and ad costs move with them. Ramadan, Eid and the start of the school year are obvious examples in Jordan and Saudi Arabia. Look at last year's sales and plan to increase spend a few weeks before the season, since a campaign needs time to settle.
We help companies calculate and allocate their budget and run campaigns on it as part of our digital marketing service. Send us your average customer value and what you spend today, and we'll suggest a split for next month.
Questions our partners ask
Is there a fixed percentage of revenue to spend on marketing?
You'll find various percentages quoted, and they differ a lot by industry and company stage. Calculating from customer value and your acceptable cost per lead is more accurate for your business than any general percentage.
What is the smallest budget worth starting with?
Whatever lets you collect a reasonable number of clicks and inquiries in a month on one channel. If clicks in your industry are expensive, a very small budget won't give you data you can judge by.
Should I pay an agency or run the ads myself?
If you have time to learn and to check results every week, start yourself with a small budget. Once spending grows or you add channels, specialist management usually costs less than the mistakes.
Written by the Visual Innovate team, the people who build, host and follow up systems, websites and apps for our clients in Jordan, Saudi Arabia, Oman and Egypt.
