Digital marketing can effectively engage prospective customers via online channels. But how much do you allocate for online marketing campaigns?

While there is no magic number (as it differs for every company), there is a guideline that companies can follow to determine the right amount to allot for online marketing.

Determining your budget

According to a survey by research firm Gartner, on average, companies spend 2.5% of their total revenues on online marketing, and that rate had a 9% increase this year.

Indeed, more brands are shifting their spending from traditional to digital. Consider the companies reported in a research conducted by Forbes. According to the article, Converse now uses a whopping 90% of its spending on digital selling efforts, Lexus uses 50%, and Virgin America uses 70%.

Of course, these figures merely provide a general picture of the current spending trends in digital marketing. To calculate how much your company needs, consider the factors below.

First, see what type of business you’re in. Consumer retail and local service providers typically have a higher annual budget for marketing compared to business-to-business (B2B) companies, who still rely on sources other than the Internet for lead generation.

Second, define your goal and then choose which strategy is best suited to accomplish them. For instance, to generate leads, you need pay-per-click advertising, and to establish your authority and presence in the market, you need inbound marketing services such as search engine optimization.

Find out the costs involved in a specific strategy. Funding for Google paid ads can easily be adjusted depending on your needs, but other areas of marketing on the Internet, such as search engine optimization and social media marketing, need bigger investments in time and money.

Next, you should assess whether the percentage you’re allocating for marketing is the ideal value for your company. To do this, measure the return of investment (ROI) for every marketing initiative implemented. Based on the ROIs that you receive, you’ll know whether to reduce or even double your funds.

Other factors should also be taken into account. Businesses that cater to customers in remote locations may need to invest more in logistics. You should also see how your competition is doing and whether you are ahead or behind the curve.

In summary, how much a business spends on marketing depends on a variety of factors. Taking these into account and testing what works best for you will enable your business to get the most results out of your resources.