A Reasonable Budget for Corporate Digital Marketing

With the rapid development of mobile Internet and smart terminals, digital marketing has become one of the most important marketing channels for enterprises. How companies can reasonably set their digital marketing budgets so that they can get twice the result with half the effort is a question that many entrepreneurs and marketers are extremely concerned about.

1. The ratio of corporate marketing expenses to operating income

The ratio of a company’s marketing expenses to its operating income can be used to measure a company’s investment and effectiveness in marketing.

This ratio is usually called the Marketing Expense Ratio or Selling Expense Ratio, and its calculation formula is as follows:

Marketing expense rate = (marketing expense operating income) * 100

This ratio reflects the percentage of money a company invests in driving sales relative to actual sales revenue. This ratio can vary significantly between industries and companies. Generally speaking, a lower marketing expense ratio may indicate that the company is more efficient in its operations, while a higher ratio may mean that the company is investing more actively in marketing and sales activities.

It is important to note that different industries and businesses may have different standards and expectations. Some industries may require higher marketing investments to attract customers and drive sales, while others may require relatively lower investments. Therefore, when evaluating your marketing expense ratio, it’s a good idea to compare it with the industry average or industry standards to better understand how your business is performing.

In addition, enterprises may conduct some special marketing activities during a specific period, which may cause marketing expenses to increase in the short term, but this does not necessarily represent a long-term trend. Therefore, when interpreting and using marketing expense ratios, it is best to consider a range of factors, including industry trends, market conditions and the company’s own strategic goals.

2. Reasonable standards for corporate digital marketing expenses

There is no unified standard in the industry as to what proportion of a company’s total marketing budget or operating revenue should be accounted for by digital marketing budgets. According to a survey by Gartner, a well-known American technology research and consulting company, the proportion of digital marketing budgets of global enterprises is continuing to rise. Digital marketing budgets accounted for 12% of business revenue in 2016, up from 11% in 2015.

In terms of the proportion of the company’s operating income, the reasonable range of digital marketing budget for general companies is 5%-15%. For digital economy companies in a period of rapid growth, digital marketing budgets can account for more than 30%.

Philip Kotler, the world’s top management guru and marketing expert, pointed out that companies should flexibly adjust marketing budgets according to different stages of the product life cycle. Specifically, for new products, up to 50% of the budget can be allocated to marketing to quickly open the market and seize the lead. As the product enters the maturity stage, this proportion can gradually drop to 40%, 30% or even 5%.

It can be seen that enterprises need to flexibly set and regulate the proportion of digital marketing budgets based on their own operating conditions and product characteristics. Digital marketing can be most effective only if the budget matches the actual needs of the business.

3. Differences in digital marketing budgets due to industry and country differences

Digital marketing budgets vary greatly between businesses in different industries and countries. This is closely related to the differences in marketing needs of various industries and national Internet infrastructure construction.

(1) Industry differences

Based on data from the Statista website, it can be seen that there is a large gap in digital marketing investment in some industries. It is expected that by 2025, the global automotive industry’s digital marketing expenditure will reach approximately 34.6 billion US dollars, ranking first among all industries; while the education industry’s digital marketing expenditure is only about 900 million US dollars, and the growth rate is relatively slow.

Due to the characteristics of product attributes and business models, the automobile, consumer goods and retail industries are more dependent on the traffic and conversions brought by digital marketing, so their digital marketing investment far exceeds that of other industries.

Products and users in the education industry are relatively less dependent on digital marketing. In addition, the user growth potential is limited, which makes the growth rate of digital marketing investment in such industries slow. But in the future, as more educational products come online and large-scale transactions are formed, the importance of digital marketing will also increase significantly.

(2) National differences

Among major countries and regions in the world, North America has relatively high digital advertising expenditures, which is directly related to its high level of Internet infrastructure construction.

The top five countries and regions in global digital advertising spending in 2016 were: the United States (USD 72 billion), China (USD 50.6 billion), the United Kingdom (USD 13 billion), Japan (USD 11.5 billion) and Germany (USD 9.2 billion). Together, these five countries account for 58% of global digital ad spending. Among them, the United States accounts for the largest proportion, reaching 36%.

In comparison, Latin America and Eastern Europe spend less on digital advertising. This is mainly due to relatively underdeveloped Internet penetration and per capita income. But as Internet penetration increases in these regions, the digital advertising market is also expanding rapidly.

4. Factors that determine digital marketing budget

There are many factors that affect a company’s digital marketing budget, including:

(1) The overall business scale and operating model of the enterprise

The overall business income and profitability of an enterprise directly affect its investment in digital marketing. Companies with higher revenue and profits have more ability and need to increase investment in digital marketing. Likewise, more digitally savvy businesses also require more digital marketing spend.

(2) Product life cycle stages

As Philip Kotler said in his expert opinion, products at different life cycle stages have different marketing priorities, so the proportion of digital marketing budgets will also be different.

(3) Market and industry competition level

In areas with fierce market competition, companies often need to invest more in digital marketing in order to compete for a larger market share. Specific to different industries, the previous statistics also confirm that industries with a high degree of competition have higher digital marketing budgets.

(4) Regional differences and cultural differences

Differences in different countries and regions will also cause companies to adopt different digital marketing strategies, thus affecting digital marketing budgets. Specifically, developed countries or regions have better network infrastructure, more digital marketing channels, and companies pay more attention to the digitalization process, so digital marketing budgets are larger.

(5) Consumer purchasing habits and preferences

If the target consumer group is more accustomed to using online channels to browse information, compare prices, and even complete purchases, then the company’s budget for digital marketing channels will also need to increase accordingly.

(6) Enterprise digital transformation process

More and more traditional enterprises are accelerating the pace of digital transformation. The deepening of digital transformation will drive companies to adjust their organizational structures and increase investment in digital marketing channels. Therefore, digital transformation is also a key factor affecting corporate digital marketing budgets.

To sum up, many factors can affect a business’s digital marketing budget. Enterprises need to balance these factors and reasonably determine digital marketing investment based on their own circumstances.

5. Digital marketing budget cases of world-renowned companies

Let’s take a look at the digital marketing budgets of some of the world’s biggest and best-known companies. This helps us gain a deeper understanding of the many factors discussed earlier that influence a company’s digital marketing budget decisions.

(1) Amazon

Amazon, the world’s largest e-commerce company, spends more than 60% of its marketing budget on digital marketing. This compares to about 15% for the average traditional retail business. There is no doubt that e-commerce companies with a high degree of digitalization require greater investment in digital marketing.

Amazon’s digital content marketing budget is as high as more than 90%, far exceeding that of ordinary enterprises. This is closely related to Amazon’s rich product content and consumers’ love of browsing product information. It can be seen that consumer purchasing habits are also an important factor affecting digital marketing budgets.

(2) Procter & Gamble

P&G, the world’s largest maker of household chemicals, spent about $1.5 billion on digital advertising last year, accounting for more than 35% of its overall marketing budget.

P&G’s increased efforts in digital marketing are mainly based on two judgments: First, consumers’ purchasing habits have changed, and more and more people browse information and complete transactions through digital channels; second, the market competition in the field of consumer goods is fierce, and digital marketing is needed to seize leading opportunities. .

Procter & Gamble executives say one of the principles they govern digital transformation is to “follow the consumer.” This means that the importance of digital marketing budgets will further increase.

(3) Lenovo Group

As the world’s largest personal computer manufacturer, Lenovo Group has an annual digital marketing budget of up to US$500 million, accounting for more than 70% of the overall marketing budget.

The reason why Lenovo attaches so much importance to digital marketing is mainly based on two considerations: First, its products, such as smartphones, are highly dependent on digital promotion; second, the global personal computer industry is highly competitive, and digital marketing can provide more precise customers. Segmentation and product promotion.

It can be seen from the above cases that many well-known large companies are increasing investment in digital marketing. This is inseparable from multiple factors such as the acceleration of enterprise digital transformation, the development of consumers’ digital purchasing habits, and fierce competition in some industries.

6. Digital marketing performance evaluation methods

After setting a digital marketing budget, companies also need to pay attention to the return on digital marketing investment. The main evaluation indicators and methods are:

(1) Rate of return indicator

Commonly used return calculation indicators include: overall return on investment (ROI), return on marketing investment (ROMI), digital marketing return on investment (DROMI), etc.

Overall return on investment (ROI) = net profit/total investment

Return on marketing investment (ROMI) = additional revenue/marketing investment

Digital marketing return on investment (DROMI) = digital marketing driven revenue/digital marketing investment

These indicators can evaluate the marketing and commercial returns brought by each unit of marketing investment, and are an important basis for testing whether the digital marketing budget setting is reasonable.

(2) Marketing driven analysis

Through data tracking and predictive models, we evaluate the driving force of each marketing channel (such as social media, search advertising, etc.) on final sales, and optimize the marketing channel budget accordingly. This is called “marketing-driven analysis.” This is a more granular approach to digital marketing budget evaluation.

(3) Customer lifetime value

This metric reflects the full economic value of a customer from conversion to retention. Generally calculated through the compound interest model. If the cost of acquiring customers through digital marketing channels is too high and the lifetime value is low, you need to adjust the channel budget and choose a more cost-effective way to acquire customers. It’s also an effective way to optimize your digital marketing budget.

7. Conclusion

In this era of surging digitalization, companies must keep up with the trend of the times, reasonably set and adjust digital marketing budgets, and make full use of digital dividends. Specifically, traditional enterprises need to accelerate the pace of digital transformation and vigorously use digital tools to acquire and retain customers; while native digital enterprises must continue to optimize products and operations to continuously improve the efficiency of digital marketing investment. Only in this way can the direction of the company’s digital marketing budget be adjusted to meet the actual needs of the company and give full play to the power of digitalization.