Digital Marketing Cost: How Much Should you Spend to Achieve ROI?

Let’s address the elephant in the room.

Marketing is perceived as an expense, rather than an investment in most businesses. So much so, according to Marketing Week’s exclusive 2024 Career & Salary Survey, 50% of marketers believe marketing is seen as a cost to the business, whereas 29% believe it is seen as an investment.

As marketers, we’re left with two scenarios when it comes to marketing budgets:

1. We're allocated a restricted budget that limits the scope of our marketing activities.
2. We find ourselves in a position where we must continually prove the ROI of our initiatives.

About half (49%) of B2B marketers in the US report that they’re facing budget, headcount, or other resource constraints according to a study by Pipeline360. This highlights a prevalent lack of trust from leadership in marketing's impact on the bottom line.

Calculating your digital marketing costs, spending and returns can be problematic, leaving marketers with questions.

• What should we allocate our budget towards?
• How can we ensure our efforts are generating revenue?
• And perhaps most crucially, how much should we spend to achieve a satisfactory return on investment (ROI)?

In this article, we delve into these questions, providing detailed guidance to help marketers effectively manage their budgets and demonstrate the tangible value of their work.

What digital marketing costs are there in 2024?

First things first - let’s take a look at what businesses are currently spending on marketing.

According to Gartner’s Guide to Crafting a Marketing Budget, businesses spend roughly 9.1% on marketing against company revenue. This is a slight decrease from 9.5% in 2022 and even less than the pre-pandemic era. 

But why is this?

Following the COVID-19 pandemic, businesses remain conservative with money in all areas, not just marketing. However, this may not be the full picture.

In the same report, Gartner cited that 75% of CMOs face increased pressure to ‘do more with less’ to deliver profitable growth. Not only does this indicate that leadership is still penny-pinching when it comes to marketing, but expect similar or increased levels of growth from a smaller investment.

Oftentimes, there are lofty expectations of marketing, despite scarce allocation of resources. This means there’s a disconnect between the confidence leadership has in marketing and the results they expect.

But in instances when resourcing is being made available, where is money being spent?

What channels are people investing in for digital marketing?

With resources a valuable commodity, you need to be sure your digital marketing costs don’t count for anything. Knowing where to allocate your budget is crucial for marketers looking for an ROI.

According to HubSpot’s annual State of Marketing report, the most popular channels used are Social Media (43%), Email Marketing (33%), and Website and SEO (32%).

This isn’t surprising.

With a low technical barrier to entry and historic success, these channels have consistently shown their effectiveness to marketers, solidifying their place at the centre of any marketing strategy.

This is echoed further within the same HubSpot report, which highlights the following channels as yielding the highest ROI for marketers:

• Website/Blog/SEO: 16%
• Social Media Shopping Tools: 16%
• Paid Social Media Content: 14%
• Email Marketing: 14%
• Content Marketing: 14%

However, the landscape of B2B marketing is shifting.

The way marketers use these channels and, perhaps more importantly, how buyers interact with them has changed.

For instance, it was the case for blogs to be written, published, shared, and optimised further down the line. Now, however, content repurposing is rife, with podcasts, videos, and webinars reformatted across various formats. This is due to a shift in buyer behaviour and opportunity, now electing to get service recommendations from peers and communities as opposed to speaking to a salesperson.

We like to call this the modern ‘Paradigm Shift’ in marketing. Opportunities with tried and tested channels are wearing thin and businesses are struggling to stand above the parapet. To achieve a result, you need to find alternative channels to stand out.

But what does this shift mean for marketers?

It means a more diverse skillset to market effectively. A more diverse skillset means upskilling existing employees or hiring new teams/agencies.

It also means more time and resource investment in emerging channels.

All of this change requires a budget.

So the challenge remains the same: allocating resources effectively to drive an ROI from marketing.

How to calculate return on digital marketing costs?

Here’s the crux of it - efficient budget allocation hinges on understanding what your spending is returning in terms of revenue and engagement.

To set the stage for effective budgeting, review the following essential metrics:

• Quantity of Leads: Total contacts generated through channels like websites, social media, etc.
• Lead to Marketing-Qualified Lead (MQL) Rate: Conversion of contacts into MQLs.
• MQL to Sales-Qualified Lead (SQL) Rate: Frequency of MQLs converting into SQLs.
• Close Rate: The ratio of leads that transformed into actual sales.
• Revenue Generated from Marketing: Direct financial contribution by marketing efforts.
• Cost per Lead: The average cost incurred to acquire each lead.
• Cost per Lead per Channel: Breakdown of lead acquisition costs by channel.

Benchmarking historical data allows you to discover which channels are delivering the most value both in terms of revenue and engagement.

By looking at this data, you can begin to set both realistic and sustainable growth goals going into your planning phase.

You can’t skip the above stage when allocating a marketing budget. Businesses have come to us all too often looking to set unrealistic expectations on what they can achieve with marketing.

To set SMART marketing goals based on this data, take the following steps:

1. Total Revenue Assessment

Understand your business’s total revenue from the past year to gauge how much budget you can realistically request from leadership.

As mentioned, on average, B2B companies allocate roughly 9% of revenue to their marketing budget.

2. Marketing’s Revenue Contribution

Evaluate the revenue generated by marketing to validate the previous year's budget and determine its effectiveness.

To measure this, analyse all the leads sourced by marketing in the past year and discover which turned into attributable revenue. If you have a CRM, like HubSpot, you should be able to track this pretty easily.

However, if you’re not working off an up-to-date database, then you will need to speak to sales and cross-reference those leads to where they are at in the funnel.

3. Channel Performance Review

Analyse which channels delivered the highest ROI, assessing their cost-effectiveness and identifying any underperforming channels.

This is where you can begin to get an understanding of where you should be allocating your budget for the upcoming year. For example, if you see that your SEO and content marketing strategy is working well but your paid search is underperforming, then you should be dedicating more resource and budget into SEO and retraining your paid budget.

4. Alignment with Business Goals

This is where it tends to get a little bit tricky.

You need to obtain clear business objectives from leadership, specifically the revenue targets expected from marketing. More importantly, you need to ensure that it’s realistic.

Take this as an example. Last year, your company generated £1 million total revenue with £250,000 from marketing on a £20,000 budget.

However, this year, leadership is aiming for £3 million total revenue, allocating only £30,000 marketing budget to generate £750,000.

That is a 300% growth in marketing results with only a 50% growth in marketing budget.

As we know, a little can go a long way, but you need to remain realistic about what can be achieved with marketing.

Adjustments, therefore, would be necessary either in the budget or the expectations from leadership.

5. Budget Allocation

Allocate your marketing budget effectively, prioritising channels that have proven to outperform in terms of lead acquisition, pipeline velocity, and lead quality.

Consider reducing investment in channels that are not yielding significant revenue.

In-House Digital Marketing Costs

For many businesses, the preferred strategy for ensuring aligned and consistent marketing efforts is to build an in-house team.

An in-house team offers the advantage of having deep, intimate knowledge of your business's core values, mission, and target markets.

But what does it cost to establish such a team, even if it's a lean one?

Typically, even a minimal in-house marketing team would include:

• One Marketing Manager:  The lead who strategises and oversees all marketing activities. (Approximately £3,700 per month)
• Two Marketing Executives: These team members execute the marketing activities designed by the manager. (Approximately £2,291 per month)

Therefore, the total monthly cost for this lean in-house marketing team would be about £8,282 per month.

This number excludes things like company benefits, training and bonuses.

Digital Marketing Agency Cost

The truth is that there probably isn’t a total ‘average’ cost to a marketing agency.

Agencies will offer a wide range of services, either a full-service, integrated agency or a specialised, single-channel solution.

The obvious benefit of hiring a marketing agency is the access to a wider team, enabling you to get more done at a higher rate.

Another overlooked benefit of using a specialist agency is that they offer an outside perspective of your business. Because they’re not involved in the ‘day-to-day’, they can impart their expertise on where you could improve and optimise your marketing.

As mentioned, the cost of these agencies varies based on the service area provided, depth of service, complexity of requirements and the length of engagement.

However, according to Adzooma, the average cost of a marketing agency is £5,205 (adjusted for inflation data).

Generating an Effective Return on Digital Marketing Costs

Navigating these digital marketing costs wisely requires a thorough understanding of your business's financial performance and the effectiveness of your marketing efforts.

By setting realistic goals based on robust data analysis and aligning your marketing strategies with broader business objectives, you can ensure that every pound spent contributes positively to your bottom line.