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7 Common Questions About Digital Marketing Budgeting

by Trenton Reed   |   Sep 19, 2019

Businesses are entering the budgeting stage for 2020.

And setting aside the right amount of money for digital marketing is top of mind for many. So, how do you approach budgeting? Unfortunately, there’s no easy answer. Instead, the responses vary greatly—depending on factors like company size, industry, and other market conditions.

Some companies have a formal process. They have multiple departments that need money—and decision makers must justify their spending to numerous stakeholders. Other companies may not be as familiar (or comfortable) with budgeting. They may be budgeting for the first or second time. And these companies may not have a method in place. Whether due to fewer stakeholders or shifting budgets, they often experience more fluidity.

In both scenarios, decision makers may have an idea of how much they want to spend on marketing. But many times, they don’t know where to start. That’s where an agency can help.

Over the next few weeks, we’ll discuss how teams can allocate digital marketing budgets to maximize their return. To set the stage, we’ll first review common questions we hear from our clients about budgeting.

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1. How much should we spend?

This is the number one question we hear. The answer? It depends.

Forecasting is an integral part of the budgeting process. Many clients model the future in an attempt to project success. They come up with a range of spending. And they may use things like a waterfall analysis to gain a better understanding of what they should focus on.

But these are just educated guesses. These forecasts shouldn’t be your budgeting end-all be-all. You need a better strategy. It’s important to back things up with real-life metrics. Start with your revenue goals, analyze your historical data, and include industry benchmarks and other competitive intelligence.

2. Why is an agency asking us what our budget is?

Some clients worry if they tell us a projected budget, we’ll use that against them. We’re asking you to provide estimates not so we can charge you the exact number you share with us—but so we can determine if you have the resources to do the right work.

The role of an agency is to build trust. This begins at the onset of any engagement. When we partner with clients, we’re asking questions because we want to help. But we’re also gauging whether or not we have the potential to create a mutually beneficial partnership.

3. We can’t afford to do it all—where do we start?

Many of our clients are unsure how to get the most mileage from a limited budget. Just like forecasting spend, getting started on budgeting presents its own challenges. Creating scenarios can help us understand client’s financial situations based on last year’s numbers or spend.

For example, some clients provide low/medium/high options to get the conversation started. Others gravitate towards zero-based budgeting, a rolling process in which expenses are justified and approved for each period. In these cases, clients may present a “blue sky option” or the classic “tell us how much we should spend” scenario.

Regardless of our client’s approach, we’ll use data-driven metrics to back up all projections.

4. We’ve been with the same agency for years. Should we expect an increase in fees if we hire a new one?

Again, this depends on your unique situation and historical data. Some factors that come into play are your current vendor’s specialty and expertise and your industry or product line. By benchmarking results—both yours and your current agency’s—we can provide suggestions.

Sometimes, Workshop Digital is going to more expensive than our competitors. But digital marketing shouldn’t be just another line item that you set and forget. You get what you pay for in this industry. If you’re cutting costs just to save a few bucks, you may not be realizing the full potential of your marketing efforts.

5. Why is digital marketing so expensive?

We like to reposition this inquiry and ask clients some questions of our own:

  • What’s the value of a lead?
  • How much does a sale mean to your organization?
  • What new technology or platforms developments have emerged in the last couple months (or weeks)?

To reiterate, you get what you pay for in the digital marketing world. It’s not always about finding the cheapest services. It’s about getting the most value from your investments. And it’s about partnering with an agency that keeps up with trends. Not only do we prove the value of your investments—we provide measurable, actual results and a competitive advantage.

6. What’s the difference between ad spend vs. management fees?

There are numerous PPC pricing models out there. While other agencies may lump ad spend and management fees together, we prefer to break them out—so you know exactly where your money is going. We think this pricing model benefits customers that value transparency and oversight.

Management fees are the overhead costs associated with PPC campaigns; ad spend percentage is the baseline you’ll actually invest in ads. By paying a management fee, you’re ensuring there’s budget for things like A/B testing, conversion tracking, and other important PPC tactics. Plus, recommended ad spend helps paint a clear picture of what we think will drive results.

7. Which channels or services make the most sense for us?

This is another question that’s hard to answer without some preliminary research. Budget projections are designed to predict needs. In many cases, we’ll recommend diversifying your spend. This helps measure the return and potential of various channels—before deciding where to allocate the remainder of the budget.

The law of diminishing returns can help us approach this scenario from a more holistic perspective. In the context of digital marketing, this concept implies that adding additional services results in smaller increases in output. In other words, the rate of profit from your investments cannot continue to increase forever. And doubling your budget does not always mean doubling sales. Ultimately, you’ll have a finite number of dollars to spend on specific services that will actually benefit you—so you can use the rest elsewhere.

Workshop Digital can help figure out which digital marketing services are right for your efforts. We can help provide a budgeting plan that leverages data to narrow down projections. Finally, we explain how digital marketing budgets fluctuate—and where and how you can allocate your resources.

How should you spend your next marketing dollar?

Our video series helps create a better annual planning process.

Watch for Free

portrait of Trenton Reed

Trenton Reed

Trenton joined the Workshop Digital team in January 2019. After earning his B.A. in English from Virginia Commonwealth University, he moved to Denver, where he explored the Rocky Mountains and built a writing career that spanned the digital marketing, advertising, and journalism realms. Since relocating back to Richmond in late 2017, Trenton has freelanced with local agencies and national nonprofits. As our in-house writer, he’s in charge of maintaining our brand voice across all channels.