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Posts Tagged ‘budgeting

Not everyone is a fan of acronyms, however when it comes to any form of budgeting the mnemonic SMART definitely needs to be the goal. Budgets must be specific, measurable, achievable, relevant and time bound, to make a business successful and to give those with budget responsibility the best chance of using their budget to the greatest advantage.

Budgeting for digital marketing brings its own challenges as new opportunities open up constantly in different areas as technology advances. So in my experience, what are the best tools to budget for online marketing?

1) Using historical figures; once you have a good insight into your business and the metrics associated with your marketing channels and your funnel you can benchmark future opportunities with those past, and work out the amount of marketing dollars to put toward an opportunity through trialling whilst keenly and frequently assessing the results.

2) Using a % of revenue; if the realm of digital marketing is completely new to your business then using a % of revenue can be a good technique, especially if you have benchmarks from other companies in your area. This works as long as you are aware of the costs that your business incurs and take this into account when setting the %. If done correctly it will make sure that when times are lean your marketing budget is slimmed down.

3) Using a % of net profit, again this is a good tool if you want to avoid spending more than you are making especially if it is staggered from one month to the next. If margins are tight then this can mean that the business does not get itself in trouble as long as other areas of the financial machine are working properly eg working capital management. On the flip side, it can also mean that opportunities are missed due to under spending.

4) Spending up to the point whereby marginal cost = marginal revenue broken down to specific marketing channel level. This thereby ensures that the effects of diminishing returns and demand drying up in that channel are addressed. It also allows a business to continuously re-invest the profit made from the different channels and profit maximise constantly. Any channels that tail off can be eradicated as becomes necessary. Again this relies on good working capital management.

It is worth noting that all of these tools are only as good as the businesses metrics and reporting systems. Without proper metrics and a keen eye on timely financial results, none of these tools will work properly.

Furthermore, online marketing channels need constant supervision and tweaking as there are a lot of unknowns in new markets eg demographics behind demand for the product, whether or not there is perfect competition in the market and so on. Also, diminishing returns occur at vastly different rates in different channels.

A very close eye needs to be kept on working capital management as mentioned above, money can only be reinvested when it has been received by the business otherwise there is a distinct possibility of cash flow difficulty. In the digital space it is possible to achieve unheard of metrics when it comes to working capital management, if it is something that is strived for by the staff responsible.

5) Lastly, using a mixture of the different measures can be prudent at different stages in the businesses growth and the product lifecycle. Online marketing budgets can be honed as results are gathered and metrics understood.

These tools give an idea of how budgeting for digital marketing can be SMART.

About Me

COO/CFO at Mind Candy Ltd, an exciting entertainment company creating brands with a digital heart. Most recent Mind Candy offering is for little kids and big kids alike!

At Mind Candy, responsible for defining and delivering innovative ways of increasing company efficiency and maximising shareholder value. With responsibility for company finance, ops & HR. Member of the six strong management team, board observer and Company Secretary, fully qualified Chartered Management Accountant (FCMA) and Associate Member of the CIPD.