‘What is a good ROI from my Google Spend?’
‘How much should I spend on digital this year?’
‘Should I spend money on Facebook and Instagram ads and how much should I put in?’
These are the questions that we get regularly from our clients and events we attend. It seems that setting a marketing budget is tricky enough for some business, let alone understanding how much should be spent on digital versus offline. Given that there are still a lot of businesses who aren’t spending much on digital and now looking to do so, this is an important aspect of marketing that still gets overlooked, or perhaps isn’t properly understood.
So in this blog, I’m going to try and put some ideas down that will help you get a better understanding of how much your budget should be and how you can perhaps make better sense of where you should be spending.
Below outlines a series of questions to think about to help guide your thoughts.
What are your objectives?
The first question to ask before you spend your budget or start planning where you are going to spend on digital is to understand what targets you are trying to hit. It seems very strange to me that when we ask this question of clients, a lot of the time they don’t have a clear answer. Sometimes we don’t even get an answer!
To know how much to spend, it’s crucial to know what you are aiming for. Usually, businesses are looking to grow their overall revenue with an assumption that this will translate to profit. And a lot of the time it can do.
But at the same time being aggressive with sales can often come at the expense of the bottom line margins. From my years of experience, it does seem that there is often a big, sometimes huge, disconnect between the board & senior management of a business and those delivering marketing. ‘What is the business looking to turnover this year?’ we will ask. ‘I really don’t know’. And so on…
By not having a clear idea about what targets marketing is to deliver, it (should) make setting budgets hard. Therefore creating a digital marketing strategy from the back of it, is also quite tough! Planning how to spend a budget can always be done but if it doesn’t align to what the business needs, then it’s a somewhat foolhardy exercise.
If you are a marketing manager, or someone responsible for delivering the marketing budget then it’s REALLY worth spending time with those who understand more about the business direction and targets (ideally this and next year at minimum) to get the full picture. Making short term decisions about spending on high conversion channels like paid search might be great for a year but in the long run, underinvestment in search engine optimisation or brand marketing through Facebook could mean that you lose out to others. It’s getting the balance of spend right, or as close as you can, by planning how to spend your digital budgets properly against your business objectives, that will see you win now and down the line.
What is your profit margin?
When it comes to digital marketing, or perhaps any marketing, one of the most important places to start is to know how much profit is available per item or ‘thing’ that you sell. If you don’t know how much profit is made from the things you sell, or what your margins are, then it’s very hard to understand if your budget is ‘right’.
Given the nature of digital marketing against perhaps more ‘traditional’ techniques such as PR, billboards or even TV, a lot of what is done in planning is based on numbers and spreadsheets. Elements of your planning such as click-through rates, cost-per-click, conversion rates etc are all available to research through various tools like Google Ads Keyword Planner or indeed your own website analytics data.
By working through your own data, data from tools like Google Ads keyword planner, Facebook campaign manager, reports from credible places like Wordstream and other sources of digital data, you should be able to build up a good model on how many clicks you are likely to get, what the cost might be and what the possible returns are. If you aren’t sure about your workings, then it is always a good idea to get them sense checked by someone at an utterly brilliant agency (ahem) or a good freelancer who will be able to let you know if you’re heading in the right direction.
It is CRUCIAL that this part of the planning stage is done as the first port of call because leaving this until later or even some cases, never, can often be too late and result in hundreds, if not thousands of man-hours and money lost at worst, or being inefficient at best. Indeed, we have often stopped clients spending money or business ideas before they’ve even started based on our planning as the numbers simply don’t stack up.
We created a video on how to understand if you should be spending more on your website or marketing if you’d like to find out more. Watch on our YouTube channel.
Brand versus conversion budgeting
Often digital marketing is seen through the lens of pure performance marketing. That is to say, when you spend £1 on digital, you should expect £x times back. This is often referred to as Return on Ad Spend, or ROAS. The return you get will vary greatly depending on the industry that you are in and the competitiveness of your market.
However, as more and more time is spent on social media platforms like Facebook, Instagram, Twitter and several others, increasingly digital budgets are including lines for brand awareness and re-engagement. These channels are different to search marketing, which was largely what ‘digital marketing’ was in the 2000s.
Social media users are rarely on their network of choice to buy new things (although this again has started to change in the last decade as people have become accustomed to ads in their feed) and so the mindset of users is different to traditional search campaigns of the past (both SEO and PPC) where people actively seek out things they want. For this reason, social media platforms have far lower click-through rates compared to search campaigns.
But with so many eyeballs going on social media, and our usage of the main platforms averaging nearly two and half hours a day, being present in front of the right people on an ongoing basis is great for your brand awareness.
For Facebook campaigns, we usually recommend at least a 20% budget spend on brand versus audience targeting and remarketing, which are around 60-70% and 10-20% respectively.
Of a typical overall digital marketing budget, this would represent around maybe 5% of all spend but again this can vary massively depending on what your objectives and who your audience is – sometimes you might want to put all of your money into Facebook or Instagram if the traffic is cheap enough!
What should be my split between SEO, PPC, Facebook ads and other digital channels?
Pay per click (Google ads and Bing ads)
This is again a very tricky one to give a hard and fast rule on. Google has been the primary driver of website traffic in the last decade for pretty much every website. In 2020 it is no different and probably won’t change for the foreseeable future. With billions of searches going through their search algorithms every day and search being ubiquitous on every device (including speakers now) it is important to have the best coverage you can on both brand and non-brand terms.
Investments into paye-per-click (PPC) are usually necessary when your brand term is being bid on by your competitors and when you want to reach new people outside of those who already know you. We have already talked about how to plan for a good PPC spend above using various tools, but if you are looking to keep or increase your paid search budget, it’s important to know what’s working now and how you might be able to squeeze a few more ROI percentage points out to keep making better profit margins. Often campaigns are being run in house or by small agencies working on small management fee percentages and campaigns don’t get enough time spent on them. The result is that inefficiencies creep in and costs go up unnecessarily. It’s worth getting a PPC health check once a year or so just to make sure you are doing the right things and utilising the latest Google Ads tools as they come out.
Whilst PPC is great at getting returns in the short-term and long-term if managed right, SEO (search engine optimisation) is more of a longer-term investment and one which usually doesn’t show positive ROI for a good few months, if not longer. The benefit though is that investment made into SEO can last for much longer provided you keep your positions in the search engine results pages! (SERPS).
Whilst a lot of digital marketers are still spending on Google Ads, it’s also worth noting a trend towards branching out into Bing Ads. Bing has still got a single-digit market share in the UK so volumes are very small in comparison. However, due to the ease of setting up these days where Google Ad campaigns can effectively be ‘copy and pasted’ into Bing, the setup overhead is pretty small and the ROI you can get in a less competitive market, with a slightly more affluent audience, is worth looking at if you haven’t already. You should budget something like 10% on top of your Google Ads budget with Bing if you haven’t spent there before.
Search engine optimisation (SEO)
SEO is no longer an easy win though. The Google organic algorithms have become hugely sophisticated over the last twenty years and look at over 200 ranking factors, as well as using AI (through its ‘rankbrain’ technology) to decide what should be top of the listings. Increasingly Google is also using its own data to understand what types of phrases get the most clicks and are most valuable to advertisers and putting more PPC ads there, thus driving down the visibility of SEO listings. This has been a constant thing in the last decade and will probably only get worse in the 2020s as more and more searches are done on mobile.
Does this mean that SEO shouldn’t be part of your digital marketing budget? Absolutely not! There has been a big move in the last few years for brands to create more and better content so that it appeals to the things that Google is looking – whether the content is Expert, Authoritative and Relevant (also known as EAT in the SEO world). This content is designed just to rank for your target phrases, but can also be used as real content for your other marketing efforts. Taking good content and using it on social media, newsletters and even sales documentation means that the cost of ‘SEO’ is spread across multiple channels and used in lots of ways. So, looking at your SEO budget in isolation is missing a trick and perhaps not fair in terms of how it should be judged.
With that said, setting an SEO budget and justifying it to your marketing directors or those with the purse strings is sometimes hard. We know this as it’s an issue we face! So our Head of SEO, Tom Crewe, put a blog together about how to estimate the ROI from your SEO spend which is worth reading. Again, it comes down to understanding the potential search volume and possible click-through rates you might get, as well as the possible length of time you will be ranking for and the sales or enquires you are likely to get, to make the right decision.
As a rule of thumb, the clients we work with typically spend several thousands of pounds on SEO per month but in comparison to PPC budgets, this can be either a small percent or sometimes nearly as much as PPC management and budget combined. The SEO investment that you make will come down to several factors outside of just good planning. You also need to consider your own appetite for risk as well as the risk of those involved in making decisions. SEO isn’t a quick win or even one which is guaranteed, so deciding to spend your budget here will come down to ‘soft’ factors like that as much as trying to demonstrate that there is positive ROI to be had.
Outside of search, social media can’t be ignored as part of your marketing plans. It commands hours of eyeballs attention daily and offers a vast array of targeting & ad management tools for small and large businesses alike. Unlike SEO, it’s something that we can all understand and relate to and so makes it sometimes an easier buy into.
Social media marketing has two distinct areas – organic social posting (the bits that you can do for free) and paid social media ads (usually through Facebook Ad Manager). Whilst there is some overlap in that you should look to ‘boost’ the content that you are creating for your social media followers, it’s worth noting that it doesn’t have to always be like that and there are benefits to actively targeting new users using the Facebook marketing tool kit.
As organic reach has dropped and dropped in the last decade, with organic social posts reach between 3-5% of followers, it does mean that the time spent creating and posting content is becoming less and less effective in terms of seeing sales and ROI. And the bigger you are, the worse it seems to get.
Again, there are obviously exceptions, but this is the new norm. The argument has now focussed more on creating content for those who already know your brand (although this was always the case) to keep your brand top of mind than trying to win over new people. Whilst this a valid argument, it’s worth noting that from an ROI point of view, it’s unlikely you will see a clear or positive return on the time spent creating the content.
Unfortunately, the maths here struggle to add up. Let’s say you had 10,000 fans or followers of your Facebook page. With a relatively good reach of 4%, that’s only going to be 400 people at best who see your content and with click-through rates on posts being in the single digits as well, it’s not hard to see that getting people to take action on your content is going to be a push and not stack up from a direct ROI perspective.
Whilst creating that content is usually ‘free’ in terms of direct cost, it’s not in reality as someone somewhere is spending time doing that. Let’s say you had a marketing exec on £20,000 a year. Getting them to spend even just one hour on a post is going to cost something like £12 for that post so doing this a few times a week for a year is going to add up. I’m not saying it’s not worthwhile to create content for your organic social posts, only that it’s not likely to generate the ROI that you are looking for or are seeing on other channels.
As for paid advertising on social media, in the last five years, this has become a much more important part of the mix for many companies. It’s been driven by two things largely – the first, as mentioned above, that Facebook (and others) has massively cut the organic reach of business pages and also secondly, the cost of advertising there has been, and still is in some places, cheaper than other alternatives, like Google.
With more and more businesses pushing adverts out through Facebook, and more recently Instagram, it has become a larger and larger percentage of marketing paid media budgets. Do marketers see a good ROI? Generally yes, hence why they keep spending on it! However, proving ROI on paid social media is more tricky compared to something like Google Ads as often the users of Facebook like to stay in the app (and Facebook has tended to reward those advertisers that keep people on the platform) and so getting people onto your website and clicking around on there is sometimes harder.
Therefore, the lens through which success is viewed is somewhat different from usual digital marketing in that the ‘view’ of an advert can sometimes take the credit for the sale or purchase. Defining a view though is also slightly tricky as an advert can be shown on a scroll of a feed for just a second or two for it to be deemed a view, and so, therefore, show as a ‘success’. I’m not saying that these metrics are duff or to be ignored, only that they should perhaps be taken with a pinch of salt and not viewed in the same way as a direct click. If you’d prefer a better measure, then getting clicks on your ads is going to give you that, but in doing so you will neglect the potential influence that ongoing exposure to your brand will have, and so you won’t be seeing a true picture.
We have run some campaigns on Facebook Ads which have generated phenomenal ROI and been a wild success for our clients, while some others have actually generated negative ROI in the early days. Facebook ads are increasingly using machine learning to understand the ‘quality’ of the ads and targeting at the relevant audiences and so those that spend less than £1000 per month, can often find things a struggle as the numbers coming through don’t send enough signals about how to find more ‘lookalike’ audiences to then engage with. It’s not to say that if you have a smaller budget that you can’t make Facebook yield a positive ROI, it’s just that perhaps in 2020 and the coming years, there is an element of realism that perhaps needs to be realised about where it can fit into your mix.
I’ve been talking about the positive ROI that can be achieved from email marketing for some time now. With social media organic view and click-through rates in the small percentages, organic search clicks getting pushed down from paid ads (where costs have also increased greatly in the last decade) the inboxes of those engaged and linked to your brand are sometimes overlooked.
Email marketing should be part of every good marketing plan and whilst there might not be as many direct costs involved as search marketing for example, for winning over newly acquired clients and those who are loyal, it’s a brilliant way to keep front of mind with open rates still in the mid 20% range.
Taken from The Seventh Sense
Email marketing has moved from basic design and send to sophisticated marketing automation platforms which can now create hugely personalised email journeys for users without having to do any work (once they have been set up that is!) Marketing automation is built into many of the well-known tools such as Mailchimp and Campaign Monitor through to more enterprise systems such as DotDigital (formerly DotMailer), Hubspot and Force24.
Each of them has their own benefits and costings which are associated with them and whilst the enterprise level products might only suit those with a larger budget or databases in the tens or hundreds of thousands, it’s worth putting some money into email platforms to use more features to boost ROI.
We often see email as a smaller traffic source to websites however, the ROI that can be seen from just one email send can sometimes be in the hundreds or thousands of percent. Getting great ROI from email marketing is possible provided you send the right message to the right subset of people in your database – just doing a blanket email is often not going to generate you the returns that you’d like.
The issues scaling great ROI though is that your email database will only be as big as those who’ve signed up. Living in the new norm of GDPR world, acquiring new email addresses is perhaps a bit harder for some than in the past, and unless you have a compelling reason to join a list, it can be hard to see numbers jump up quickly. However, over the long term, it is something you should always look to build to not only maintain awareness but also try and bring in additional revenue.
Other digital marketing channels
Unless you are a large ad spender or have bigger budgets, things like programmatic ad buying, affiliate schemes or even Youtube adverts, are probably not worth looking at. The setup costs involved in most of these types of routes to market are usually prohibitive and also require a reasonably high ongoing charge or commitment to budgets – both of which preclude a good chunk of the market. I’m going to assume that most of those reading this won’t be looking into these channels and we’ll park the ROI conversation about them for another day.
Agency management fees and media spend
When it comes to weighing up ROI for digital marketing, one of the things that we often see missing from the reports that come to us from prospective clients is the additional costs outside of media spend. It’s great that your old agency showed you how your £5,000 Google Ad spend was made per month, but to prove good (or bad) ROI, you need to know ALL costs involved, not just media. If your ROI achieved was borderline acceptable, adding in several hundred or thousands of pounds on top, can often tip any return on investment calculations sour.
We are often asked what good media management to media split should be. We have our own answers but here are some we often come across…
‘My old agency just charged 10% agency fee on top of all ad spend’
‘We used to work with an agency charging us a small retainer and then 15% ad spend management on a sliding scale’
‘We pay a flat PPC management fee for each country that we operate in and then scale out as we grow’
These are all stories told to us by clients we’ve spoken to over the years. Ultimately, none of these are right or all of them are right. It really depends – again! If you are making a profit from your marketing campaign and paying 10% for someone to manage it for you, then great. Likewise, a flat fee structure can keep things very simple. A piece of advice though - if you are paying a flat % on top of your spend and you're paying less than £1000 in PPC management fees, then it's likely you aren't getting the right level of attention on your account. Say your agency charges £100 per hour, and you are paying £1000 a month on your £10,000 Google Ads budget, that's only 10 hours to ensure bids are correct, positions are the best they can be, conversions are coming through on as many terms as possible, to create reports, do analysis, present findings and feedback, find out about changes within your business... it doesn't get you much and over time the chances are you will fall behind given the number of new tools Google rolls out per year.
For us, we always take an approach of ‘what is needed to do a great job and how many hours do we need to do that’. For some client that might mean just 6 hours a month, for some others that might mean 60 hours. We charge a fair rate for our time and don’t let the media spend play any part in that.
Consider these scenarios. One client spends £20,000 on Google Ads per month on approx. 6 main phrases that drive 80% of the clicks and return. Another one spends £6,000 per month across 20 campaigns, each with their own specific needs and set up. Which one requires more work to look after? It’s definitely the second one!
If these were both charged a 10% management fee on spend, the second advertiser is almost certainly going to suffer from not having enough time spent on managing a complicated account. The first advertiser is going to be paying way over the odds on something which might only need a few hours a week to monitor.
Whilst it might be possible that in both instances, media spend plus management time might still work out to be profitable, to maximise ROI, it’s worth the first client looking to change to a ‘per project’ fee, whilst the second advertiser might be missing some opportunities due to the lack of time spent to properly oversee things. The other things to highlight here is that in both instances, it is in the marketing agencies benefit to get the client to spend more so that their commission goes up Unfortunately we’ve seen far too often that budget can then get wasted and ROI go down, only because of this reason.
Ultimately, it’s about finding a model with your agency that works. Or if you aren’t using one and instead of hiring a team, it’s perhaps worth thinking about the cost of this person (people) in terms of the overall ROI of a marketing campaign as digital salaries usually aren’t that cheap! Whatever route you work through, adding together all costs is crucial to work out your true return on marketing investment, yet it’s not always done.
What is the right level to budget on digital?
To find the right level of digital spend against your overall budget will require some careful digging around in numbers, planning, research and bit of experience. There is never a right answer, in the same way, there is never a right answer to ‘what is the best car for me’ or anything else you might spend money on!
What we do know is that more and more time is spent on digital platforms, with social media in most age groups having as much screentime as traditional & subscription TV watching.
Therefore, if a large percentage of your budget is spent on out of home or display advertising it’s likely that it might not be the best way to get returns. However, in some industries, to reach those you want to engage with can be very hard just using digital channels. For example, reaching busy C level manager and directors, or say those high up in schools, will be more tricky than say those interested in fashion as the chances are, they will be in meetings a lot of the day and/or have less free time to surf around on social networks due to the nature of their work.
For some clients, we’ve had to turn them away or hugely tone down their hopes for what digital might be able to do for them, as the audiences and numbers simply aren’t there. In those instances, they should probably be spending 10% or less on their digital spend and putting more into exhibitions, networking events and other places where face to face contact is more profitable and beneficial. (Update: April 2020 – hmmm, perhaps not for a good while!)
If you’re not sure about what might be possible then just drop us a line and we can have a chat!
How to measure ROI from digital?
Measuring the ROI from any marketing can be tricky at the best of times, let alone if your business has offline and online interaction points – which, let’s face it, is most businesses. It’s rare for a business to be 100% online as often there will be some sort of interaction which takes place on the phone or face to face or perhaps even through direct mail etc. Even digital channels like email and social are hard to properly trace back to the source. To create the perfect online business, you have to be a pure e-commerce retailer. Those businesses are rare and as a percentage of all marketing spend in the UK, my guess is that is in the small single percent.
If your business is 100% online with its marketing spend, how much of what you spend can be directly attributed back to conversion and success? Even with something as seemingly simple as Google Ads where your advert is shown, someone clicks on it, visits your web page and then buys, there are numerous issues around that!
Some phrases are good for conversion, some are good for bringing people in, and some play a role to keep people coming back and probably a handful actually contribute directly to sales. Just looking at everything through a ‘last click wins’ attribution model is an old fashioned view of success in 2020 and anyone involved in digital marketing needs to widen their view if that’s what is being measured.
So even with something as fairly straightforward search marketing where traffic comes in from one place, knowing what ‘works’ is never straightforward. However, if you add in other channels, such as social media, email, display advertising, video and others, things get a lot more complicated and complex. Measuring with any level of official confidence isn’t really possible without a huge amount of investment into website & digital analytics and peoples time. If you are listed on the stock market, then this might be the thing for you to look into. If you are like everyone else, then the best we can hope for is a better steer than just the last person that clicked on our advert.
To get to that point, it’s worth spending some time looking around Google Analytics and some of their advanced reporting. Reports like multi-channel funnel reports are a great place to get started to see what a typical journey to conversion looks like
These show how many different channels are involved and also what phrases might be helping to aid conversion rather than necessarily create it. It’s worth reminding you here dear reader, that every business will be different in terms of what this data will look like. And this data will change over time depending on competitors, your own spending, your own key phrase selection, your own product offering, what Google does on its search results pages, what happens on Facebook, what new technologies get used by customers and many other things…
Whilst things don’t really change that much or fast online nothing stays still so it’s worth checking this data regularly to make sure that you are in line with the best journeys that lead to conversion and are keeping present on the channels that users interact with.
If this all seems a bit tricky to understand or figure, the reality is that there is rarely a definite answer as to what is correct. Data is always open to interpretation and as such, there can be arguments made for spending more or less on one channel or another. The main thing to focus on is tracking the total conversions you are getting against your own CRM or sales database to make sure that you are accurately monitoring your efforts against reality (another common issue we see!). If you are doing this and have as many sources tracked as possible, then you are in a good place to make some informed decisions.
And if you don’t have this set up properly now, then now is the time to start as it can only help inform your budget planning in the future. The longer you have pieces missing from your digital marketing attribution puzzle, the longer you will be potentially spending money in places that you shouldn’t and so wasting budget.
What is good ROI or ROAS then?
So, back to the original question – What is a good ROI from digital marketing? What ROI or ROAS should you get from your digital budget?
As you’d expect from everything that I’ve talked about above (and hi! If you’ve skipped all of that to get to here) it REALLY depends. There really is no definite answer - if only there was!
Ultimately it’s about checking all of the money and spend against your original objectives. If your objective is to generate 100 new sales this month at a target Cost Per Acquisition (CPA) of £20, are you willing to spend a grand total of £2000 per month? If so, then you should be very happy! The target then is to either get that CPA down to £19 or to get 105 conversions from the same budget, or ideally both.
But as I said right at the beginning, without a clear digital marketing strategy or plan in the first place, knowing whether you are getting good or bad ROI from your digital budget is almost impossible. If you do have this plan, then the next thing is to measure as clearly as you can whether you are hitting those targets. It’s getting clarity around the ‘doing and measuring’ part which is the hardest bit and often most overlooked (and where we do our best work).
Measuring everything to great degrees of accuracy is often hard. But the important thing is to collect as much useful data as possible about the common touch-points to then understand where the best channels and perhaps even phrases are making the biggest impact. Largely this will be obvious terms such as your brand name or some high traffic ‘generic’ phrases or campaigns which consistently deliver clicks at a good rate and high ROI. Once you start to understand this picture you can then make decisions about how to increase your targets – either lowering CPA or increasing volume by say ensuring maximum impression share on ads, or maybe pushing harder on SEO to get top 3 positions for your best performing phrases/pages…
As long as you are hitting the right targets, then carry on!