Digital Marketing: How Much Does It Cost?

This is one of those questions that can keep us up at night worrying. What is on your shopping list? Product, websites, user experience, legal incorporation and launch. It can all add up to a devastating bleeding of money that leaves us broke just before the coveted moment of achieving profitability.

If this is your shopping list, you have left out the most important element in a business budget: digital marketing. You will need to invest in reaching customers, getting them to buy, and retaining them if you are going to make money.

Every 21st-century business needs a budget for web marketing. It is not easy to choose the right model to calculate the optimal budget. One thing, however, is certain. Before you can earn money, you need to understand how to spend money on digital marketing wisely.

 

WARNING! The marketing budget must be calculated at the beginning! When you have no more money it’s too late.

Now, you have two choices. You can read the article first so you have a deep understanding of how to create a great digital marketing budget, or you can click the link below and just go ahead and try to calculate your budget with our free tool. But eventually, you will come back and read the article so you know how to use the tool effectively.

 

Seo, Sem, email marketing, lead generation … So many beautiful words, but how much to invest, where and how?

Imagine the digital presence as real estate. Every time you create something, a site or a mailing list, it’s as if you’ve purchased land. You can get ranked on search engines and build followings on social networks. That is kind of like renting land. If you have a falling out with Mark Z et alia, Poof! Your lease expires and it is as if you do not exist anymore. Taking this into account guides you as to where and how to make a wisely balanced investment.

When business was almost exclusively offline, it was necessary to consider three basic rules: “LOCATION, LOCATION, LOCATION”. Things have changed slightly today, although they have remained essentially the same. Why was the location so important in traditional commerce?

Because the most important touch point was the location. The more people came into physical contact with our offer, the greater the chances that the initiative would be successful. Imagine stationery shops in front of schools or bookstores in front of the courts. That’s how you get what Americans call “eyeballs.” A good location means you will be visible to your potential customers.

The exact same concept applies to digital marketing. We need to consider what our digital real estate options can deliver in terms of number of eyeballs, and calculate how much it will cost and how long it will take to achieve visibility using various approaches. We need to compare our options and come up with a plan that will yield enough revenue to sustain our business at a price we can afford to pay. The result of your efforts will be a business asset that you can resell in the future.

Before starting, I will tell you a secret.

If you ask a digital marketing professional how much it costs, he answers you in one of the following ways:

  • Bah!
  • Soon you’ll make a lot of money!
  • At least $10,000! (or any other number out of a hat)
  • It depends.

Occasionally, I read posts that say “How I achieved $100,000 in profit and only spent $1,000 on advertising.” Cheaters! It’s not going to happen. Flee, friend.

Today, we have a myriad of tools to try and answer this question and a professional must learn to use them analytically.

Initially, any prediction will have the same margin of error as a witchcraft with a crystal ball. In the midst of our calculations, there is an unpredictable variable: the human. However, as you know, many times the sorcerers guess right because they perceive things about you. Imagine how many things about you Facebook or Google knows.

Some of “these things” are available to everyone. Let’s use them for our purposes. To do that, you need a framework to follow.

A model to calculate the cost of digital marketing.

The first thing to keep in mind to understand how much digital marketing costs, is that you need to design a strategy before you can make an estimate. You need a strategy that takes into account that even if you understand who your customers are, they will react to your communication differently, depending on when and how they come in contact with your offer. Do you have a headache? Wait to see what else awaits us. It gets a bit complicated, but it is worth learning if you want to succeed.

Five or six years ago I approached Growth Hacking, inspired and forged by the “innovative” theories of Sean Ellis, and then realized that Growth Hacking is a great keyword, but it is not magic. It is work. It is just a step-by-step analytical approach to building digital marketing strategies. In fact, the approach already existed in the marketing theories of Philip Kotler. It may give you acid reflux to know that this is an approach that was proposed as early as 1924 by William W. Townsend.

However, if you want “fresh” information on the subject, Growth Hacking is a good search term. You will find millions of web pages about it. The trick is sorting through to find the good stuff. Returning to the analytical approach, it is crucial to be able to coordinate the many tools that exist today to reach users, motivate them, bring them together and create a community, etc.

The best approach is to build a path that describes all the possible trajectories that users can take to join a community, learn about an offer or buy and eventually become promoters of the brand. You have already heard of a Funnel.

Each of the above actions can be considered a conversion of the potential customer, from one state of knowledge or engagement with the product/company to another. It all seems very straightforward, but we will see that it is an important concept to be digested carefully to avoid making mistakes when evaluating the customer’s journey. Many customers tell me: the important thing is to sell.

If we see it through a holistic lens, it is difficult to give an answer that makes the customer happy. Are we sure that only the sale has value? Or does the conversion object change over time? When will the virtual value become a monetary value? Let’s say that we must be able to answer the following questions and then we’ll see why:

  • How many total sales will I get by implementing this strategy?
  • How many contacts will I have in X months?
  • How large a community will I create?
  • What is the minimum budget (periodic) to be invested to avoid not reaching the goal, because I showed my ads only to the half my potential audience that was not interested?

We try to put everything in order according to a framework. That framework is the Viral Octopus Loop that I have explained elsewhere which unites several innovative theories. In this holistic framework we put together the business model, customer journey and sales funnel. First, we see an example of a funnel composed of the following steps:

  • Acquisition. I show my offer to a potential client.
  • Activation. The potential customer interacts by leaving an email or contacting me.
  • Purchase
  • Customer maintenance
  • Word of mouth

Here we see the customer’s path from being unaware of us to purchase translated into something measurable. As I said before, the problem is that in the midst of all these strategies, there are humans in between who are talking to other humans. This has a cost that we marketers call “creativity”.

Investing in creativity

Investing in creativity is not a cost. It’s an investment. The more effectively we talk to the customer at a well-chosen time, the lower the cost per click. WOW! Revelation … The video made by our cousin is making us lose money! Eugene Schwartz wrote Breakthrough advertising, a book on copywriting in which he divides the creative approach according to a scale of customer awareness:

  • Unaware
  • Problem Aware
  • Solution Aware
  • Product Aware
  • Most Aware

It is ineffective to speak the same language to all potential customers without considering their stage in the process of conversion, according to Schwarz. To optimize our marketing efforts, we must communicate with our target with different content depending on the state of knowledge of the problem-solution-product.

Before we continue, let me tell you his other very insightful advice. Many marketers make the mistake of wanting to create the customer’s questions, when, in reality, the marketer needs to focus on intercepting and channeling the questions that arises from the potential customer.

I will add some nuance to this theory. We don’t just consider what is being communicated, we look at the context.¬†What channel did you discover this question on? What are the intermediate business goals for this channel and awareness stage?

Let’s consider an example. The customer comes in contact with the brand for the first time (awareness). Once upon a time, this would be in the shop window. Today it could be an advertisement or social media content (Social Media Marketing), the result of a search on a search engine (Search Engine Marketing), advice from a friend (Word of Mouth), a showcase, an event…

In short, the channels are many and they are constantly evolving. Do you really think that a person who seeks a response on Google, after landing on your site, if you write “BUY!” is just going to buy? AH! Now let’s see how the business model, strategy and marketing are interconnected. Returning to our business model canvas, do you remember the “customer relationship” box?

Here we must ask a question that is unique to sales and marketing and we find guidance for the answer in our business strategy. We have to choose the channels that we will use to reach our customer. But before we can do this, we must ask ourselves,: Who is our customer?

We know! We have defined the group that the customer belongs to, the archetype, and tried to imagine in more detail what our customers are like. But have we done everything we can to show our customer who we will help them, reward them, make them feel better?

Not yet, but we must design an approach to do this. How?

Let’s consider an example. Imagine that we have identified our customer during the segmentation phase and have the profile of our potential client in our hands. Here is an example of the result in the real world. I have just met the reincarnation of Tomas Milian in his youth surfing in my favorite spot and I will use him as an object for our narration. You can call him Emanuele, although for some mysterious reason he is nicknamed Mario. He is from Rome. He is a lifeguard in the summer who goes surfing in the winter. When Mario first comes into contact with our business, what does he know about us?

Nothing! This is where Eugene Schwartz’s theories can help us. We can consider Mario an “Unaware” prospect. He probably does not even know that he has a problem; he only knows that he has a sense of discomfort. So at this point, we know we have to create content (for content marketing) that will engage him by speaking to his sense of discomfort. We need to think about the best channels to reach him, describe his discomfort, make him aware of his problem and let him know that we offer a solution.

Our user is inside our funnel and its value can be potentially measured! Let’s look a brief example of how to structure our strategy according to the following framework:

Campaign: Awareness

Sales funnel phase: Acquisition

User Condition: Unaware

Objective: to make Mario aware of a problem through content. Encourage him to recognize the brand as a “friend” because it has helped him to identify the reason for a possible tension. We take him from Unaware to Problem Aware.

Business Strategy: Define the relationship channels, the necessary resources, the key activities, the cost structure.

 

Campaign: Evaluation

Sales funnel phase: Activation

User Condition: Problem Aware

Objective: Mario, after understanding the problem will begin to ask questions about possible solutions, looking for and comparing them. We must show him our solution and educate him about the advantages in an honest and useful way, and create a direct contact with him, leading him to take action. Registration to a mailing list, a free trial, etc.

Business Strategy: Define the relationship channels, the necessary resources, the key activities, the cost structure.

 

Campaign: Purchase

Sales funnel phase: Revenue

User Condition: Solution Aware

Objective: Mario is convinced about the value of our product and is ready to buy it. We must make it easy to find the product.

Business Strategy: Define the distribution channels, the necessary resources, the key activities, the cost structure, possible partners and the revenue stream.

Campaign: Usage

 

Sales funnel phase: Retention

User Condition: Product Aware

Objective: Mario bought our product and it is here that we really bear down. We must be ready to assist him in case of doubts or problems. Create new products or add-ons to tie him to us as a lifetime repeat customer.

Business Strategy: Define the relationship channels, the necessary resources, the key activities, the cost structure.

 

Campaign: Advocate

Sales funnel phase: Referrals

User Condition: Most Aware

Objective: Mario is happy with our product. He tells his friends. We need to find ways to facilitate word of mouth, create communities, and reward them for recommending us.

Business Strategy: Define the relationship channels, the necessary resources, the key activities, the cost structure.

 

Following this framework, it becomes easier to choose the distribution channels to support our creative efforts and understand the costs.

 

Money: how much and how to invest?

Once the strategy has been built and all parameters (eg conversion rates, CPM, etc.) are estimated, we can estimate the results in terms of sales, quantity, and segmentation of the community.

This, in the digital age, means being able to estimate the economic value that the strategy under analysis will bring to the brand, as well as the cost. In principle, if the strategy under analysis is a global brand strategy, one could even estimate the evolution of the value of the brand itself over time. I have created a tool to make a quick calculation of how much your digital marketing will cost. But be careful! Keep reading before you try to use it.

Is it possible to calculate the minimum budget that you need to invest to cover the market? How do we avoid the risk of not having covered a sufficient sample?

Here too we will consider an example. Let’s say you have devised a strategy and are going through the implementation of all the actions, campaigns, and promotions that you are planning.

You start with a budget that allows you to get a certain number of impressions on the various acquisition channels that you have chosen. Strangely though, conversions turn out to be much lower than what you had expected.

Did you do something wrong?

Maybe yes, but that is not certain.

Perhaps you were simply unlucky. Yeah, just our old nemesis: bad luck.

In fact, it is possible that, for one reason or another, the impressions have gone to users who, although well-targeted, were not available for involvement for some reason (they had just bought something similar to what you propose, they have another in mind, they just got laid off, etc …).

And it’s a big problem because we risk making bad decisions when evaluating the value of a strategy, or a business model, on the basis of a false result that was just bad luck.

Here is the question of the century: How do you handle bad luck? Risk management.

The 1st Command of the Risk Managers is “No risk can be eliminated, but almost every risk can be managed in an intelligent way”.

So we start from an intuition: the risk of bad luck decreases if the budget invested increases. Why?

This is what statisticians call “the law of large numbers”. The underlying concept is simple: with a lot of budgets I buy many impressions, I cover a higher percentage of the target I want to achieve and consequently, due to the law of large numbers, the result of conversion that I will get will be closer to the real average of the target entirely considered.

So is the solution to increase the budget indiscriminately?

Of course not!

There is an approach that is much more efficient.

The solution is to invest a budget above a certain threshold, which makes the risk acceptable.

Very beautiful! How do you calculate this threshold?

It is not exactly a simple thing, but it can be done. You need to apply the right mathematical tools to evaluate the strategy described by the funnel.

You’re probably wondering now, how deeply can the risk and the value be assessed in terms of complexity of the strategy?

We can make it as difficult as we want, we can provide all iterative remarketing, referrals, word of mouth effect, paths for users more or less connected to each other, and all the connections and rebounds we want.

In any case, the strategy we will build can be evaluated by having the tools: artificial intelligence and stochastic systems. Unfortunately, not everyone has these tools available yet. How do you do it?

  1. If you have a very complex funnel but you do not have quantitative tools, I suggest you try to calculate the overall impact by breaking the funnel into smaller pieces, then identify the most important paths to evaluate. In doing so, we clearly do not evaluate all the positive inter-related elements of a complex strategy that surrounds the user, but it is better to get a partial idea than have no idea at all.
  2. We try to create very specific niches and we try to cover more than 60% of our approach.
  3. We use simplified Customer Lifetime Value models to establish the value that a remarketing list, or a mailing list, can create over time (repeated purchases, referrals, abandonment, etc).
  4. Understanding and defining our budget is very important. We need to establish that minimum budget that eliminates the risk of making a mistake in our evaluation due to the aforementioned risk of bad luck. The more complex the funnel is, the greater the minimum budget threshold required to generate reliable results on which to base an estimate and effectively predict traction and growth will be. (Traction is the ability of a company to create a presence in the market and create significant visibility).
  5. We try to allocate the budget wisely between the various marketing and remarketing channels that we want to use. To do this, we need to identify the channel that contributes most to creating value.

Conclusion

By excluding some nuances, I have tried to cover a topic that would require the entire British encyclopedia in less than 4,000 words. Consider this an opportunity to discuss ideas in our exclusive community. Try using the tools provided in the Viral Octopus Loop, or you can hire one of the community experts. All will be clearer.

I leave you with a consideration that accompanies every choice I make. Whoever puts the system in place before seeking the result wins. They will be able to create collaboration instead of competition. If you have a system that you can rely on, you will also be able to innovate.

Knowing the dynamics of your business well, you will also know how to restructure it quickly and manage your risks. Quoting Tim Ferriss’s Tools of Titans, “The losers have goals, the winners have systems.”

And while you’re at it, take the risk of doing something useful for humanity and not just for your own financial well-being.

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