Calculate Online Marketing Budget for a Startup
Every startup is interested in leveraging the power of online marketing. Online marketing helps a startup to reach a wider audience in a limited time and show their presence in the initial days.
The competition has become so fierce that if you are a small business with a limited budget for online marketing, then you should create a competitive strategy to invest your budget to get the best possible ROI.
According to SCORE (Counselors to America’s Small Business) and SBA (Small Business Administration), most startups are reluctant to invest money or they skimp on their online marketing budget, which limits you from reaching your target audience and your online conversion rate plummets down.
Your online marketing budget will tell you where you are heading, and what you can achieve over the next financial year. Being a startup your initial effort should be to invest your hard earned money in a way that it will bring more sales and only sales.
It will be a daunting experience to spend all your reserves on branding. Use the Pareto principle (80/20) to decide which online marketing channel is best for you and which one will give you a better return on investment.
Before we start, there are few terms that you should be familiar with.
CPC – Cost Per Click, In CPC the search engine will charge you based on the no: of clicks you get on the ad.
CPM – Cost Per Impression, In CPM you will be charged based on the no: of times an ad is shown on the search result page.
CPA – Cost Per Acquisition, Here the cost will be calculated based on the no: of sales that the publisher gets.
CPL – Cost Per Lead, In CPL you will be charged whenever a conversion happens through the sponsored link.
CLV – Customer Lifetime Value, An important term which helps to know whether you are targeting the right audience or not. If the answer is yes, how much should I invest, and what value will he be bringing over the long run.
# Calculate Budget for PPC
Paid clicks are one effective way to drive instant traffic to your website. Regardless of which search engine you are using, the concept behind paid advertisement is the same, although it comes with different kinds and subcategories.
The initial step is to decide what you intend to achieve over a period of one year, Let’s say your goal is to make a revenue of $18,000 every month and you own an online bookstore.
So you decide to bid on Google Adwords.
Consider the average cost of one book that you sell is $50, and assume that you have a good quality score (Google considers this score to decide how trustworthy your website is, the higher the quality score the better).
We are also assuming that the paid ad will be shown 1000 times a day, with a click-through rate of 25%, a conversion rate of 10%, and considering the average bid for keywords as (CPC) $0.5.
Now let’s see how it works
Total click-through rate per day = (1000 x 25%) = 125
Per day Google will charge you 125 x 0.5 = $62.5
Your conversion rate is 10%. That is out of 125 people who click your ad 10% (125 x 10% = 12.5) of them will buy your book.
So on a daily basis, you will be generating 12.5 x 50 = $625
In a month you will be generating 625 x 30 = $18750
Your goal is to generate a revenue of $18,000 per month, and PPC has shown that to generate a revenue of 18,750 you need to invest $62.5 on a daily basis. So your monthly budget will be 62.5 x 30 = 1875.
Note: The bid value is subjected to multiple factors. In reality, the conversion rate will be much lower than the hypothetical value we used here.
# Calculate your Email Marketing Budget
Statistics published on Experian.com says that email marketing gives you an ROI of $44.5 for every $1 spend. Emails are far productive and when customized with an emotional/ personal touch gives you the best open rates possible.
Most firms undervalue the potential of email marketing, the misconception is that most people see emails as a channel plagued with spam.
A general email, addressed to thousands will only reach the spam folder, Hyper-personalization is the only way to overcome this problem.
Your subscribers have shown interest in you, so investing in email marketing will help strengthen the relationship with them.
In email marketing, you should calculate the Lifetime Value of a customer. Every dollar you spend should be focused on progressive investment. Your focus should be on active customers, who has shown interest with what your company has to provide.
The best way is to routinely monitor the engagement rate and analyze how the recipient behave when your email hit their inbox.
Let’s consider your goal is to generate revenue of $10,000 per month. Stats above says that for every $1 we spend we get an ROI of $44.5. So in order to generate $10,000 we need to invest $225 (225 x 44.5 = $10000).
In reality, there are certain constraints to it. Obviously, the first one is, do you have a customer database. If not you need to buy that database (which is not a recommended practice), which will cost you a sum.
Then you need an email marketing service to successfully send emails and monitor the recipients. Few email marketing tools are MailChimp, Moosend, Campaign Monitor, etc. We should also consider the service charges for these tools, which can vary from $450 to $1000 / month.
#3 Calculate Budget for Affiliate program
Affiliate marketing is one exemplary way to churn out some money. Your affiliate budget will not cost you much, you can start small and learn what works and what doesn’t.
Find a service provider for your domain name. You can get your domain names at a cheap price say $15 per year. Try to avoid selecting exact match words in your URL.
Select a web host provider based on your requirement. Better to select a provider with higher approval rate. It may cost you $150 – $200 a year.
Find a website template. It’s better to go with WordPress. There are free WordPress themes available, I suggest you select a paid version. You can find good WordPress themes like Avada for $56. WordPress themes are easy to customize and comes with lots of added advantage, live different plugins etc.
Sales acceleration tool/ Chatbots – There are tools like Lucep’s sales gorilla, which is free for a single user.
So we can cap the total expense to $271. If you are not good with coding, then have a reserve fund to hire a freelance web developer when needed.
To conclude as a startup your funds are limited, invest it wisely. A well-managed fund is like a “managed investment scheme”. When channeled it in a proper way it can give you the best return on investment.
About the Author
Nishant is a candid person with a fondness for digital marketing. Inbound marketing is one of Nishant’s forte. His technical expertise and experience have enabled him to turn ingenious thoughts into written reality. Nishant is currently working as an Online Marketer in Kamkash Digital Marketing Agency in Bangalore.