When I talk with a business about building a website, towards the end of the first conversation, I ask, “What budget have you set for your website?” Often the response is, “We haven’t set one. We hoped you could us what a website costs.” Would you respond the same way? If so, let’s look at how to set a website budget. We’ll look at two different approaches to creating your budget:
- Based on percentage of revenue
- Based your desired return on investment (ROI).
Percentage of Revenue
One way to budget for your online marketing is to set aside a percentage of your business revenue. There are several sources that have recommended what percentage of revenue a business should spend on marketing, or have studied what percentage business actually spend.
The US Small Business Administration (SBA) says,
As a general rule, small businesses with revenues less than $5 million should allocate 7-8 percent of their revenues to marketing.
Deloitte found that business-to-business (B2B) companies spend 6-7% of revenue on marketing, and business-to-consumer (B2C) companies spend 9-12%.
Gartner found that
Larger companies (>$5 billion revenue) spend 13% of revenue on marketing versus smaller companies ($250 million to $500 million revenue) that spend roughly 10% of annual revenue.
Looking at those sources, the range is 6-13% of revenue. Now, these sources are referring to total marketing spend. You probably aren’t putting 100% of your marketing budget into online marketing, but your website and overall web presence are probably a large part of your marketing efforts, given how much commerce has gone online. Even if you don’t sell directly through your website, most consumers research online before making a purchase, even if they complete the purchase offline.
Here are the steps to use this method:
- Determine your business revenue. Call that number X.
- Decide what percentage of your revenue you want to devote to marketing. Aim for 6-13%. Call that number Y.
- Decide what percentage of your overall marketing budget you want to devote to online marketing. Call that number Z.
- Multiply X by Y by Z to get your online marketing budget.
For example, let’s say your business revenue is $1 million.
- Determine your business revenue. It’s $1 million.
- Decide what percentage of your revenue you want to devote to marketing. Aim for 6-13%. Let’s go with 7%.
- Decide what percentage of your overall marketing budget you want to devote to online marketing. Let’s go with 50%.
- Multiply $1 million by 7% by 50% = $35,000 for the annual budget for the website and overall online marketing.
Return on Investment
Another way to budget for your online marketing is to look at the return on investment (ROI). This method requires a different mindset; you need to see your website and online marketing as an investment in your business that will earn you more in the future, rather than a cost that you’ll never recoup.
Ask yourself, “What percentage of the predicted ROI am I willing to spend?” Maybe that’s 10%, or 25%, or 50%.
As another way to look at it, ask yourself, “Do I want a 2x return, 4x, 10x, etc.?” If you want a 4x return on your investment, and you anticipate your online marketing will bring in $100,000, you should be willing to spend $25,000. If you want a 10x return and you still anticipate bringing in $100,000, you should be willing to spend $10,000.
I’ve seen businesses go beyond their budget because they understand the return they’d get on their investment. They figured that if they invest more, their return will be more.
I’ve been talking about a return in terms of money, but the return doesn’t have to be measured in dollars. The return can be any benefit to your business. Sometimes the return is less tangible than money, such as brand awareness, establishing credibility, or increasing efficiency. It’s harder to put a dollar value on those benefits, but try.
Usually, those intangible benefits are a means to an end. How much revenue could the brand awareness be worth? How much revenue could the credibility be worth? How much saved expense could the increased efficiency be worth?
Budgeting Beyond Building the Website
One mistake I often see is a business not looking beyond the website. But if you spend your entire budget on building a website and have nothing left over for online marketing, it will be like opening a restaurant and not spending any money on getting the word out! You’ll have a best-kept-secret restaurant with empty tables and sinking finances.
Don’t just budget for the initial website build. Set aside enough for website maintenance, additions, and ongoing marketing. You’ll be harming your investment if you don’t set aside for those and your website sits stagnant, or it gets hacked because you didn’t maintain it, or it gets only a trickle of traffic because people can’t find it.
How much to set aside for these additional items will vary greatly, depending on what changes your website will need, and how aggressive you want to be in your marketing. You could easily invest more in a year than you invested to build your website in the first place.
No matter what the math says, you only have so much money available to put into your website and online marketing! The good news is that it’s not necessary to do everything at once. A website can be built in phases. Online marketing can be done in phases. You’ll want to carefully prioritize to make sure the most important items are done first, but the less-critical items can wait until you can afford them.
The nice thing is, because websites and online marketing bring in revenue (directly or indirectly), completing the first phase or two can bring in the money you need for future phases.
Need Help Deciding on Your Budget?
This post gave some guidelines on how to set your website budget. You probably have a clearer idea than when you started. But you may want guidance creating your budget specifically. This is a conversation we frequently have with businesses. Contact us and we’ll talk through it!