Digital media budgets can often be a source of tension and confusion, but there's no need for this to be the case. This guide will walk through the process of setting up and maintaining and accurate budget for your digital media projects.
If you have responsibility for digital media, you will almost certainly be asked to produce a budget on a regular basis. Spend on media makes up a large part of a marketing department’s budget and as such, a lot depends on your contribution to this being timely and accurate.
There are a variety of approaches to this, two of which we’ll discuss in more detail below. For the purposes of this, it is assumed you have a blank piece of paper in terms of spend and output - you have performance data and trends and access to profitability information, but you do not have an instruction along the lines of ‘don’t increase spend this year’ or ‘spend is capped at 7.5% of revenue’. Both of these types are reasonably common, but are really a subset of what’s set out below - rather than submitting a budget that maximises revenue or profitability in the whole of the market, you cap it to the constraints you’re given. I think it’s always worth showing the ‘what is possible’ case anyway so that the business leadership team can incorporate this into planning.
As discussed in the piece on making a budget for e-commerce activities, budgeting as part of a marketing department can take a while and so it’s normally good to do this on a rolling review basis. However, the response time for digital marketing is much shorter (budget changes can be implemented immediately; a website development project might take a whole quarter) so it’s worth conducting a review and adjustment on a monthly basis in conjunction with the finance team responsible for planning.
When you come to do your annual budget, you should have most of the framework in place, but it’s still a good opportunity to review your models and assumptions to make sure they all still apply. Generally, it’s worth giving yourself a good few weeks before the first budget deadline to get everything together. If your financial year runs from January, you may well find yourself doing budget planning in early Q4, which runs right up against execution of your plans for what may well be your busiest trading period of the year. Luckily, you have that planned out months in advance, but it’s still unlikely that you’ll be able to remove yourself from performance for a week to focus solely on analysis and planning.
Obviously, the media costs, but it’s important to cover all of the tools and collateral you might need during the year. At this point, you’ll need to consider your plan for the coming year - it’s useful if you have the reviews of previous campaigns to hand as this will act as a useful reminder of what you might add in order to improve performance. A lot of campaigns that you run will be similar to past years - Christmas, sale periods, so adding budget for potential executions during this phase will give you the resource you need later.
Media costs (search, social, display)
Agency resource (for media distribution, SEO, etc)
Creative resource (for YouTube, Social, Display, Email)
Tools (Bid management system, feed optimisation, CRM system)
Data analytics resources
There are two main approaches to annual forecasting and budgeting. You and the business that you work for may have a preferred option. Both are valid and if you have the time it’s worth doing both.
The top down approach takes a macro view of media spend and revenue and then divides this by channel. This starts with the overall marketing strategy, which is normally given by a growth target based on a view of the market and the opportunities within it, a similar process to the breakdown of the website customer journey that we looked at previously. Generally, to grow your share in a market, you need to have a higher share of media voice. So, if your market share is 10%, if your share of voice is 15%, you will grow market share, if it is 8% you will lose market share and if it’s 10% you should remain about the same. These relationships are approximate and have a proportional relationship (a 1% excess share of voice does not give a 1% growth in market share). Your data from previous years and knowledge of market trends should give you an idea of how this relationship works, what you will need to spend and what revenue should accrue from it.
Once you have this number to work from, media spend can be assigned to channels based on current performance and audience insight into what channels and messaging will work best.
This is the approach that you will probably be most familiar with. You have a number of inputs from previous years (broken down by website and territory as appropriate)
cost per click
average order value
email list subscribers
You can use these to create year on year trends and from that, forecasts for the year ahead. You’ll probably have to do this for the remaining quarter of the current year as well.
On top of this, you can layer projections from the ecommerce team for improvements that they expect in average order value and conversion rate. This is also the time to include the plans of the commercial team around changes, expansions or contractions in product ranges.
At this point you can start to create initial projections for your free channels - direct, organic, referral traffic, and any improvements you expect on the organic side. You can return to the direct channel forecast later to account for changes in paid media.
Now you should have a model that has your projections for your non paid media channels and you can begin to create forecasts for paid media. You need to take into account a number of things - the relationship between ROI and profitability (i.e., where’s the performance limit at which you can still be profitable), changes in media costs and what headroom you have in terms of available clicks and impressions. This last point is a limiting factor on what you’re able to spend - there is an upper limit to how many people will search (and how many people will click on your ads) and to how many impressions are available on social media and display platforms. You will need to take into account the trade-off between buying a greater proportion of available media on existing channels - which tends to get more expensive as your share grows - vs setting up new advertising distribution channels, which has more variance in performance as you start out. You will also want to account for any efficiency gains in your plans. This may simply manifest as a slowing in the growth of media costs.
Finally, you can bring it all together. This is where it requires a bit of a sense check from you in terms of the growth of sessions and revenues of all of the channels. These are the numbers that you and your team potentially will be working towards as your KPIs, so it’s important to listen to what your instincts and experience are telling you.
Once you have reached this point, you can bring both views of your budget together. Hopefully, they are not going to be far apart, but if they are, it probably means that you have used different assumptions at some point (documenting all of these choices as you go will help you a lot!). One of the most common differences comes from your calculated trendline growth in the bottom up model vs your view of the market change in the top down version. It’s worth having a wider discussion and consideration of how these choices and calculations come about - once you have a more aligned view, your numbers should then fall into place and the two models should be roughly similar. As you review your budgets on a quarterly basis, understanding what’s happening in the market is a key data point you need to use when assessing current performance.
A final sense check is a customer view - do your numbers align with a reasonable view of customer behaviour? You don’t want to have a projection that assumes large increases in retention / purchase frequency or acquisition without having specific plans in place that might cause these things to happen.