How to Build an Effective Digital Marketing Budget in 2025

In an era dominated by online presence and digital engagement, constructing a well-defined digital marketing budget is critical for businesses seeking growth.

The most important question companies ask is , How much to spend on digital marketing budgets for 2025? 

Why Is Digital Marketing Important?

The average daily time spent consuming digital media in the United States in 2020 was 470 minutes (seven hours and 40 minutes). This number is expected to jump to over eight hours in 2025.

To stay relevant, businesses must be willing to invest in digital marketing. In fact, an Analytics Partner report says 60% of brands that increased media spending in the last recession saw more significant ROI, and those that increased spending on paid advertising saw a 17% increase in incremental sales.

What’s the Average Cost of Digital Marketing Spend?

With a bit of research and planning, it’s easier than you may think  to set a final digital marketing budget, especially for small businesses. And understanding average spending can help you decide if your budget for digital marketing is realistic.

You’ll want to start by:

1. Identifying All Your Expenses
   Every business has unique needs, and there is no one-size-fits-all. Multiple factors will come into play, including business goals, target audience, and industry.
2. Breaking Down Your Marketing Costs As a Percentage of Revenue
   The 2022 Gartner CMO Spend Survey shows that the average marketing budget has jumped from 6.4% to 9.5%. Setting aside a small percentage of your total revenue for your budget for digital marketing can go a long way.
3. Identifying How Much of Your Revenue You Currently Budget for Marketing Spend
   A typical marketing budget spend for businesses under five years old is approximately 12-20% of revenue.
4. Planning Your Marketing Spend for Digital Channels Expect to spend up to 56% of your marketing budget on digital channels.
5. Incorporate Social Channels Into Your Digital Marketing Budget
   Social media ads tend to make up 25% of the typical digital marketing budget.

A well-developed digital marketing budget  will include  multiple channels, including:

• Blogs
• Social Media
• Email
• Pay-Per-Click (PPC)
• Video Marketing

Digital marketing provides small businesses with numerous opportunities to reach their target audience at every budget point. These channels include, but are not limited to:

Paid Search

Companies pay search engines to display ads higher in search results to increase traffic to their website. The most common form of paid search is PPC advertising.

Over-the-Top (OTT)

Also known as streaming TV ads, OTT ads are video ads delivered to consumers while watching content on an app or website. Examples include HBO Max, Hulu, Netflix, and YouTube, to name a few.

Display Ads

Online graphic advertising posted on third-party websites. These ads include static images, videos, banners, text, and audio.

Social Media Channels

Deliver ads to consumers on social media platforms. They’re a quick and effective way to connect with customers and boost a marketing campaign. Remember, a small budget doesn’t have to mean small results. It’s all in how you allocate your digital marketing dollars.

Digital Marketing Budget: What to Consider

Average costs are a good starting point when creating your digital marketing budget. But you’ll want to consider several factors when setting up your marketing budget and campaign spending. These factors include:

1. Time in the Market

If you’re a newer company, you need more exposure to build brand awareness. No one knows who you are yet. If your business is less than five years old, plan on spending a more significant percentage (typically 12–20%) of your revenue.

2. Target Audience

Before you execute a marketing strategy, you need to know your target audience. Create a buyer persona. Ask yourself where they spend their time online and how they prefer to spend their money.

Once you know who your audience is and where to reach them, you can create a strategic marketing plan. For example, if your target audience prefers to spend their time on Instagram and YouTube, invest time and money in creating engaging short-form videos.

Know Your Industry

Understanding Marketing budget for small business

The marketing budget for a small business typically varies depending on factors like:

• Industry
• Competition
• Specific Goals

For instance, small businesses in highly competitive markets might need to allocate more funds to digital marketing efforts such as PPC campaigns and social media advertising to stand out. 

On the other hand, local or niche businesses may succeed with a more modest budget, focusing on targeted strategies that yield a higher return on investment.

How Much Should A Small Business Spend on Marketing?

A common guideline is to allocate 7-8% of your revenue if your business earns less than $5 million annually and has a profit margin of 10-12%. 

However, this marketing budget percentage can vary based on you:

• Industry
• Growth Stage
• Specific Objectives

Ultimately, the key is to balance spending across different marketing channels to reach your target audience effectively without overspending.

Social media Budget for Small business

How a small business allocates its digital marketing dollars is driven by industry, competitive marketplace, and the path to purchase for the target audience.

For instance, an e-commerce business that relies heavily on the internet to generate sales will invest more money in its digital marketing budget, including its social media budget. Additionally, some industries have highly competitive keywords that can quickly inflate your PPC budget.

For example, a smaller, local, or regional business may be able to manage with spending as little as $1,000 per month, while a more competitive industry could see a Google AdWords budget and social media budget for a small business reach up to $10,000 per month.

Embrace Multi-Channel Advertising

When you take a multi-channel advertising approach, you can efficiently and effectively communicate your products and services to your audience in their preferred manner.

Multi-channel marketing strategies have shown excellent ROI, with one study claiming that multichannel customers spend two to five times more than customers who buy on a single channel.

Additional benefits include:

1. Expanded reach and frequency
2. Increased engagement
3. More impactful messaging
4. Increased brand recall

Social Media

Social media is extremely popular with consumers and digital marketers and is one of the most significant factors in digital spending. Instead of advertising on every social media platform, take the time to understand which social media channels your target audience uses to most effectively communicate with them.

Once you know which platforms to focus your attention and advertising dollars on, you can begin to create relevant and engaging content for your audience

How to develop a digital marketing budget

Here are steps to help you create a comprehensive and practical digital marketing budget:

Set Clear Goals

Clearly define your digital marketing goals. Examples include increasing website traffic by 5%, generating 4% increase in leads, boosting sales by 3%, and enhancing brand awareness. Your goals will influence the budget allocation to different channels and strategies.

Understand Your Target Audience

Different demographics and psychographics may respond differently to various digital marketing channels. Tailor your budget allocation to the platforms and strategies most likely to reach your audience effectively.

Review Past Performance

Identify what worked well and what didn’t. Based on your successes and failures, allocate your budget accordingly.

Allocate Budget Across Channels

Determine the digital marketing channels that align with your goals and target audience. Common channels include:

1. Search Engine Optimization (SEO)
2. Pay-Per-Click (PPC) Advertising
3. Social Media Marketing
4. Content Marketing
5. Email Marketing
6. Influencer Marketing

Allocate your budget based on each channel’s effectiveness and potential return on investment (ROI).

Consider Seasonal Trends

Account for seasonal variations in your industry. Some businesses may experience higher demand during certain times of the year. Adjust your budget to accommodate increased marketing efforts during peak seasons.

Set a Realistic Budget

Consider your overall business budget and allocate a realistic amount to digital marketing. Avoid overextending yourself, especially if you are a small business. A well-considered budget is more valuable than a large one.

Test and Optimize

Allocate a portion of your budget for testing and experimentation. Digital marketing is dynamic, and what works today may only work for a while. Be prepared to adjust your budget based on the performance of different strategies.

Track and Measure Results

Implement tracking mechanisms to measure the performance of your campaigns. Use analytics tools to monitor key performance indicators (KPIs) such as website traffic, conversion rates, and ROI. Review these metrics regularly to make data-driven adjustments to your budget.

Invest in Training and Technology

Allocate a portion of your budget for employee training and upgrading technology. Digital marketing platforms and strategies evolve, and keeping your team updated will ensure the effectiveness of your campaigns.

Emergency Fund

Set aside a portion of your budget for unexpected opportunities or challenges. This will give you flexibility to capitalize on emerging trends or adjust your strategy in response to unforeseen circumstances.

Regularly Review and Adjust

Digital marketing is not a set-and-forget activity. Review your budget regularly and adjust it based on your industry’s changing landscape and your campaigns’ performance.

Optimal Digital Ad Budget Percentage in Marketing?

The percentage of the marketing budget allocated to digital advertising can vary depending on factors such as the industry, target audience, and business goals.

With the increasing influence of online channels in reaching and engaging audiences, businesses often prioritize digital advertising to leverage the targeting capabilities, data analytics, and real-time optimization offered by platforms like Google Ads, social media advertising, and display networks. 

This significant allocation to digital advertising reflects the recognition of the digital landscape’s impact on brand visibility, lead generation, and overall marketing effectiveness. Adjustments to this percentage should be made based on each business’s specific needs and priorities, ensuring a well-balanced and strategic approach to marketing investment.

Suggested Digital Marketing Budget Breakdown

Breaking down your digital marketing budget involves allocating funds to specific channels and strategies based on their importance and expected returns. The actual breakdown will depend on your business goals, industry, and target audience. Here’s a general breakdown of a digital marketing budget:

Note: These percentages are general guidelines, and your digital marketing budget allocation may vary based on your business priorities. Review and adjust your social media marketing budget regularly based on the performance of each channel and the overall marketing strategy.

Consider industry benchmarks and your specific business circumstances when determining the appropriate allocation for each category.

In essence, building an adequate digital marketing budget is an ongoing process that requires adaptability and a commitment to data-driven decision-making. Regularly reassess your strategy and budget to ensure you’re maximizing the impact of your digital marketing efforts.

At New Path, we combine creativity with data to help growing businesses achieve their goals within budget.  From building digital ad campaigns to creating a brand-new website with ongoing content creation, we will help you expand your reach and drive business growth. Ready to take control of your marketing? Schedule a free consultation.

Blog Last Updated on 2 months by New Path Digital