Digital Marketing Campaign Budget Planning

As a digital marketer you will have a number of promotional channels at your disposal and a budget from management to run a promotional campaign. How will you manage digital marketing campaign budget planning to split across promotional channels? How can you make changes to that plan during the lifecycle of the campaign to maximise returns?

Planning a Digital Marketing Campaign Budget

Here we will look at a hypothetical campaign that has a promotional budget of £50,000 and a management target of 200% return on investment. Firstly we will plan a draft budget using industry standard estimates and an average transaction value of £80.

For the purpose of this example we’ll assume that AOV has been weighted to include returns. Then we will assess if that initial draft hits our target and if not – what can we change to meet the target?

Cost Per Acquisition

When planning you digital marketing campaign it is essential to understand the cost of each conversion (or sale) in order to ensure you remain profitable. If you have an Cost Per Acquisition (CPA) of £60 and an Average Order Value (AOV) of £65 it wouldn’t be worth the effort for just a £5 return per order!

Tracking cost and performance metrics will allow you to determine the acquisition cost. It will also help you skew your budget allocation to favour the lower cost and better performing channels to drive more sales at a lower CPA.

Before we begin we need to know a number of metrics to build out the draft plan, including:

  • What are your set-up/management costs for each channel (including agency commissions or percentage of ad-spend rates)?
  • Do you already have an average cost-per-click (CPC) for paid search model channels?
  • Is there existing average click-through-rate (CTR) data for each channel?
  • Does previous campaign data show an average conversion to sale rate for each channel?

If you don’t know you can use industry standard figures and we will do that for this draft plan. If you have accurate figures to begin with you can enter those and you can amend your digital marketing campaign budget during the campaign with actual response metrics.

Planning Cost Metrics

For the sake of this example we will use 4 promotional channels and split our £50,000 campaign budget across display advertising, Google Ads paid search, Facebook advertising (using a CPC model) and sponsorship advertising in a popular sector email newsletter that offers a CPM model.

As mentioned in the list of inputs above, you need to remember that from the total budget any management or creative costs need to be deducted from the media spend. This could include agency fees, creative design of assets and percentage of ad-spend commissions. Deducting these costs from the total will give you an actual media placement total.

For display advertising we have a £10 CPM cost (per thousand impressions). For paid search we will start with a £1.50 cost-per-click. On Facebook advertising we will choose their CPC model and also a £1.50 cost-per-click. Finally our email newsletter owner charges £10 CPM.

We are working on the basis that our display advertising carries a £2,000 fee for creative development and management and the agency managing our PPC carries a 15% of ad-spend commission so that will be £3,000 to factor in.

Allocating 30% of the budget to display advertising gives us a channel total of £15,000 and from this we minus the £2,000 management cost leaving a media budget of £13,000. For Google Ads PPC we allocate 40% of the budget giving a channel total budget of £20,000 minus the £3,000 ad-spend percentage commission for the agency. This leaves a PPC media budget of £17,000. We allocate 25% of the campaign budget to Facebook advertising so a channel total of £12,500 with no management costs leaving a media budget of £12,500. Email sponsorship gets the remaining 5% of the campaign budget without any management costs giving a total of £2,500.

Click Through Rate (CTR)

To determine cost per click for each channel we need to know a click-through-rate (CTR) percentage. For display advertising we will begin using an industry average of 0.6% and Google Ads we will also begin with an industry average of 1.9%. Facebook Ads we will also start with an industry average of 0.9%. Lastly for the email sponsorship we will use an industry average 2.5% CTR.

Cost Per Click

Now we have determined the draft budget split by channel, factored in management costs/commissions and added baseline CTRs we can determine the cost-per-click for each channel.

For display advertising our £13,000 media budget will buy 1.3-million impressions. If we achieve a 0.6% CTR that will drive 7,800 clicks to our website. We calculate the CPC by dividing the total channel budget (including set-up/commission plus media spend budget) by the number of clicks. In this case that gives us a CPC of £1.92.

With display advertising CPC is purely for comparative purposes as CPM is the variable metric for this channel – buying impressions not clicks.

For Google Ads we buy 11,333 clicks for our £17,000 media budget, but set our cost-per-click limits within Google Ads as £1.50 CPC. For Facebook we also set our CPC to a maximum of £1.50.

Paying on a CPM basis for our email sponsorship, our budget allocation allows us to reach 166,667 users. An industry average CTR in 2020 is said to be 2.5% for email advertising clicks, so that would drive 4,167 clicks. Dividing our channel budget by those clicks makes total cost divided by clicks of £0.60.

Factoring in our higher CPC for display ads, we have an overall campaign average CPC of £1.58.

Conversion Tracking

At this stage you need to decide what you are counting a conversion as. If you are only interested in revenue then you will track macro conversions and the transactions you are generating. If you have preceding goals such as registrations, downloads or adding an item to the cart (but not finishing the transaction) these could count as micro conversions that move users into the start of your macro conversion funnel.

For the sake of this example we are going to concentrate on only the macro conversion and we will use a 3% conversion rate.

For display advertising we generated 7,800 clicks from 1.3-million ad impressions driving 234 sales with a total revenue of £18,720 (234 x £80 AOV). This represents a 25% ROI or £3,720 on top of our total channel budget of £15,000.

For Google Ads paid search we generated 340 sales and £27,200 revenue – a 36% ROI on the £20,000 channel budget. Facebook advertising generates 250 sales and £20,000 revenue, so a 60% ROI. Email marketing turned out to be the winner with 4,167 clicks driving 125 sales and £10,000 revenue from a £2,500 spend making an ROI of 300%.

Adjusting the Plan

Using indicative figures and response rates we can quickly see that our initial draft digital marketing campaign budget fails to hit a 200% ROI. We can now use the draft and alter a number of metrics to lower CPA and improve ROI including:

  • Reduce the display ad investment due to its lower CTR and higher CPA
  • Reduce CPC costs for Google Ads and Facebook campaigns to increase click volume
  • Increase the reach of the email campaign by reallocating budget there

For example, if we drop our maximum cost-per-click for Google Ads from £1.50 to £0.70 CPC that lowers the acquisition cost from £58 to £27 – a reduction of 53%. Likewise, if we reduce the Facebook ad CPC from £1.50 to £0.80 that reduces the CPA from £50 to £26. Together these changes lead to a 97% increase in revenue from the same overall campaign budget and a new ROI of 200%. This would be an increase of 284% from our original plan and hit our management brief for a 200% ROI.

We appreciate this is a simplified view and you may have commitments to certain channels and volumes or may already know accurate performance figures from historic campaigns that lead to more accurate first drafts. When you document these metrics and calculations on a spreadsheet you can quickly revise your digital marketing campaign budget to meet your targets and track performance against it during the campaign’s lifecycle.