One of the questions we get asked a lot is, How much does digital marketing cost?
It’s a straightforward question, but like many things in life, the answer is complicated. There are many factors that go into how much you get charged, as well as how much you want to pay.
Unlike a commodity like a gallon of milk, you may not want to pay the least amount possible for your digital marketing. Low budget digital marketing comes with many trade offs – low effectiveness and low quality being the two biggest issues. There’s no point in paying anything if it won’t be effective.
On the other hand, big budget digital marketing comes with other tradeoffs. Namely a higher price tag but a higher quality and effectiveness as well.
Depending on your business’ needs, maturity, and financial wherewithal, you will have different priorities, needs, and wants.
Here at Array Digital, we cater to business to consumer (B2C) clients in a service related business. Our pricing is based on the needs of most of our clients for most situations. But specific pricing will vary client by client because their needs will vary as well.
There is no “one size fits all” for pricing digital marketing, but this guide will help you understand the components that go into creating a marketing budget, and pricing your needs.
There are many philosophies on how to determine how much money you should invest in marketing and advertising. Many of these philosophies use some sort of mathematical formula to determine a budget.
In particular, many companies use a percentage of their revenue to establish the amount they’ll spend on marketing. However, there’s a wide variation between industries and companies on exactly how much to set aside.
The obvious question is, How much should you set aside for marketing and advertising?
Actual amounts can vary widely. Some of clients dedicate as little as 5% of revenue to marketing and advertising, whereas others invest at much higher rates in the 20% and above range.
According to a survey conducted by Gartner CMO, the average amount that firms spend on marketing is currently 9.8% of revenue.
Source: Gartner CMO Survey 2019 – 2020
Another survey gathered not only the percentage of revenue a company spends on marketing and advertising, but also other attributes of the kinds of business that the company is in.
What they found was the percentages set aside for marketing and advertising varied by industry and other factors. Most interesting, the amounts varied greatly based on whether a company’s customers are consumers or other businesses, and whether the company sells products or services.
B2C companies – those companies that sell to consumers – averaged a much higher percentage of revenue towards marketing and advertising than did B2B companies.
Source: CMO Survey
These numbers tend to fall in line with the marketing and advertising budgets for our clients – in the 5% and 20% range.
If you’re undecided on how much of your revenue to set aside, we recommend you start on the lower end. Set aside 5% and, over time, work your way upward as your finances permit. Remember that marketing and advertising is not an expense – it’s an investment in future returns.
As a digital marketing agency, we’ve tried different types of engagement models over the years.
Most digital marketing consultants and agencies use one of three common engagement models: project-based fees, monthly retainer contracts, or hourly rates. We’ve included a fourth option – employment – to ensure you know all of your options.
We’ve found that the monthly retainer model works out the best for not only our clients, but for us. As a marketing agency, we need to make sure that we fully understand the needs of each of our clients so that we properly staff and resource our company to fulfil those creative needs.
With all other models besides the agency model, significant turbulence is encountered in the day to day staffing needs of our clients which, unfortunately, leads to variability in the quality and urgency of deliverables.
Two of our core values won’t allow for that – Quality and Urgency – so we’ve dropped those other models in favor of the retainer model which ensure we can always live up to not only your expectations, but to our core values.
The below engagement models are sorted from potentially least expensive to most expensive. Keep in mind that your cost and experience will vary based on your industry, region, and specific needs.
Entrepreneur.com surveyed freelancers from 16 different countries and found they typically charge $50-$100/hour.
In our experience, high quality freelancers in the United States start at $100/hour and go up to $250/hour depending on their niche and level of expertise.
With hourly rates, every hour spent on your project is a billable hour regardless of the task performed. So answering email, time in meetings, and even time chit-chatting on the phone with you will end up on your invoice.
The upside of hourly work is you only pay for what you use. The downside is that the number of hours could spin out of control if you don’t keep a watchful eye on progress.
An informal survey done by SEOmoz found that project-pricing is popular in the digital marketing industry, and prices per project tend to range from $1,000-$7,500. This the price for a one-time project. Follow-up work requires an additional engagement and thus more work and cost for you.
The upside of project-based work is that your costs are “theoretically” capped.
However, that’s predicated on you ensuring the scope of work is tight and accurate before you sign the contract. Leave any holes in the scope of work and you’re opening yourself up to expensive change orders. Then, once the work is done, you’re back on your own.
A monthly retainer contract fee typically ranges between $1,000-$100,000 in the U.S. Yes, that’s a large range, but the monthly retainer model is flexible to different sized organizations.
Larger agencies will offer more services for higher prices to larger clients.
The pros of a monthly retainer is that you “buy” from a digital marketing agency once. You don’t have to go through the buying cycle everytime you need something done on your website or in your marketing.
The scope is determined up front, as is the monthly cost. As is the price – with a monthly retainer you can easily predict your expense several months in advance. We call this the “boring” model because you’ll get an invoice for the same amount, the same day of the month. However, you should constantly receive updated creative services and your agency should adapt to your changing needs.
The downside of this model is that you’ll get a bill every month. If your business experiences severe seasonality, this may not be a fit for you. This is especially true if you significantly decrease, or altogether stop, your marketing activity for several months of the year. In that case, you probably should look more towards the freelancer because you don’t have a full time need for marketing.
Companies often believe that full-time employees are the most cost-efficient way of getting the digital marketing they require. This typically results in one person being hired to fulfill all of the responsibilities to market your company.
This single person brings a limited single set of experiences and technical skills with them. That means that their individual knowledge, and ability to perform, will be limited.
They also represent a single point of failure. If they get hit by a bus or they win the lottery then you’ll have no backup. All your institutional knowledge will be gone and you’ll be starting back over.
You will pay the employee for every hour of every day, plus benefits such as health care and paid time off, regardless of whether they perform marketing work or not.
Employee salaries range from $35,000.00/year to over $100,000.00/year depending on their experience.
Like all employees, they’ll want 2-4 weeks of paid vacation and benefits such as sick leave, health care, dental care, etc. Those extra costs typically boost the cost by 25% or more, not to mention the cost of a computer, IT support, cell phone, etc.
The upside? You’ll have someone within arms reach (unless they work remotely).
So far we’ve discussed how much of your budget you should set aside, and how you could use it to hire freelancers, employees, or an agency, but how much does marketing actually cost?
Well, it’s complicated. Don’t you hate hearing that? That fact of the matter is that it’s true. There are different ways to go about determining actual costs, and we’re going to break those ways down for you.
Cost comes in terms of dollars spent as well as time spent. Saving on one usually comes at the expense of the others. What’s the right balance between time and money spent? That can only be determined by you for your particular situation.
There are three approaches to determining the cost…
And, we’re going to step, one by one, through what we consider to be the Four Pillars of Digital Marketing.
You’re probably thinking to yourself… That’s all fine and dandy, but what’s it really going to cost ME?
Great question. We’ve provided a lot of guidelines, but every company is in a different situation when it comes to the current marketing,. Some have more needs in one area than others. The only way that we can determine what you actually need is to evaluate what you’re doing now.
For that, we provide a Digital Marketing Review to anyone considering hiring us for our services. Other agencies in our area charge $4,000 and up for this kind of service.
But not here at Array Digital. Our Digital Marketing Review is 100% complimentary with no strings attached.
We perform a 20 Point Inspection of your current digital marketing footprint to see what you’re doing well, what could use improvement, and to see how we can help. This is the only way that we can determine what services you need.
Erik J. Olson is the Founder & CEO of Array Digital—a marketing agency that enables its clients to achieve their dreams, fulfill their missions, and impact more lives with their services.