It can be difficult to measure the effectiveness of a social media campaign. That makes it challenging for businesses to determine how much to budget each year for social media marketing. Don't you wish there was a simple formula you could use to help you figure out the right amount?
There is. But before I tell you the secret formula I've developed to determine your social media marketing budget, let's establish a few ground rules so we can be sure we're all measuring the same thing in the same way:
- There's no point in discussing raw dollar amounts for a social media marketing budget until we agree on how to define what a marketing budget is supposed to accomplish. The goal is to use your resources efficiently. To do that, you need to find a way to measure each social media campaign's effectiveness. If you're spending, say, $5,000 on a campaign that's ineffective, doubling the budget to $10,000 is not going to fix it.
- I often find that companies include sales in their marketing budget. That's where the confusion starts. Sales and marketing are different functions, with different ROI measurements. That's why I recommend that companies create dedicated budgets for each. Again: It can be difficult to measure the ROI of a social media marketing budget. But separating it from the sales budget, where determining ROI is fairly straightforward, is the best place to start.
- When setting your budget, make sure you calculate the total cost of every prospective investment. For example, if you invest in social media software tools, you have to include additional funds to either train your employees to effectively use them or hire someone with the relevant experience. I've seen too many companies make expensive investments in social media tools without following through with the resources necessary to see that those tools get put to good use.
- On a similar note, many analytics tools are available to help you conquer the challenge of evaluating the effectiveness of your social media marketing. It's critical that you either have a person on staff who knows how to use those tools or outsource that responsibility to someone who understands what to measure and how to measure it.
The Secret Formula Revealed …
The first part of the formula is actually a long-established truism: Time equals money (T=M). In other words, in order to effectively measure any social media marketing campaign, you have to budget not just for software and other tools, but also for your staff's time (including the cost of any training).
With that in mind, here's the secret formula:
- If T < 5, then 15% of Gross Revenue / 4 - Labor Cost
- If T ≥ 5, then 10% of Gross Revenue - Labor Cost
Inside the Numbers
How do you apply the formula to your company? For starters, figure out how many of your staff members (both full-time and part-time) are involved in marketing. Next, add up the total number of hours they dedicated to marketing last year, along with the total amount that you're paying them in salary. Divide that total salary by the total number of marketing hours, and you have your total hourly time investment in marketing.
Next, determine what you spent last year on external marketing costs, such as events, agencies and tools. Add that to your internal marketing costs.
Step three is to compare that total to your year-end revenue. If that figure is around 10%, then you did OK. If not, then you need to determine which variable is throwing the formula out of whack — Tools? Services? Training? Staff? — and adjust accordingly.
Budget With Confidence
Budgeting for social media marketing can be very stressful. You know a successful social media strategy is vital to your success, but the keys to achieving that success often seem shrouded in mystery. With this formula in hand, you can pull back that shroud and proceed with confidence.