How Much Actually Should Be Spent on Social Media Marketing?

With so much fuzz around on social media marketing, companies are in jeopardy what amount to actually invest. In the west, the idea of social media marketing is quite developed and they actually have a plan to invest a certain amount and then keep a close control. On the other hand, developing countries like India are still struggling with the idea.

Although it is at the discretion of company heads, they have little idea on social media marketing efficiency. So the suggestion part comes to marketing manager’s hands, who usually has a good idea of the current market and trends.

According to a recent survey conducted by Associated Chambers of Commerce and Industry of India (ASSOCHAM), Indian companies spent over Rs. 1200 crores on social media platform like Facebook and Twitter. The amount is certainly huge but there’s more to it, there was a trade of around Rs. 23, 000 crores (global figure) through social networks.

By 2015, this figure will rise to Rs 1.35 lakh crores with India shelling over 10, 000 crores on social media marketing. So that’s about the huge facts and overall scenario, but what can a small or medium size company spend on social media marketing? How much is too much or too less?

One of the better ways to formulate your spending budget would be to study what other companies are doing. The sad part here is that most of Indian companies are hesitant in sharing their data for the same. You can get only vague numbers such as the Indian companies have doubled their spending on SMM during the last year.

Now second best option here would be to analyze what US based companies are spending, having said that, our small and medium size companies cannot actually compete with the current spending structure there, so we’ll stick to data which is a couple of years old.

Here are some facts from 2010 DMA-Colloquy Study on social media spending:

• 17% of the marketers who haven’t kicked off their social media marketing campaigns choose 1% from their marketing budget for a year.
• Other marketers chose to go with 4 to 5 %.
• Surprisingly, around 24% markets don’t even know what they are actually investing on social media marketing.
• Another surprising fact from the study was that majority of participants failed to answer what’s most important measure to determine social media success.

The date pretty much sums up Indian social media marketing scenario too. We are nowhere on the planning and execution platform. Social media marketing is working more like a herd mentality where everyone wants it without knowing the success values.

All companies want to see is more likes and more followers, why? For the same reason, individuals like to have more friends and followers attached to their account. Not many would care if they are actually converting to some concrete sales value.

An idea spending/budget plan:

First of all, you need to understand the ROI and results from social media marketing. Without it, your plan will be lost in a desert. If you are starting SMM just now, then it is better to go with 1% of annual marketing budget. Gradually increase the value, investing into core areas like careful advertising.

One of the other ways would be to analyze how much you want to spend on making a new customer. Lifetime Customer Value is a good criterion for the same. It can be determined through the following equation:

LTV = (Frequency of Purchase) X (Gross Profit) X (Duration of Loyalty)

You need to calculate the average of how frequently the customers buy, your profit and the time customer stays with you will provide LTV. Now, one third of this LTV should be ideal to spend on acquiring a new customer. Control is always desirable to ensure that you are not spending too much.