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All successful marketers know how valuable planning is. There are many things you should take care of in advance.
For example, to create an effective basis for your business goals, you should align your sales with other departments. Such a process involves many steps, requires thorough analysis and high employee engagement, and it may also take a lot of time.
Planning your marketing budget can be even more difficult.
Having your marketing budget planned early offers many benefits for your business. For example, if your marketing plan involves technology investments, you can do your research and make the necessary purchases in advance. At the very beginning of the year, you can set clear goals for your team, and you will know exactly what budget you have, from the very beginning.
Budgeting is a crucial element of a marketing plan because it determines how much you can invest in each particular marketing strategy. The difficult thing about planning a budget is that there is no universal solution that would work for everyone. You should plan your budget based on your goals and determine what channels enable you to reach your audience most effectively.
Obviously, large and small businesses have different marketing budgets. However, even small businesses may spend from a few thousand dollars yearly to a few thousand dollars monthly.
According to research, companies with more than 10% of online sales allocate 13% of their overall budget to marketing, while companies that don’t make online sales at all spend about 10.6% of their budgets on marketing. At the same time, all companies’ marketing expenses tend to grow over years. The good news is that you can run effective marketing campaigns even on a small budget.
Moreover, global events also have a direct impact on marketing budgets. For instance, the COVID-19 pandemic demonstrated a significant impact on marketing budgets in all industries. Companies used to allocate about 8.6% of their revenue to marketing before the pandemic, but now the average percentage of revenue spent on marketing reaches 11.4%. The exact amount of money that you can spend depends on your industry, niche, goals, and many other factors. In this article, we will share some tips that might help you, but first, let’s consider marketing budgets in more detail.
What a Marketing Budget Is
A marketing budget reflects the amount of money allocated by your company for the promotion of your products or services. Usually, a marketing budget is planned annually or quarterly.
Your marketing budget plan should be comprehensive and address both short-term and long-term projects your team will work on.
Although it’s easy to confuse marketing budget and advertising budget, the former includes not only expenses associated with ad campaigns but also all the other areas of marketing. Similarly, a marketing plan is more comprehensive than an advertising plan.
Why You Need a Marketing Budget
Planning your marketing budget can help you avoid many problems in the future. If your programs don’t receive all the necessary funding, you might deal with an insufficient reach, lack of equipment, or low staffing. In contrast, proper budget planning enables you to not only address these problems but also know exactly how much you can spend on equipment, employee salaries and bonuses, marketing communications, office space, etc.
To plan an appropriate budget that will meet your needs, you should do the necessary research to understand what funding is required by different projects. Proper planning can help you align your marketing practices with the general business objectives. It can also provide teams with the necessary tools to increase funding of tactics that deliver the best ROI.
How To Create a Marketing Budget
1. Define your sales cycle and marketing plan
First of all, your marketing budget is just a tool that can help you achieve your business goals. If you don’t have clear goals, you will have to adjust your budget on the go, over and over again, which can cause more harm than good. First, consider your sales funnel. It determines what you will spend your money on so it’s a critical component of your budget.
Usually, a sales funnel includes four stages: awareness, consideration, decision, and action. Your sales funnel may involve different marketing channels at each particular stage, and you may choose different marketing strategies depending on how your prospects move through different stages of the sales funnel.
For example, if you have a lot of people at the consideration stage but only a few of them make it to the decision stage, you may invest more in strategies that move leads from consideration to a decision, such as social media or PPC ads. Your marketing plan should be an integral part of your business strategy, explaining how marketing will help you achieve certain business goals. This way, you’ll define your product positioning, customer journey, and competition.
2. Evaluate your current expenses
Now that you’ve determined your goals and considered your sales cycle, evaluate how much you spend on marketing now. Make a detailed list of expenses associated with the promotion of your products or services, including digital assets, advertisements, sponsorships, events, marketing management tools, and marketing personnel.
It’s important to make this list of expenses as detailed as possible because it can be easy to overlook some aspects that require a considerable portion of your money. Therefore, it’s important to keep in mind that such things as sponsorships, events, and digital content should be classified as marketing efforts.
3. Evaluate the effectiveness of your spending
You should also measure the effectiveness of your spending, and you can do it by analyzing data: website traffic, conversion rates, lead generation, etc.
If for some reason, you don’t track any metrics now, you should start as soon as possible because otherwise, you won’t be able to evaluate your ROI.
To understand what metrics you should track, consider your key performance indicators. According to statistics, 60% of marketers consider leads their most important KPI. You should choose metrics based on your goals. For example, if you want to promote your brand, you may consider monitoring website traffic, conversions, and bounce rates.
4. Research your market and competition
You need to understand your target market. You can conduct primary or secondary research, analyzing data and answering the most important questions about your audience. Who your buyers are? Where do they live? What is their average income? What factors have an impact on their purchasing decisions?
You should also consider economic trends that affect your market: how your target audience searches for products, what payment methods they prefer, etc.
You should also understand your audience’s needs and wishes. What needs your brand helps fulfill? Don’t focus on your products or services but consider your customers’ needs in a broader context. For instance, they may need to save money, feel safe, or accomplish specific goals.
We also recommend that you make sure to research your competition. Think of the companies that perform well and consider their marketing strategies and ads. How much budget do they need to allocate to marketing? Their marketing expenses might be determined by the type of industry. For instance, while the average marketing expenses of B2B companies are normally at a level of 6.9%, B2C businesses spend about 8.4% of their budgets on marketing.
5. Calculate your budget
You can calculate your budget based on different factors. One of the common approaches is revenue-based budgeting. In this case, you consider your annual revenue and allocate a certain percentage of it to marketing.
Revenue-based budgeting used to be the most popular model, but many modern companies choose alternative methods, such as goal-driven budgeting.
You may also plan your marketing budget based on your competitors’ budgets, allocating the same amount of money to marketing. Another approach is top-down budgeting. In this case, you don’t plan how much you will spend in a quarter or year — management decides on a figure and the marketing department needs to stay within these limitations.
When choosing the goal-driven approach, the marketing department and management identify goals and determine the monetary value of each goal. Although this method requires teams to do many calculations, it also helps plan the budget more precisely. For example, how much money represents a certain number of followers or conversions.
Create a Marketing Budget for your Business and Take the Most Out of it
Once your budget is ready, monitor your metrics and expenses at least quarterly, although monthly monitoring is a better solution. You may need to make some adjustments based on the actual effectiveness of your marketing efforts.
We also recommend that you establish effective communication with your advertising and marketing teams. Make sure that they have all the necessary information, tools, and support to demonstrate the best results possible.
Business owners should set a strategic direction for their marketing teams, but such a direction should be flexible. You should adapt your marketing strategies and marketing budget to current circumstances and make sure that the most effective marketing channels get enough funding. The marketing team should understand the overall business strategy, know your sales plan and release schedule. Always provide your marketing team with all the necessary information in advance because, no matter what your goals are, achieving them will take some time.
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