Business owners often put aside a healthy portion of their budget for marketing their brand through various channels. However, how do you know your marketing dollars are being spent wisely?
Marketing is best done with a solid marketing strategy and budget in place. It acts as a guide to ensure you stay on target with estimated and actual costs. Additionally, it lets you track your ROI and plan long-term for your business success.
Perhaps this is why businesses globally have started taking marketing budgets seriously. According to the Gartner 2022 CMO Spend Strategy Survey, marketing budgets that claimed just 6.4% of the average company’s revenue in 2021 have jumped to 9.5% in 2022.
While there is no easy way to develop and monitor a marketing budget, here are five steps to overcome the initial challenges and make a budget that works efficiently. But before we get to it, let’s look at a marketing budget in detail.
What is a marketing budget, and why is it important?
A marketing budget is the estimation of a business’ expenses for promoting its products and services or raising brand awareness. It is developed on a monthly, quarterly, or yearly basis and is comprehensive, covering all expenses associated with short- and long-term projects.
A marketing budget is highly crucial for businesses of all sizes, particularly small businesses, to avoid future problems. If your campaigns aren’t properly funded, your business might sustain low staffing, lack of resources, and insufficient reach.
How much should a business spend on marketing?
The amount of money a business should spend on marketing varies considerably based on the industry and business size. According to the US Small Business Administration, the common marketing spend for profitable companies making less than $5 million in sales is around 2%-10% of their overall revenue. To give you a better idea, here are various marketing expenses businesses should anticipate to promote, develop, and market their brands, products, and services.
Inbound marketing strategies revolve around creating valuable content that aligns with your potential customers’ needs and encourages them to indulge in long-term relationships with your brand. This can involve activities such as:
- Content creation (typically articles, ebooks, and videos)
- SEO (on-page SEO, off-page SEO, technical SEO)
- Email marketing
- Social media promotions
Outbound marketing is the conventional method of pushing your brand to potential customers. It typically includes the following activities:
- Search engine ads
- Social media ads
- Native ads
- TV ads
Outbound marketing is typically on the costlier side and generates lesser ROI than inbound marketing.
Additional expenses include any software solutions and infrastructure you might need to support the brand promotion, for example, your website, marketing automation software, content management systems, video or social media post creation applications, and more.
According to a study by Gartner in 2021, marketing leaders spent 26.6% of their marketing budget on marketing technology, making it the largest area of investment, followed by paid media, labor, and agencies.
Here are a few guidelines to keep in mind when determining the right marketing budget for your business.
- Consider any updates or changes you should make in your current planning, for example, website redesigning, log changes, marketing material revamping, etc.
- What are the current expenses of advertising, maintaining, and promoting your brand?
- Ensure your advertising budget aligns with your marketing budget. An advertising budget refers to expenses associated with ad campaigns, whereas a marketing budget covers all areas of marketing, including advertising. So, it is essential they both fall in line. Ideally, you want to set 1/3 of your budget for advertising and the remaining 2/3 for the other areas of marketing.
How to create a marketing budget?
Now that we have covered all the basics of a marketing budget, it is time to look at the 5-step strategy for developing a marketing budget and tracking.
#1 – Understand buyer personas:
A buyer persona is a research-based depiction of your target audience. You can have multiple buyer personas but aim to have no more than five. To create a buyer persona, start by gathering data about your target audience.
- Conduct surveys for your existing customers
- Interview people who you think are similar to your ideal customer
- Identify audience demographics using Google Analytics
- Leverage Facebook Insights to understand user interaction with your brand
A buyer persona should include the following information:
- Motivation and goals
- Relationship status
- Problems or challenges they face in life
- What can make their lives easier?
#2 – Identify your SMART marketing goals and align them with your budget:
In marketing, SMART is a goal-setting technique that helps marketing teams create goals that are Specific, Measurable, Achievable, Realistic, and Timely. These goals make it easier to determine the most effective course of action and establish the greater purpose of your business’ marketing practices.
You can apply SMART objectives to any marketing campaign by following these steps:
- Specific – Create clear and defined goals for the campaign.
- Measurable – Determine the performance benchmarks you wish to use for your goals.
- Achievable – Use data to assess how attainable your goals are.
- Realistic – Analyze if your current strategies can help you achieve the goals.
- Timely – Decide an actionable timeline for your goals (long-term or short-term)
Getting specific with your short-term and long-term goals is the key to creating a marketing budget that drives maximum ROI. For example, short-term marketing goals can be reducing pricing promotions, PPC advertising, etc., while long-term marketing goals might include creating search-optimized articles to boost brand awareness or building a loyal community of fans.
Remember that marketing does not generate sales overnight. You should continuously make and tweak your plan to see positive results.
#3 – Consider the market and competition; SWOT analysis:
To better understand your target market, performing market research is important. This is where a SWOT analysis can help. The SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis helps you analyze your business and your competitors to create an efficient marketing strategy or individual campaigns.
Here is how a SWOT analysis works.
- Strengths – What factors are going well? What gives you an advantage over your competitors in the marketplace? Is the ROI worth it?
- Weaknesses – What is not working? What puts you at a disadvantage among your competitors? What are the weaknesses of your current resources?
- Opportunities – What are the opportunities lying outside your organization that you can capitalize on?
- Threats – What aspects outside of the organization should you avoid?
#4 – Choose the right marketing channels:
Remember the first step to creating a marketing budget – identifying buyer personas. Picking your target will help you decide on acquisition channels that will likely generate the greatest ROI.
In a study published by Statista in August 2021, Facebook was the most favored social media platform, with 93% of marketers investing in it. Instagram saw usage of 78% and LinkedIn usage of 61%.
To choose the right channels, ask yourself:
- What channels do your buyer personas mostly frequent?
- What are your team’s skills?
- What is the money you wish to invest?
There you have a list of channels you should use for your marketing initiatives.
#5 – Measure ROI:
When you have invested a significant part of your overall revenue into marketing your brand, you would want to see if the strategies helped or hurt your brand before planning future marketing budgets. The best way to do this is by measuring ROI.
Most of your early marketing budgeting work will be based on predictions. However, as soon as you launch marketing campaigns and programs, you should track how it is helping you progress towards your goals. Depending on the results you see, you might want to adjust tactics and your marketing spending.
It is important to calculate what sales you might earn from your marketing spending. A lot of marketing teams want to track results and be data-driven. However, only a few do it well. Before you know it, you will get stuck in detailed work and steer away from reflection. For instance, bagging new leads is not about hitting the lead target number because not all leads are qualified leads. A few leads will be cheaper to generate but will never result in a sale. This is why tracking the performance of your marketing initiatives matters.
If you find that the money spent on a particular channel or campaign resulted in more ROI, you might want to increase the budget for the same channel in the next year. Nevertheless, if your money goes nowhere, it is time to examine your budget.
A marketing budget that prioritizes your goals
A well-planned marketing budget acts like a roadmap that will lead your business to success. Take a closer look at your buyer personas and journeys, write down your goals, and avoid add-ons that do not align with your marketing goals. Finally, here are a few takeaways:
- Be open to testing new strategies and channels using a small part of your budget.
- Take baby steps depending on the data you can get your hands on.
- Spread your budget across several channels and throughout the marketing funnel.
- Estimate the sales you might earn from your marketing spend and increase the budget for the channel with the highest ROI.
Follow these basic rules and modify your budget based on the results you get. Soon, you will find the sweet spot for allocating your marketing budget and maximizing your ROI.