A comprehensive and effective marketing budget is a crucial component to successfully execute a marketing strategy. Your budget needs to be tailored to the specific characteristics of your business.
First, you will have to understand the job marketing has to do to help your business. From there, specific tactics can be outlined. Then you need to set KPIs to align the budget with your goals in order to accurately and honestly measure marketing’s success.
The following tips will help guide you to create a budget that focuses on the goals you have, the strengths of your business and sets your marketing up for success.
Know where you are and where you are going.
Start with a review of your business. How much revenue are you generating? Is revenue increasing, decreasing or staying the same? What will create the most impact on the business: more users (new customers), more usage (current customers buying more) or more utility (customers paying more for more value)?
Then ask: What is our objective? Your budget must reflect what your business wants to accomplish. When you get clear about the specific goals you have for your business, it will illuminate certain areas that require more attention than others.
For example, a goal to grow new online customer acquisition by 15% will require focusing your budget on digital channels and e-commerce.
A marketing budget built upon the answers to these questions will enable you to target specific goals and take actionable steps to ensure they are fulfilled.
Examine what you are doing now.
Once you have determined where your business is and where you want it to go, ask: What actions have been taken to achieve those goals?
If your goal is to acquire new customers, how well do you know this new customer base? Is your target audience the same as your existing customers or different? This does not simply refer to their demographics, although that is important information. To truly understand your customers, you need to tap into their psychographics.
Psychographics dig deeper to understand why consumers behave the way they do. It asks what motivates them on an emotional level. Your customers’ values, attitudes, beliefs and interests all play a role in the way they respond to your product or services.
So, if you are a clothing company and your new target audience values sustainability, is your marketing messaging communicating how your brand values it as well?
Be honest with yourself about the success of your current marketing efforts and how well you know your target audiences. Faulty insights at this stage will negatively impact your success down the road.
By now your exploration should have identified if the business suffers from an execution problem or a scaling problem. Or perhaps it’s a branding problem. A business that is not clear about where it needs to start is in danger of having mixed priorities.
Size matters, but not that much.
The actual size of your marketing budget is going to be dependent on a number of factors. The main thing to remember is that marketing is an investment in your business and every investment is driven by risk tolerance and likelihood of generating a return. However, without the foundation discussed earlier, you’re less likely to succeed regardless of your budget size.
If you are a small business that is just starting out, expect to spend a higher percentage of your revenue on marketing than a more mature business. One recommendation is that new businesses spend between 12% and 20% of their revenue on marketing, and established businesses spend between 6% and 12%.
Budget size will also depend on whether you are a B2B or B2C company. According to the U.S. Small Business Administration, B2C companies tend to market more than B2B companies. On average, B2B product companies spend 6.3% of their revenue on marketing while B2C product companies spend 9.6% of their revenue. The disparity is even greater among service companies.
What To Include
Once you have an idea of how much of your revenue should be allocated toward your marketing budget based on your business, break it down into sections. There are numerous components to a typical marketing budget, including:
• Content (podcasts, e-newsletters, webinars, workshops, articles, blogs, etc.).
• Events and engagements.
• Paid advertising (social media, PPC, SEO, Google Ads, etc.).
• Sponsored web content.
• Website development, optimization and hosting.
• Marketing team.
• Agency and consultancy fees.
• Marketing automation software.
In order to determine which tactics will benefit your business the most, return to your foundation. What specific activities will help reach your goals?
It can also be useful to pay attention to other marketers. A recent CMO survey conducted by Deloitte reveals that digital marketing is growing much faster than traditional advertising. As of February 2020, growth in digital marketing spend was at 13% while traditional advertising was actually falling -0.4%.
Companies also expect spending on social media to increase by 62% over the next five years, comprising 25% of digital marketing spending.
Measure your success.
The ultimate goal of any marketing investment is to drive sales and increase brand visibility. Success will be measured by some version of these two metrics. Keeping track of key performance indicators (KPIs) will indicate which areas in your marketing budget are delivering performance. Some familiar KPIs include cost per win, incremental sales increase and new customer acquisition costs. Your specific KPIs will stem from your goals. Understanding their progress will be instrumental in determining how much success your marketing budget is bringing to your business.
A thoughtful marketing budget that is tailored to your business’s needs is crucial to reach new customers, increase sales and accelerate revenue. All you need to build one is a clear set of goals, an understanding of where you are, how much money you will spend, which areas you will spend it on and a way to measure the progress. It’s simple, just not easy.