Marketing Planning

How to determine a marketing budget

One of the first questions that I’m always asking new clients is “Do you have a marketing budget? They usually just smile or go quiet. It’s a tough question to ask early in a relationship, but it must be asked. It’s my job to earn trust quickly, so clients understand that this question is asked with only the best of intentions in mind – to deliver the best possible return on investment in marketing with the available resources and marketing budget.

If this is the year when you want to ramp up your marketing and take growth to the next level, start with a marketing budget and a marketing plan. You really can’t figure out one without the other. Here are a few considerations that will help you figure out how to determine a marketing budget to support your business growth objectives.

Consider years in business and market share

For companies that are less than 5 years old, or with limited market presence, I tend to recommend a marketing budget that equates to 10-20% of your gross revenue. It requires money to build brand awareness. And it usually requires way more money than you think. For more established companies, the number tends to be between 5- 10%.

Consider your competitors spend

Sometimes, your marketing budget allocation is greatly impacted by your competitors’ marketing purse. This was something I learned first hand in one of my earlier marketing jobs. I worked in a small accounting software house and had to compete against a marketing giant – Sage.

Considering your competitors’ marketing spend is necessary, regardless of whether you are an established brand or a new business. The more marketing they do, the more brand awareness that they have, the smarter you need to be with your marketing to compete with them. You also need to be aware of new market entrants who will hit hard with new marketing to build brand awareness.

Caution with Top Down budgeting

There are a few methodologies for budgeting that accountants will recommend. Top down budgeting is the first method. They are prepared by top management and imposed on the business. In this case, the marketing department. But a top down budget can be unrealistic because management doesn’t always gain input from the people who implement the marketing. When a business owner wants to take this approach, I help by challenging the numbers and validating the costs against the marketing plan or business objectives for revenue growth.

Incremental budgeting

This budgeting methodology involves bringing forth last year’s budget and using it as a framework for the new budget. This is an easy approach because most of the work is already done for you. All you have to do is review each aspect of your budget and adjust it accordingly for certain known factors, such as a new product launch, rebranding, new website development project or generally, for any new initiative that you’ve not spend any marketing budget on in the past. Don’t forget to keep an eye on your competitors – maybe if you aren’t planning something new, they might be.

If you take this approach, I encourage you to review costs for your technology stack. Make sure you are leveraging your technology. And look at what is new – marketing technology is changing rapidly. Maybe you can consolidate 3 systems with one new one. Also, make sure costs from your outsourced providers are in check and their work delivers value, in line with your business objectives.

Zero-based or Zero-based budgeting

As the name implies, you work from the bottom calculating your potential costs and build up from there. This is a good approach for projects. For example – a new website build. Breakdown all of the cost components;  hosting, SSL certificate, development, design, content, SEO. Don’t forget to budget for ongoing maintenance – design, SEO and CRO and new systems integrations.

Budgeting is an important process that you need to get right. Think about how your company operates and decide which methodology suit your needs the best. Review it monthly – actual against budget. When your expenditures exceed your budget, you can do several things to get back on track. That’s another article, for another day.

If you require any assistance with how to determine your marketing budget, get in touch. We are happy to help.

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