Over 80 percent of companies spend at least $50,000 on digital marketing each year. More than a third spend upwards of $500,000.
It’s clear you should be putting money into marketing. You already know the benefits, like better brand visibility and increasing sales leads.
The question is more about how much money you should put into any marketing initiative. Do you spend half a million on your digital marketing efforts, or is even $50,000 too much for those channels?
This is where a marketing budget becomes essential. Sometimes, coming up with a budget is harder than figuring out which channels to use.
That’s why we created this guide. We’ll start with a quick review of the downsides of operating without a budget. Then we’ll go over how to create a marketing budget for your business.
Why You Need a Budget
It can be tough to pin down how much to spend on any marketing initiative. It’s one reason many business owners and marketing professionals choose not to make a budget. There are a few risks with this approach, though.
The first is that you’ll spend too much on marketing in general. An overall budget gives you guidance on how much to spend and helps you rein in your activities.
Today, there are so many different marketing channels to invest in. It makes it easy to rack up large marketing bills, even if you don’t intend to.
More Strategic Selections
The budget can also guide your efforts in the channels you do select. Bidding on pay-per-click keywords is usually affordable, but it can add up if you’re not careful. A budget lets you know when it’s time to drop out of the bidding race.
This guidance helps you invest in marketing initiatives that will actually pay off. Since you have to spend your dollars wisely, you’ll spend more time weighing your options.
Insight on How to Create a Marketing Budget
There are a few steps involved in creating a marketing budget. The first is to look at the health of your business.
The first thing to look at is your business budget as a whole. What did you bring in last year? What did you spend? What are the projections for this year?
Estimating a Budget
You may be able to come up with a rough marketing budget from this information alone. A common rule of thumb is to spend 10 percent of your total budget on marketing.
Others recommend basing the budget on revenue. This figure is usually a little lower, around 7 or 8 percent. That means if your business brings in $2 million, you should earmark $160,000 or so for marketing.
Some marketers recommend different percentages for businesses in different stages. If you already have some market share but want to grow, you could allot less than 10 percent to marketing.
If your business is relatively new and unknown, you might want to invest more than 10 percent.
Sales Numbers Affect Marketing
Next, you’ll want to look at your sales figures and projections. You’ll want to connect the number of sales you closed with how many leads you’re generating. What percentage of leads are converting to new deals?
Take a look at some of the other factors influencing sales. You could look at the cost of generating sales opportunities and how long it takes to close a deal. These numbers will give you a yardstick for creating marketing goals.
Create Some Marketing Budget Goals
The next step in creating your marketing budget plan is to determine goals for marketing. While you might think this is more strategy than budget, keep in mind that budget and strategy go hand in hand. If your budget is too small, you might have to revise goals.
To determine goals, take another look at some of your sales figures. Chances are you want to improve the number of deals you close. That could mean generating more leads.
This is an opportunity to refine your marketing budget number. Marketing has an indirect tie to sales, but you can use sales goals to determine how many leads you need. If you know the cost per lead, you can determine the budget you’ll need to achieve your goals.
Beyond More Leads
Marketing goals could also include generating more quality leads. Targeted marketing can produce better leads, resulting in higher conversion rates. You might also think about increasing the average value of a new deal or about lowering the cost of closing.
Goals Determine Initiatives
Once you’ve created goals for your budget, you can compare different initiatives. You might have some fun ideas for marketing at a local event, but that may not make sense if your target audience isn’t there. Investing in a video ad for Instagram may be a better way to reach your audience.
Some marketing initiatives drive different outcomes. Certain channels are good for raising awareness, while others drive conversions.
Breaking Down the Budget
Now it’s time to take that rough budget figure and create a marketing budget breakdown. You’ll assign each initiative part of the budget.
Try to get concrete figures for costs. You can estimate them by looking at sample marketing budgets or by using real costs from your previous campaigns. This will help you set a more realistic budget for each initiative.
You should earmark more for the channels and campaigns that best support your goals. If blogging generates more leads than PPC advertising, invest more in your blogging.
Once you’ve created the marketing budget, it’s time to measure and monitor. How easy is it to stick to the budget? Are you able to drive the results you want with the allotted amounts?
Metrics such as return on investment help you determine if a campaign was worth your money. The data can also help you determine where to scale back and where to direct any extra funds you may have.
Budgeting for Success
Once you know how to create a marketing budget, creating an effective marketing plan is easier. With the budget in hand, you can steer your business toward marketing success.
If you’re looking for more tips on what to add to your marketing plan, you’re in the right place. Check out our blog for more on the latest trends and the most effective tactics.