How Much Do You Need to Budget for Marketing?

Kimberly Burghart July 16, 2015

Planning Your Online Digital Marketing Budget

For marketers, formulating a plan for how much money to spend can be daunting task—it can be difficult to even know where to start. With so many unknowns facing businesses from year-to-year, attempting to forecast which areas of marketing will be most lucrative and deciding where the business needs to be in the near future is difficult. In 2015, marketers are expected to spend $540 billion dollars globally. With this kind of money flying around, how can marketers be sure they are getting the right value for money and putting their business in a position to achieve its goals. Let’s examine some of the considerations marketers need to make when devising a budget.

What’s the budget going to cover?

Firstly, it should be noted that a lot of businesses don’t even set a marketing budget. Whether it’s a lack of foresight or simply pressure from executives to keep costs as low as possible, working without a budget can have a significantly negative impact on a business’s overall outlook. So, when deciding to actually formulate a budget, it’s important to decide exactly what it’s going to cover. Are marketing and sales going to be working from the same budget? Are monetary resources for trade shows going to be included? These are just some of the questions that need to be asked in order to itemize and delineate precisely what this budget will be funding. Trade shows, in particular, can be extremely costly, pulling resources away from other marketing efforts if included in a marketing budget.

It’s key to establish boundaries within a company. Though all departments within a business are (hopefully) working toward the same goal of increasing revenue, it’s far easier to set limits and make adjustments if these departments are compartmentalized with respect to their resources. Doing this early on will go a long way to ensuring expectations throughout the business are aligned.

How much to allocate for the budget

So, where does a marketing department begin to come up with a number for their budget? There are a couple of ways to approach this. One option is to base the total amount on a percentage of the company’s gross revenue. It’s also important to consider the age of the business and its goals moving forward. For instance, for a startup company, it’s advisable not to spend more than 3% of the gross revenue on marketing. When a business is first getting started, emphasis should instead be on ramping-up the business and ensuring it’s new product or service is ready to go once it’s launched. It’s also advisable to take advantage of some of the more cost-effective options in order to keep total marketing spending low. Social media outlets provide a particularly effective, low-cost way of reaching your buyer personas. Similarly, utilizing the skills of interns to complete the day-to-day marketing work can be a great option too.

For slightly older, but still relatively young businesses between one and five years old, the marketing department should be looking to spend around 15-20% of gross revenue. This is the time to really look to expand the business. After those first couple of years, it’s usually clear that the product or service on offer is at least viable. By accelerating the marketing spending at this point, business can truly take advantage of their particular niche and contribute to significant growth for an organization.

Well-established businesses should be looking to allocate 8-15% of their gross revenue on marketing efforts. However, even an older company with strong brand recognition may want to invest more in marketing. If, for instance, they are looking to break into a new market, this would necessitate a larger marketing budget. Ultimately, for a company of any age or stature the question becomes: how fast do they want to grow?

A second option for deciding how much to allocate is to calculate the marketing budget based on how much it costs a business to get a new customer. If a company knows a customer will pay a certain amount for it’s product or services, then how much do they want to spend in securing that customer? And how many new customers do they want to add? It may sound easy, but doing simple math like this can ensure a marketing department works within the financial parameters of the organization as a whole.

Building a budget the strengths of the marketing team

If a marketing team is particularly great at one aspect of digital marketing, the budget should be set to reflect that. By considering the tactics and campaigns that the company will be using in the year ahead, a budget can provide an excellent point around which to plan. If a marketing department is particularly strong at one aspect of digital marketing, then resources should be increased for that area: should email marketing be going particularly well, then do more email marketing. Conversely, there’s no reason to waste money on areas such as adwords or social media if those avenues aren’t getting results. Online marketing departments need to continually assess what works and what doesn’t work in their marketing efforts.

Being aware of hidden costs

With the formulation of any marketing budget, it’s vital to consider hidden costs. These can take a variety of forms and, inevitably, unexpected expenses can crop up at any time throughout the course of a year. In any case, marketing teams should due to their due diligence to try and uncover those pitfalls and unexpected items that could potentially take a large chunk out of their budget. An example of this is not having the right staff to fit the specific goals of a marketing team. If the current employees lack the specific skills and knowledge needed to fulfill the goals of the marketing department, it may necessitate the hiring of more staff to fill those holes. Transitioning and molding a staff to fit the marketing needs of a business can potentially be a significant investment in both money and time and should be taken into account if needed.

Ultimately, figuring out how much to spend on a marketing budget requires a knowledge and understanding of what the business as a whole is trying to do. What are the business’s goals moving forward? Is it looking to expand? By understanding these goals and strategizing about exactly what needs to be covered, marketing teams can formulate a marketing budget that will put them in an excellent position to contribute to their business’ growth.

Have you ever devised a marketing budget for your business? What was your experience like? Let us know in the comments below.

If you would like to learn more about devising a marketing budget or have any other questions about marketing as part of a digital marketing strategy, don’t hesitate to contact us today to speak with a digital marketing expert.

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