Marketing budgets vary drastically by industry and there’s no one single formula to perfect budgeting. Even within the same industry, each business has its own nuisances—like company structure, goals, and customer journey (also known as the sales and marketing funnel). This doesn’t even include the one-off events and ideas that come up halfway through the year or the fourth quarter blitz many businesses perform surrounding the holidays.
Allocating your budget in the wrong places will lead to spending too much in certain areas and potentially running out of funds. Setting your budget too low will lead to poor results and a likely poor return on investment (ROI). The bottom line is, there’s no perfect system or cookie cutter template for a marketing budget that can apply to everyone.
In order to set the right budget and use it effectively, you need to:
- Carefully plan with forecasting
- Give yourself some wiggle room to adjust your budget over time
- Report on ROI consistently
Keep reading to dig a little deeper into the three steps above.
(Curious how much you should be budgeting? Check out our marketing budget calculator.)
What is a Marketing Budget?
A marketing budget is an estimate of costs related to marketing your products or services. A typical marketing budget takes into account all overhead marketing costs (ex: software, salaries for marketing employees, cost of office space). However, much of the budget is concerned with actual marketing communications and campaign efforts like public relations, website development and hosting, advertising, etc.
How to Create and Calculate a Marketing Budget
A marketing budget plan will help you put your marketing funds in the right place. When you know how much you can spend, you know how much you can put into each marketing strategy and channel. It allows you to determine which approaches work with your budget or if an outsourced digital marketing company’s packages fit within your budget. But before you create your marketing budget, there are a few foundational steps to take:
1. Determine Your Business Goals
When you set your business’s goals, make sure they’re SMART goals (specific, measurable, achievable, relevant, and time-bound). You don’t want to set a goal like “increase sales.” It won’t give you a precise target to work towards and achieve. Instead, set a goal like “Increase sales by 20% by the end of the year.” This goal is easily measurable and gives your team something precise to achieve.
SMART goals will give you a concrete reference point when budgeting for marketing because all activities can be measured by milestones that work toward a specific revenue goal.
2. Understand Your Industry & Target Market
Perform a competitor analysis to see how your top competition performs online. While you’re at it, perform some market research and aggregate all the places your ideal customer hangs out online and plan how much it might cost to get your message and offer in front of them. You can even use some top-notch tools to get this information quickly and easily.
3. Know Your Outside Costs
If you want to know how to prepare a marketing budget, start by establishing your external costs. You need to know the price tag attached to everything your company needs to succeed so you know how much you can allocate for marketing. Not only does it determine what services you can invest in, but it also helps you set a baseline for your ROI. Examples include:
- Costs for staff
- Operational costs
- Business utilities
4. Consider the Strategies You Want to Use
Develop an idea of which strategies you want to use for your business when creating a marketing budget. When you know which strategies you want to invest in, you can determine how they will fit into your marketing budget plan. For example, do you want a robust content marketing plan that includes blogs and ebooks? What about email automation? Social media? Influencers? Be mindful not to try and do too many things at once, and always have a way to measure the strategy against the goals you set above.
5. Plan Ahead and Be Willing to Adjust
Budgets are not unchangeable plans—they’re allotments you can tweak when you need to. Business changes throughout the year based on trends, seasonality, the economy, and other unpredictable factors. Budgets, like strategies, must be adjusted at any time.
How Much Of Your Budget Should Go to Marketing?
The U.S. Small Business Administration recommends small businesses (businesses with revenue less than 5 million) allocate between 7% and 8% of total revenue to marketing — assuming your business has margins in the range of 10-12 percent. The number goes up from there for smaller businesses.
The amount of revenue businesses typically allocate to marketing has increased steadily over the past 10 years, with average marketing percentage of revenue landing around 13% in 2021, compared to just 8% back in 2011.
Take the Next Steps
Try out our marketing budget calculator and see how much you should be preparing for your marketing budget!
Want to talk to someone on our team about how to put that marketing budget to use? Just fill out the form below and we’ll reach out to connect.
About Paul Ferguson
Marketing Director Paul Ferguson helps clients develop fully integrated marketing solutions that make impressions and drive results. Whether it be design-oriented campaigns or digital market execution, Paul skillfully creates strategies to effectively reach client’s desired audiences.
&Marketing provides the robust outsourced marketing department growing companies need without the high overhead costs of big agencies or full-time employees. Our variable model empowers businesses to reach their growth goals through access to the guidance and expertise of senior level strategists and a flexible execution team.
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