You may wonder if you should adopt a marketing budget as a business owner. After all, marketing can be expensive, and you may feel you can save money by avoiding it altogether.
However, marketing is essential to making your business more competitive. Investing in marketing can reach new customers, increase brand awareness, and boost sales.
Why do I need a marketing budget?
A marketing budget guides your marketing activity.
In Lewis Carol's Alice in Wonderland, there is a passage where Alice is walking along a path, and she comes to an intersection with another path. She looks up and sees the Cheshire Cat sitting beside the path. Alice says to the cat, "Would you tell me, please, which way I ought to go from here?"
The Cheshire Cat replied, "That depends a good deal on where you want to get to." Alice replies, "I don't much care where." The Cheshire Cat says, "Then it doesn't much matter which way you go."
Much like Alice, if you don't know where you want to go with your business, there isn't much point in creating a budget or a plan.
On the other hand, if you have thought through your desire for your business's future, then budgets, plans, and goals are essential to ensure you achieve them.
The optimal marketing strategy will have marketing spending that can comprise between 10% and 25% of a company's revenue. Given the magnitude of this expense category, you must have a well-considered plan to guide your budget.
The budget allocates your valuable capital deliberately.
The lifeblood of any company is its cash flow. Failure to carefully allocate this scarce resource can result in a sub-optimal return on capital and the destruction of the business's value.
In advertising campaigns, it is crucial to justify every dollar spent to ensure optimal return on investment.
For a business to provide value to its shareholders, it must generate a return above the average cost of capital for the enterprise. For small companies, the cost of capital can be quite high because much of the capital comes from equity and early-stage debt – both of which have a very high cost due to the associated risk premiums for these sources of capital.
It creates a foundation to measure growth and success.
Your small business marketing budget sets the foundation for calculating the return on investment for marketing and advertising expenses. If your budget is loose or poorly planned, it will be difficult to calculate ROI accurately and consistently.
Businesses often take a very disciplined approach to managing manufacturing input costs, distribution costs, wages, and other operating expenses. The marketing budget should receive the same level of discipline and planning as these other expense categories.
Marketing, and especially digital marketing, can be measured very accurately. A small business can easily gain insight into the advertising budget's performance, attribution, and effectiveness using readily available marketing technology. Understanding the customer journey is crucial for accurate marketing attribution and ROI calculations.
How do I create a marketing budget?
Establish your marketing goals.
It’s important to determine your marketing goals first. Then, you can create a strategy that includes budget allocations to achieve those goals.
Radio ads can be an effective tool in achieving marketing goals and increasing sales.
This will allow you to determine your budget to reach your goals.
The first step in properly allocating your marketing budget is establishing revenue goals and planning how to achieve them. Regardless of your industry, your goal as a marketing team should be to achieve or exceed a revenue goal.
Your goals for your target market should drive every decision you make, even with a limited marketing budget.
For example, if you are planning a marketing budget for a brick-and-mortar store, your goal should be to achieve a certain number of sales each year. Still, you likely have salespeople working in a luxury brick-and-mortar shoe store that will allow you to spend less on marketing and advertising.
However, an e-commerce store selling shoes will spend its marketing budget differently than a brick-and-mortar shop. While it still has to sell shoes to meet its revenue goal, it might choose to spend more on digital marketing because it doesn’t have a sales team to drive new sales.
Understand your target audience.
A buyer persona can be described as a fictional representation of your target audience. Although you can have multiple target customers or buyer personas, try limiting them to five or fewer. Not everyone can be your target market. Be specific when creating your buyer personas. Let data guide you.
These are just a few ways to gather data to help you build your buyer personas.
- Take a survey of your customers.
- Interview people who you believe might be part of your target audience.
- Google Analytics can be used to identify audience demographics.
- Facebook Insights allows you to track your users' interaction with your brand.
Include this information in every buyer persona:
- Geography - where will you find them?
- Demographics - gender, age, ethnicity, education, marital status, etc.
- Psychographics - hopes, fears, motivations, expectations, etc.
- Job - the company's size, level of seniority, title, etc.
- Financial data - income, net worth, wealth score, the value of the home, etc.
- Habits - where they shop, what they read, who they trust, etc.
Evaluate the market and the competition.
When creating your budget and marketing strategy, it’s important to research your competition and the market. This will help you determine how much to spend on marketing and what strategies to use.
The advertising industry is crucial in shaping marketing strategies and creating effective commercial messages across various media.
If possible, you should conduct primary and secondary market research to create your marketing plan. Use qualitative research, such as focus groups, and quantitative research, where a statistically significant number of surveys are captured and analyzed.
Competitive intelligence gathering and analysis will give you a broader understanding of what others are doing, what is working, and what is not working.
Competition research can be conducted online, through trade publications, or by attending industry events. You want to understand what your competition is doing to stay ahead of them.
How you plan your marketing spend will be influenced by current economic trends, such as consumer confidence, purchasing power, the rate of inflation, and similar measures. Other trends, such as fashion trends, new technology developments, social patterns, and trends in entertainment, are also important.
Identify, select, and test marketing channels.
Marketers have more options than ever to reach consumers, and it’s easy for them to become overwhelmed by the numerous options available.
It is important to ensure that your marketing spend and time is spent on the most effective channels and strategies. It’s easy for fear to stop you from getting started if you don’t know what works best.
When planning and testing marketing strategies, do not undervalue other channels. These channels can offer data richness and measurement complexity that can complement traditional radio advertising.
Good news: choosing marketing channels for your marketing plan does not have to be difficult.
There is a lot of talk about chatbots and AI these days. These tactics may not be desirable or possible unless you are a highly skilled marketer or have a lot of resources.
It’s okay not to need the most innovative thing to succeed. Don’t fall into the trap of chasing every shiny object you come across—sticking to tried-and-true strategies and tactics is always a good plan.
What is a marketing channel?
Marketing channels can be any platform or method used to market a product to consumers.
The main goal of a marketing channel is to transfer ownership of the product or service from production to consumption. This could be done through:
- Social media channels: Instagram and Facebook, LinkedIn, Twitter, etc.
- Print marketing: Magazine ads, newspaper ads, brochures, etc.
- Email marketing: Email signatures, marketing emails, newsletters, etc.
- Websites - Your website and any associated landing pages.
- Influencers - People with large and engaged social media audiences.
- Referral channels - Directory websites, websites that refer to your page, etc.
- Sales funnel - A process, tools, systems, and automation to convert leads.
- Search Engine Optimization (SEO): Both on-page and off-page SEO strategies.
- Word of mouth - Spreading the word about your company and what you offer.
- Search marketing (PPC), Google Ads, Bing Ads, social media ads, etc.
Radio spots also effectively reach a broad audience and ensure a positive Return on Advertising Spend (ROAS).
Measure, adjust, and repeat.
Marketing is a constantly evolving field; measuring, testing, and adjusting marketing strategies is essential to building and maintaining a successful marketing campaign.
Radio stations can provide valuable data-driven insights to optimize advertising campaigns, helping to track, visualize, and improve advertiser ROI.
One key factor to consider when measuring marketing spend is your marketing budget - how much are you spending on marketing activities, and what results do you see in terms of return on investment? The money spent is the first important metric.
Another important aspect to consider when evaluating marketing strategies is using A/B testing - running controlled experiments comparing two versions of the same marketing material or campaign to determine which performs better.
This can help you identify which channels deliver the best results for your business and optimize your messaging to better connect with your target audience.
Overall, effective marketing requires constant evaluation and adjustment to be successful. By regularly measuring your marketing budget and ROI and using A/B testing, you can ensure that your marketing strategies are on track and delivering the best possible results for your business.
How much should I budget for marketing?
What is the average marketing budget as a percentage of revenue?
According to the U.S. Small Business Administration, a common recommendation for profitable businesses with less than $5,000,000 in annual sales is to spend about 8% of revenue on marketing. This assumes the business has net profit margins of 10-12%.
While this is a good rule of thumb, the exact amount that small businesses spend on marketing and advertising can vary widely depending on the industry, company age, cash available, and many other factors. A small business marketing budget depends on many factors, so these rules of thumb are exactly that.
Despite the uncertainty surrounding the economy and general optimism being dampened by inflation and COVID variants, recent reports from marketers indicate that marketing budgets have been on the rise.
The average percentage of total budgets allocated to a marketing plan has increased to 11.8%, a return to pre-pandemic levels.
In addition, the annual marketing budget broke the 10% mark for the first time in the last decade. This number is expected to rise even further in the next year.
The next year will see an increase in marketing spending across all categories, including brand building (+11.8%), customer relations management (+9.5%) and new product introductions (+8.8%), as well as customer experience spending (+8.6%), service introductions (+5.3%) and traditional advertising spending (+2.9%).
Do industry segments allocate marketing budgets differently?
A recent survey revealed that B2B companies (product-focused) allocate 9.4% of company revenue to their overall marketing money to marketing efforts, while B2B companies (services-focused) assign 11.4%.
For consumer-facing industries with products, 15.9% of the overall budget is given to marketing departments. For service-focused B2C companies, this number is closer to 12%.
When determining the percentage of your marketing budget, it is important to consider whether you are a B2B or a direct-to-consumer business. The industry is also a significant factor.
Marketing spending by industry is also widely different.
Budgets, for example, are the highest in Education at 19.4% of the total budget. They're also the lowest in Energy at 4%.
You might expect a marketing budget of around 7% if you work in healthcare.
Consulting services usually account for 13% of revenue. Finally, software platforms and technology often account for 12% of revenue for marketing budgets.
What should I spend my marketing budget on?
What are the accounting categories to consider in my marketing budget?
Your budget should include all investments in marketing resources, campaign expenses, social media, online advertising, and tools, as well as creative project fees.
Your digital marketing expenses for paid media, like traditional marketing and other offline marketing allocations, will share a portion of the budget. Depending on the type of business and your marketing strategies, one might be more than the other.
Large corporations might rely heavily on both digital and traditional marketing strategies, but purely online businesses tend to allocate more marketing money to digital campaigns.
These are the top items you should include in your marketing budget:
Lead generation
The size and scope of the business determine how much money is allocated for lead generation. Smaller or less established businesses may have marketing priorities that require them to spend a lot of their marketing budget on lead generation to grow the customer base and retain existing customers. Larger, more established companies may spend more on nurturing existing leads or have a marketing budget based on the need to purchase better-quality leads through affiliates.
Digital marketing campaigns
In small business marketing teams, social media, email marketing campaigns, and SEO efforts are important parts of the digital marketing program. Digital marketing covers many resources and practices dedicated to improving a company's online presence. Companies must invest in digital marketing to reach customers online.
Digital marketing can also include content marketing, referred to as inbound marketing. This channel may require large sums of money. Online SEO often pairs with content that matches search trends and keywords. Digital marketing funds can be used to pay freelancers or intern content creators to create blogs, edit videos, and record audio tracks.
Creative design
Visual design is essential for marketing campaigns both online and offline. When constructing and managing your small business marketing budget, it is important to include funds for freelance and in-house design. Creative design budgets can be more volatile than in other areas due to changing demands for new designs in inbound marketing, advertising campaigns, revised product packages, or company logo updates.
Advertising
Advertising expenses include digital ads, print ads, and radio advertising. Businesses often divide their advertising budgets among traditional media like radio and print, which may require payment structures different from digital ad campaigns such as PPC marketing. Advertisement budget expenses are often used to target particular audiences.
A Facebook ad isn't the only way to drive social media results. Social media posts can be boosted to increase their visibility, often at rates well below equivalent advertising costs.
Software tools/data insight
Data analysis drives marketing decisions and efforts. Marketing automation software tools are essential to gaining insight into customer marketing information, which is why a key part of marketing budgets also includes software tools.
Detailed reports are essential for marketing professionals to make informed decisions and plans. These reports can be used for lead databases, customer relationship management, campaign statistics, and other marketing insights. This portion of the marketing budget includes fees for accessing or purchasing software systems.
Website
A company website is not only a complement to marketing programs but also serves as a platform for businesses. Small business owners know that website operations and optimization account for a large portion of the budget allotment. Website traffic and e-commerce are so important in a company's marketing efforts that they are often budgeted separately through their marketing department. An important metric is how many site visits are necessary to generate a lead and, eventually, a sale.
Events and public relations
Live events are also part of marketing budgets. These events connect brands with an audience. Part of a marketing budget can include sponsorships and trade shows. Companies may incur expenses to receive recognition from professional associations or the media. Small businesses can often get an outsized return on events for local marketing objectives.
Marketing personnel
Marketing budgets can include salaries for members of the marketing team, depending on the company. This could include costs for onboarding new members or career development through continuing education training. Marketing budgets that include employee payroll might also include travel, reimbursement, and bonus expenses.
Make decisions based on data.
These are some recent trends in marketing budgets across various industries:
- The digital marketing budget has been increasing steadily for many years, and there is no sign of it slowing. Researchers predict marketers will spend up to 42 percent more on each digital channel in the next few years.
- Google predicts that search marketing will account for most online marketing budgets. Over seventy percent of small businesses stated that they expected to increase their Google Ads spending. As more companies use interactive banner ads and online videos, display advertising will be the second most popular online marketing channel.
- Video marketing will no longer be viewed as an afterthought in content. In the coming years, it will be significantly more important. Forrester Research discovered that video included in emails results in a 200 percent to 300% increase in click-throughs.
- While search marketing and videos dominate marketing spending, social media marketing channel spending has decreased (except for Facebook). A mere half of the respondents to a recent survey intend to increase their spending on social media advertising on platforms like Instagram, Twitter, or Snapchat.
- Content marketing remains a crucial part of any successful marketing strategy, and it still consumes significant marketing budgets. On average, B2B marketers invest 28 percent of their digital advertising budgets in content marketing.
Tracking the performance of radio ads is also crucial for making data-driven decisions. By measuring the Return on Ad Spend (ROAS) and using specific attribution tools like unique URLs from radio spots, marketers can calculate the effectiveness of radio ads in generating revenue.
How do I calculate the return on investment (ROI) of my marketing spend?
When planning your marketing budget, you should evaluate the effectiveness of your marketing strategy over the past year. To do this, you must answer three questions to understand how to create an effective budget.
- What marketing campaigns were the top generator of leads?
- How many leads and how many site visits were generated from these campaigns?
- What marketing channels supported the sales funnel best?
- What digital channels did not help you reach your revenue goals?
- Are there any marketing technologies that can be cut?
These are the questions you should ask yourself as you examine your budget. It’s useful to look at the budget for the previous year from a high-level perspective, but it is also important to consider how many leads and sales each campaign generates relative to its cost. Justifying every dollar spent on radio advertising is crucial to ensure a positive return on investment.
ROI calculation formulas
There are many ways to calculate marketing ROI. However, the basic formula used to determine marketing impact at a high level is fairly simple.
(Sales Growth - Marketing Cost) / Marketing Cost = Marketing ROI
This formula assumes that all sales growth can be tied to marketing efforts. Marketers should consider organic sales to better understand the marketing impact and ROI.
(Sales Growth - Organic Sales Growth - Marketing Cost) / Marketing Cost = Marketing ROI
What is a good marketing ROI?
A 5 to 1 ratio is the most common rule for a small business marketing ROI. It is considered exceptional to have an ROI of around a 10-to-1 ratio. A ratio below two is not considered profitable, as it has been shown that organizations can break even on their costs of producing and distributing goods/services.
However, overhead costs and overhead of less than 50% of the sales price can result in higher profits. Every organization is unique, so you must consider overhead costs, margins, and industry factors specific to your sector when you decide how to allocate marketing dollars.
Marketing budget templates are very useful tools for calculating ROI and managing expenses.
ROIs help make better decisions.
Suppose you have advertisements running on a podcast or a radio show. The podcast generated 1,200 leads, while the radio program generated 2,000 leads.
It seems like spending more money on radio advertising would make sense. You will see that the podcast placements cost $8,000 and the radio placements $15,000, respectively. Each lead from the podcast costs $6.60, and each radio ad leads you to $7.50.
If you know the cost efficiency of each channel, you'll probably choose to spend more on podcast advertising. This is exactly the kind of thoughtful approach you need as you balance your next round.
Frequently Asked Questions (FAQ): Determining the Right Marketing Budget for Your Business
Why is having a marketing budget important for my business?
A marketing budget ensures that your business allocates sufficient resources to reach its target audience, increase brand awareness, and drive sales. It helps you plan and execute marketing strategies effectively without overspending.
How do I determine the right marketing budget for my business?
Consider your business goals, industry standards, and overall revenue to determine the right marketing budget. A common approach is to allocate a percentage of your revenue, typically between 5% and 10%, depending on your business size and growth stage.
What factors should influence my marketing budget?
Factors include your business goals, target audience, competition, market conditions, and the effectiveness of previous marketing campaigns. Assessing these elements helps ensure your budget aligns with your strategic objectives.
How does the size of my business affect my marketing budget?
Smaller businesses or startups may allocate a higher percentage of their revenue to marketing to build brand awareness and attract customers. Established businesses might spend a lower percentage but invest in maintaining and growing their market share.
What are the key components of a marketing budget?
Key components include digital marketing (SEO, PPC, social media), traditional marketing (print, TV, radio), content creation, marketing software and tools, events and sponsorships, and personnel costs. Allocating funds across these areas ensures a well-rounded marketing strategy.
How can I measure the ROI of my marketing budget?
Measure ROI by tracking key performance indicators (KPIs) such as conversion rates, customer acquisition costs, and sales growth. Analyzing these metrics helps determine the effectiveness of your marketing efforts and adjust your budget accordingly.
Should my marketing budget be flexible?
Yes, your marketing budget should be flexible to accommodate changes in market conditions, emerging trends, and the performance of ongoing campaigns. Regularly reviewing and adjusting your budget ensures it aligns with your business objectives.
How can I optimize my marketing budget?
Optimize your budget by focusing on high-impact, cost-effective strategies, leveraging data analytics to guide decision-making, and continuously testing and refining your campaigns. Prioritizing activities with the highest ROI maximizes your marketing spend.
What percentage of revenue should be allocated to marketing in different industries?
The percentage varies by industry. For example, B2B companies might spend 2-5% of revenue on marketing, while B2C companies may allocate 5-10%. Research industry benchmarks to determine the most appropriate percentage for your business.
Can outsourcing marketing services help me manage my budget more effectively?
Yes, outsourcing to specialized agencies can provide access to expert skills and resources, often cheaper than hiring in-house teams. This approach can help you manage your budget more effectively and achieve better results.
Ready to Take Action?
If you’re looking for advice and assistance in developing a robust marketing budget, we’re here to help. Choose from one of our expert services with no cost or obligation:
- Schedule a Consultation: Book a meeting with us here.
- Contact Us: Reach out through our contact form.
- Send Us an Email: Email me directly at mark.hope@asymmetric.pro.
Don’t leave your business strategy to chance. Create a dynamic marketing budget to support a robust and resilient business plan. 🚀
Mark Hope
Partner, Asymmetric Marketing
📧 mark.hope@asymmetric.pro
📞 (608) 410-4450
About the author
Mark A. Hope is the co-founder and Partner at Asymmetric Marketing, an innovative agency dedicated to creating high-performance sales and marketing systems, campaigns, processes, and strategies tailored for small businesses. With extensive experience spanning various industries, Asymmetric Marketing excels in delivering customized solutions that drive growth and success. If you’re looking to implement the strategies discussed in this article or need expert guidance on enhancing your marketing efforts, Mark is here to help. Contact him at 608-410-4450 or via email at mark.hope@asymmetric.pro.