Marketing is essential to the success of any business, especially those that do business online. But with so much business done through eCommerce these days, there are a lot of questions, like: How much should you spend? Should you spend as you go or set a budget? What should that budget look like? Do you set a budget according to your industry, vertical, or company size, or is there a one-size-fits-all solution? Should it change based on your strategy?
Each of those is an essential question for your marketing team to answer. But at the foundation of each of these questions is your marketing budget, and that’s where we’re going to begin this discussion.
Defining the Marketing Budget
Your marketing budget is the amount you can invest in acquiring new customers and is one of the three key parts of your marketing strategy. For any good marketing strategy, you need to know:
- What you’ll do
- When you’ll do it (as well as for how long)
- How much you’re willing to spend on it
Budgeting for marketing can be quite complex because the cost of marketing is highly variable, depending on the types of content you create and where you publish them. In addition to the content, you’ll often need to invest in infrastructure for sharing, whether that’s things like commercials, live events, online ads, mailings, websites, and copy development. Your marketing budget lays out those costs to make sure you’re getting enough return on your ad spend (ROAS).
However, most companies underspend on their marketing as they try to keep customer acquisition costs as low as possible. On the flip side, overspending on marketing can cause a number of cascading failures in the marketing and even the operation of your business.
What Affects Your Marketing Budget?
The average SMB (small or mid-sized business) spends 1.08 percent of its revenues on marketing. That isn’t very much although it does vary by industry. For example, retailers spend about 4% of revenues on marketing, while restaurants less than 2%. So what sorts of variables affect your marketing budget?
One variable is who you market to. It takes more effort to reach the public than it would reach a community of professionals in a specific industry. For this reason, B2C businesses spend more on marketing than B2B companies at 11.8 percent and 9.6 percent, respectively.
The lifespan of your business also matters a lot—the newer you are, the more important it is that you get the word out. Young businesses have less history and brand awareness than some of the competition, often leading to the pressure to ramp up your marketing spend to catch up.
How to Calculate Your Marketing Budget
There are three ways to calculate your marketing budget: revenue-based, competition-matching, and top-down budgeting.
Revenue-Based Budgeting
Revenue-based budgeting means you’re putting a set percentage of your revenue towards marketing. This essentially eliminates the possibility of under or overspending. Although you have to be careful with this method as poor earnings lead to marketing budget cuts and, in turn, will likely bottleneck your lead generation.
In general, businesses less than 5 years old should allocate around 10 to 12 percent of their annual revenue to marketing.
Competition-Match Budgeting
It’s exactly as simple as it sounds: Figure out what your peers and competition spend on marketing and then match them as best you can.
Top-Down Budgeting
In top-down budgeting, management introduces a figure and asks the marketing team to stay within it. This budget typically remains the same each year, potentially making it easier to plan for both sides of the management-marketing partnership.
Top-down budgeting is a very goal-driven method wherein you assign monetary values to your goals and then budget around those.
How Enterprising Marketers Can Build a Budget
As with all things business, you need a solid plan and the willingness to be flexible when you budget for marketing.
Getting Started
A marketing budget goes hand-in-hand with your overall marketing plan, so let’s start with some of the basics of forming a marketing budget.
Identify Your Goals
Every plan needs an endpoint, but this is doubly important in businesses. Short-term goals could mean an increase in website conversion rates or a certain quota of new followers on social media each month. Long-term goals could mean getting on the first page of Google search results or creating a new sales funnel that increases conversions by 20% over three years.
Remember that you have to have the flexibility to change your goals down the road. More on that later.
Understand Your Target Audience
You must know who you’re selling to if you want to market to them. To do that, you need a fictional buyer persona that represents the people in your target audience and helps you get into their heads. You can have more than one, but try to have no more than five.
Buyer personas can be built with:
- Customer surveys to get a sense of what they are
- Interviews with real people you expect to be in your target audience
- Insights from tools like Google Analytics and Facebook Insights
The buyer persona should tell you key details about your audience so that you can make your content even more relevant to them. This means knowing demographic details such as:
- Location
- Age
- Marital status
- Job title
- Income
- Education
- Motivations and goals
- Sources of information
- Conveniences and vices
- Fears and concerns
Research Your Market and Competition
Once you have a buyer persona, research their behaviors and preferences and adjust your marketing tactics to meet them. Part of this is scoping out the competition. What has worked well for them? What hasn’t?
The idea is to find out who is succeeding, how they’re doing it, and whether you can replicate it.
Choose Marketing Channels
Digital marketing encompasses social media, online content, email marketing, pay-per-click ads, social media ads, and search engine optimization (SEO). You can also do inbound marketing, which is a more metrics-driven form of content marketing with blogs, videos, ebooks, and other online blog content. Alternatively, you can stick with the tried and true outbound marketing like TV ads, mail, promo products, and trade shows.
Then you need brand awareness, which ties this all together. Consider the experience you bring customers as a whole and how they think about you.
With all of this wonderful context, you’ll be better able to whittle down your marketing budget to a level that maximizes acquisition and returns on your investment.
Iterate & Update
Every business owner or marketing professional wants to spend the minimum amount on marketing that still allows them to meet sales growth projections. To do this, you need to figure out what works and what doesn’t. In other words, what has been driving the most conversions?
For example, you can use A/B testing to find out which version of your marketing material gets a better response. You can also use data analytics applications to monitor customer responses to emails, online ads, and on your website.
Budget Tracking
Tracking your marketing spend is crucial, but it’s really just a piece of a larger puzzle. Besides tracking your spending, there’s campaign tracking and lead tracking to do as well.
Campaign tracking is when you track how much you spend per campaign versus how long it takes the campaign to reach its goal. This is why a specific goal is so important; you know when you can move on to the next stage and celebrate an under-budget win…or know when it’s time to cut your losses.
Lead tracking, as you could probably guess, is for monitoring your leads. In other words, you’re track if, when, and how a lead converts, how long it took, and what ultimately convinced them to pull the trigger. By comparing this to recent changes in your marketing efforts and budgets, you’ll be better able to gauge your ROAS.
Because of its complexity, budget tracking is quite difficult to do by hand. This much data is impossible to sort by hand, especially for large businesses; however, it can also be cost-prohibitive for small ones. Fortunately, there are automated tools to measure the effectiveness of your marketing campaigns.
Do I Need to Make a Marketing Budget?
Due to pandemic-era inflation, everything has gotten so expensive, so it’s tempting to try to save a few pennies by either not making a marketing budget or not doing your homework to set the right budget. But remember: “Marketing isn’t an expense—it’s an investment.” It brings in new customers so your business can grow while keeping existing customers coming back for more.
If your marketing is underfunded, you won’t have the staff, equipment, and other resources to implement effective campaigns, much less to determine whether your efforts are even working.
With a marketing budget, you can make more informed decisions about your marketing. At all points in your marketing, you’ll know what you need, what you can afford, what your returns should be, and what you could scale down.
Virtus Media Group Knows How to Reach Customers
Having a budget for marketing is essential, but you need marketing goals before you can budget. At Virtus Media Group, we can help you build a business growth strategy unique to your company. We can find your strengths, build audience profiles, and guide you into wider markets. Call us today for more information.