You know you need to get your brand’s message out there.
You even have some ideas for how to do it.
But how do you know which ideas are the best ideas?
And how much should you even spend?
It sounds like you need a marketing budget.
What’s in This Guide?
This guide covers everything you need to put together an effective marketing budget to ensure your company’s sustained growth:
- Why is it important to spend on marketing?
- What is a marketing budget?
- Why is a marketing budget important?
- Aligning your marketing budget with your business goals
- Brand vs product-specific marketing costs
- How to calculate your marketing budget
- How to create your marketing budget
- Final considerations for your marketing budget
Let’s dive in.
Why is it Important to Spend on Marketing?
Marketing is essential to build brand awareness and increase company revenue. Without investing in marketing, you’re relying on grassroots word of mouth to grow your brand, which, while possible, can take a very long time.
Plus, chances are your competitors are investing in their marketing efforts. If you aren’t at least keeping up with them, you’re losing both market share and time, as it’ll be harder to reclaim that market share later on.
What is a Marketing Budget?
A marketing budget is the total money allocated to growth and promotion-related efforts over a defined period, such as one month, one quarter, or one year. These efforts can include the following:
- Website design and development
- PPC ad campaigns
- Social media campaigns
- Email marketing campaigns
- Content creation for content marketing campaigns
- Backlink building
- Print, TV, radio, direct mail and other traditional campaign channels
- Employees and contractors working on marketing-related efforts
- Tools and software used for marketing-related efforts
The size and complexity of your marketing budget will vary by the size and complexity of your business.
Small businesses may have simpler marketing budgets with just a handful of employees or contractors creating a few blog posts for a content marketing campaign and promoting those posts with basic PPC and social media ads.
Large businesses may have much more complex marketing budgets spanning multiple departments or divisions, each with different department-specific business goals that tie back to your broader business’ growth targets.
Why is a Marketing Budget Important?
Having a marketing budget is hugely important for several reasons.
1. You know exactly how much you can spend
If you don’t have a budget, how do you or your employees know how much to spend?
Let’s say you sell a subscription-based product where the average lifetime value of one customer is $2,000. You tell your marketing team to generate more customers, but you don’t tell them how much to spend. Come month-end, your team tells you they signed up 100 new customers worth $200,000 to your business, and it only cost $100,000.
That’s awesome, except each customer only generates $500 in revenue in their first month, so you just spent $100,000 to generate $50,000 in Month 1 revenue, and now you can’t make payroll next week.
2. You can properly size your marketing spend
As a corollary to the above, having a marketing budget lets you properly size that budget to optimise for your business’ goals. That way, you can find the sweet spot where you’re growing at the right pace while remaining solvent.
If your budget is too small, you may fall short of growth targets and/or lose market share to competitors.
If your budget is too big, you may have to cut back elsewhere to avoid going under.
3. You’re forced to prioritise your marketing efforts
Between PPC ad campaigns, social media ads, paid sponsorships and promotions, traditional print ads and other strategies, there are a lot of different ways you can spend to grow your brand.
But if you know you only have $5,000 per month to invest in a single channel, you’re forced to prioritise one channel above all others. A tool like TrueNorth can help you make that decision.
Aligning your Marketing Budget with your Business Goals
Your marketing team is hard at work spending their budgeted allocation to build your company’s brand and generate new customers.
But what if that isn’t what they’re doing?
Or, more specifically, what if that isn’t what they’re doing directly?
Think about your company’s sales funnel for a second. Yours probably looks something like this:
Now think about what your marketing team is doing and where in the funnel they’re operating.
They should be trying to generate as many customers as possible, but are they instead thinking in terms of qualified leads, traffic, or impressions?
Let’s look at two basic scenarios to illustrate this point. In both scenarios, your company is promoting your awesome email marketing course, which you sell for $1,200.
In Scenario A, your marketing team is running a PPC ad campaign to maximise traffic by targeting keywords like “why use email marketing” at $10 cost per click. They have $15,000 to spend and generate 1,500 visits to their target page, which leads to 15 new customers (1% conversion rate) with $1,200 revenue per customer.
In total, they spent $15,000 and generated $18,000 in revenue for a 20% ROI.
In Scenario B, your marketing team is running a PPC ad campaign to maximise customer conversions by targeting buyer-focused keywords like “best email marketing course” at $20 cost per click. They have $15,000 to spend and generate just 750 visits to their target page, but those 750 visits turn into 25 new customers (3.3% conversion rate) with the same $1,200 revenue per customer.
In total, they spent $15,000 and generated $30,000 in revenue for a 100% ROI.
The marketing team in Scenario A was able to generate twice as much traffic, but the marketing team in Scenario B was able to generate much more revenue for the same ad spend because they were targeting customers further down in their sales funnel.
This doesn’t mean you should always target customers already in the buying phase of their journey. Maybe targeting customers at the top-level awareness stage of the sales funnel gives you the best ROI because they’re less expensive to acquire and your email marketing efforts are convincing.
To make the most of your marketing budget and generate the highest possible ROI, your marketing team must think in terms of your business’ goals.
Brand vs Product-Specific Marketing Costs
At any given time, your company is marketing itself at two different levels:
- General brand awareness and visibility
- Product-specific promotion and lead generation
These two types of marketing are complementary, and an effective marketing budget considers both.
1. General brand awareness and visibility
Spend some of your marketing efforts on general brand awareness. If your company sells B2B training courses, like the email marketing course example above, you want to spend money promoting your brand’s overall expertise and authority. There are a ton of different forms this level of marketing can take:
- Guest blogging or podcast appearances
- Traditional TV and print ads
- Display ads and native advertising
- Branded social media hashtag campaigns
These marketing efforts prop up your entire company, which has indirect benefits on revenue generated by your specific products.
Though not universally the case, frequently, these types of brand awareness marketing activities have fixed monthly budgets because they’re ongoing with more indirect efforts.
But just because these campaigns are more indirect and don’t directly promote specific products doesn’t mean you can’t (or shouldn’t) try to track their ROI, though it can be more difficult. Monitor referral traffic, on-site engagement and email sign-ups to measure the value of your brand awareness efforts.
2. Product-specific promotion and lead generation
One level deeper than general brand awareness is product-specific promotion. If your company sells B2B training courses, this is the money you spend promoting a specific course to generate more customers and revenue directly.
While product-specific promotional efforts can have global effects propping up your whole brand, those benefits are secondary to the primary goal of generating more customers and revenue through increased sales of the specific product being promoted.
Product-specific marketing campaigns have a different feel than general brand awareness campaigns:
- PPC ad campaigns for specific product-related keywords
- Paid influencer promotions featuring your product
- Giveaways of free product for trusted brands in your industry to review
- Content marketing campaigns with solution-focused blog posts and tutorials
These types of marketing efforts have one goal: Generate more sales of your specific product.
These types of product-specific marketing activities usually have variable budgets. That doesn’t mean you spend different amounts every month, but rather that your company’s product offerings are more dynamic than your brand itself. If your company is releasing a new or updated product, you may want to increase marketing spend for that product to generate buzz and momentum at launch. Over the following weeks or months, maybe your company has another product to promote or is releasing an update of an existing product, and you want to focus marketing spend there instead.
How to Calculate your Marketing Budget
Broadly speaking, there are two common ways to set marketing budgets:
- Benchmark budgets
- Zero-based budgets
One is significantly better than the other.
1. Benchmark budgets
Benchmark budgets are bottom-up budgets, meaning they assign spend based on a bottom-line number. Examples of benchmark budgets are the following:
- 12% of revenue
- 12% of revenue after expenses (“Profit-First” budgeting)
- Fixed budget every month, quarter, etc.
Benchmark budgets are common because they’re safe and easy, but they give little consideration to your business’ goals or growth targets.
It’s like training for a marathon by running 15 miles each week. It’s certainly better than running five miles each week, but is it enough training to finish in under four hours? I guess you’ll find out come race day.
2. Zero-based budgets
Zero-based budgets are top-down budgets, meaning they work backwards from your business goal to determine how much you need to spend.
For our marathon trainer, that means working backwards from your target finishing time to determine your average pace and the number of miles you need to run each week to improve to that pace.
This approach is more purposeful and gives you the best chance of hitting your goal.
A zero-based marketing budget begins with yourTrueNorth metric; the one metric, that if increased, will achieve your business’ goal.
Let’s revisit our email marketing course example above. Let’s say your goal is to generate $600,000 in revenue over the next 12 months. With zero-based budgeting, you work backwards from that goal:
- Your goal is to grow revenue by $600,000 in 12 months.
- At $1,200 in revenue per customer, that’s 500 new customers.
- Assuming a 50% gross profit target, that’s a target acquisition cost of $600 per customer.
Depending on the specific marketing tactics you plan to use, there are a lot of different ways to reach that $600 per customer target. Let’s go back to Scenarios A and B above.
For the marketing team in Scenario A trying to generate new customers with a PPC ad campaign targeting keywords like “why use email marketing,” they know their campaign converts leads into customers 1% of the time. If they want to hit their $600 target customer acquisition cost with a 1% conversion rate, they can’t spend more than $6 per click.
For the marketing team in Scenario B trying to generate new customers with a PPC ad campaign targeting keywords like “best email marketing course,” they know their campaign converts leads into customers 3.3% of the time. If they want to hit their $600 target customer acquisition cost with a 1% conversion rate, they can’t spend more than $20 per click.
If you don’t know which campaign ideas have the best ROI yet, I recommend using a tool like TrueNorth to track all of your campaign ideas and record their results in a centralised place so you can hone in on your best campaigns and grow your business faster.
How to Create your Marketing Budget
Creating your marketing budget is a little more involved than just earmarking dollars for different costs or campaigns. You’ll want to focus on these five steps:
- Determine your business’ objective and its True North metric
- Understand your sales funnel
- Quantify your operational costs
- Factor in all product-related promotional costs
- Measure and track ROI
Let’s take a more in-depth look at each.
1. Determine your business’ objective and its True North metric
Every solid marketing budget starts with the top-line business goal. What is success to your business?
Once you know what success means for your business, you can determine your True North metric; the one metric that, if increased, will achieve that goal.
This initial step is crucial because everything after it should always tie back to that objective. If your marketing plan and budgeted expenses don’t move the needle for your True North metric, should you be doing them?
2. Understand your sales funnel
Your sales funnel describes how you move visitors through the various stages of the buying process to become revenue-generating customers.
It should cost less money to generate general prospects or site visitors who are at the top of the funnel — further away from making a purchase — and haven’t become qualified leads yet.
Conversely, it should cost more to generate highly-qualified leads who are lower in the sales funnel and ready to buy.
Your goal should always be to optimise your sales funnel by putting the right campaigns, marketing materials, content, and sales pitches in front of the right visitors or leads depending upon where they are in the buying journey.
If you do this successfully, you can know two crucial pieces of information about your sales funnel:
- The cost to acquire a prospect, visitor or lead at each stage.
- The conversion rate of each stage into revenue-generating customers.
Now you can maximise your marketing budget’s performance by creating campaigns that target potential customers at the stage of the funnel with the highest ROI.
3. Quantify your operational costs
The amount you pay for each click in a CPC ad campaign is just one marketing-related cost. You may also have operational costs that are more fixed in nature that your company needs to budget for regardless of the size of your brand or product-specific campaigns:
- Employee/contractor salaries and related expenses
- Email marketing tools and CRM software
- Website domain registration and hosting
- SEO-related tools and expenses
Whether you spend $20,000 or $200,000 on an ad campaign, you’ll have to account for these mostly-fixed expenses just to keep your marketing teams’ lights on.
4. Factor in all product-related promotional costs
When gearing up for a new product’s promotional launch, it’s easy to forget any expenses you incurred in the prior months preparing for launch.
- Market research
- Focus groups to generate customer feedback
- Testing to develop the perfect campaign messaging
All of these expenses factor into your total marketing cost even though they may not directly show up on your active campaign’s budget.
5. Measure and track ROI
Your business should always be looking to improve your marketing ROI to get a better bang for your buck. A key part of that is frequent measuring and tracking of campaign performance.
Six Sigma is a set of techniques that focus on process improvement, and an integral part of Six Sigma methodology is this process of continuous refinement and quality improvement known as the DMAIC Process:
- Define the True North metric and KPI that tie your marketing team’s efforts to your business’ goals.
- Measure the defined metrics while your campaign is running.
- Analyse the data generated from the measurement process.
- Improve your campaigns by tweaking the performance of underperforming campaigns, landing pages or email copy, or look to cut underperforming campaigns altogether to focus on high-ROI activities.
- Control this iterative improvement by documenting the process and making it part of your marketing team’s day-to-day workflow.
Final Considerations when Creating your Marketing Budget
Before you rush off to create your company’s marketing budget, there are a couple of final considerations to make:
- Your company’s marketing maturity and your True North channel
- The role of remarketing
1. Your company’s marketing maturity and your True North channel
Your marketing budget should be agile and responsive, so it can react to what is (and isn’t) working. Overall, the idea is to do more of what generates the best results and less of what doesn’t.
A key part of finding what works is identifying your True North channel; the channel that generates the best results.
There are three phases of marketing maturity that your marketing team can use to figure out how to allocate marketing spend across various channels:
- Phase 1: You’re looking for your core channel, which requires investing a small amount of your budget in a wide variety of channels to see what works.
- Phase 2: You’ve found your True North channel, which means you can focus intensely on maximising your returns until they begin to diminish.
- Phase 3: You’ve saturated your True North channel, which means you should slowly experiment with one or two other channels to diversify your efforts.
This is all a part of DMAIC continuous improvement process and is integral to your marketing team’s sustained success in an increasingly competitive landscape.
2. The role of remarketing
Remarketing lets you customise your message to speak directly to visitors who have seen your site before. Considering 97% of people will visit your site without making a purchase, remarketing is an important and cost-efficient way of continuing the conversation with people who are familiar with your brand or product but haven’t pulled the trigger on a purchase yet.
Earlier we talked about how important it is to put the right campaigns, marketing materials, content, and sales pitches in front of the right visitors or leads depending upon where they are in the buying journey. Remarketing is an extension of that by putting personalised, targeted content in front of specific people. Plus, CPC rates for remarketing ads cost half as much, as regular ads, and can convert over 50% better.
Your marketing budget includes everything your company needs to spend on promotion-related activities and should always align with your business’ goals. If your top-line goal is to increase revenue, then your marketing budget should be created from the top-down to include the resources required to hit your revenue targets.
It’s also important to focus those resources on promotional activities and marketing channels that generate the highest ROI. If you don’t know what those activities and channels are, begin by experimenting with small marketing spend across a variety of channels to identify the big winners. If you do know what those activities and channels are, focus your efforts on maximising your returns until your results begin to diminish.
Above all else, remember that your company’s marketing efforts should be agile and responsive as you react to changes in performance in constant pursuit of the highest possible ROI.
We’re currently in the process of building TrueNorth, a marketing management system that helps marketing teams create adaptable plans, prioritise campaigns, and rally their teams around the marketing plan.
If you’re interested in joining our beta, you can join here. As a Venture Harbour reader, you’ll be jumped to the front of the beta queue.