What is enough to get your brand noticed and drive conversions? How much is too much to generate a meaningful return on investment? Here's what you should know about developing a marketing budget.
- A key element of a marketing plan is budgeting, which determines how much you have to spend on which marketing strategies.
- To develop a marketing budget, identify your goals and the optimal channels for reaching your audience.
- Marketing spend for small businesses varies wildly, from a few thousand dollars per year to thousands per month.
- This article is for entrepreneurs preparing to develop a marketing budget that will deliver results without negatively impacting the bottom line.
Every marketing plan should include a marketing budget. Determining a marketing budget for a small business can be especially difficult for those who have never invested in marketing before. In this article, we offer tips to help you understand how to get started with your marketing budget, what your marketing spend may look like, and how to track your marketing budget, along with some marketing budget templates to serve as a guide.
As we begin, keep in mind that the exact amount you should spend on your marketing will depend on your industry, location, and goals and that doing your research prior to setting a budget is key.
What is a marketing budget?
A marketing budget is the amount of money a business allocates for expenses related to the promotion of its goods or services. Marketing budgets are usually developed on a quarterly or annual basis.
Marketing budgets should be comprehensive and include all of the projects that your team plans to develop in the short and long term. A marketing budget is more complete than an advertising budget, because it includes all areas of marketing, not just ad campaigns.
Why do you need a marketing budget?
Budgeting for marketing strategies helps you avoid future problems. If your campaigns are not properly funded, you can experience low staffing, lack of equipment and insufficient reach. With a marketing budget, your team can know exactly how much to allocate for staff salaries, office space, equipment, marketing communications, ad design and more. Thorough research allows you to set the appropriate budget and allocate the right funds per project.
Marketing budgets allow you to align your marketing strategies with your business goals. Furthermore, marketing budgets give team members the tools they need to funnel money into the campaigns that offer the largest return on investment.
How to develop a marketing budget
Step 1: Identify your marketing goals.
To set an effective marketing budget, you need to determine your short-term and long-term marketing goals as part of a bigger picture: your marketing plan (also known as a marketing strategy). Understandably, you're marketing in the first place to create either a sales funnel or direct sales that boost gross revenue, and the key to that is to get specific with your goals.
Keep in mind that marketing doesn't usually generate sales overnight. You may need to tweak your goals as you deploy your marketing campaigns.
Short-term goal examples:
- Decrease website bounce rate by 5%.
- Gain 10 quality comments on social media posts per week.
- Boost brand awareness by generating 100 new social media channel followers each month.
Long-term goal examples:
- Get on the first page of Google for three of your main focus keywords.
- Create a sales funnel that generates 20% new customers consistently over the next three years.
- Develop a marketing automation flow with email marketing that saves your team five hours each week.
Step 2: Understand your target audience (buyer personas).
A buyer persona is a fictional representation of your target audience. You can have more than one buyer persona, but try for no more than five; after all, not everyone can be your target audience. When developing your buyer personas, get specific, and let data be your guide.
These are some ways to gather data to help you develop your buyer personas:
- Survey your current customers.
- Interview people you think may be in your target audience.
- Use Google Analytics to determine audience demographics.
- Use Facebook Insights to track user interaction with your brand.
In each buyer persona, include this information:
- Marital status
- Job title
- Approximate income
- Motivations and goals
- Sources they visit for information
- What makes their life easier?
- What keeps them up at night?
- Bonus: a fictional name and photo
Step 3: Understand your market and competition.
You should conduct research to better understand your target market. Market research can be conducted using primary and secondary research. Look at the data, and answer key questions about your target market. Look at the demographics of your buyers. Where do they live? What is their education level and average income? Are there any exterior forces that could impact them and in turn affect sales? Current trends in the economy shape how you plan your budget. Besides the latest economic trends, other trends could affect your market. For instance, what's going on in technology right now? Are buyers using different methods to shop or make payments?
Another way to understand your market is to gauge their wants and needs. What are the top needs that your company can fulfill in the market? These won't necessarily be a need for your specific product or service, but be a need in the broader sense. For instance, your target market may have needs such as feeling safer in their neighborhoods or saving more money.
Market budgeting also involves researching the competition. Who is performing well? What type of ads and marketing strategies are they currently using? How much are they budgeting for their marketing department? The type of industry could impact how much they are spending on marketing based on the economic sector. According to a recent CMO Survey, B2B companies normally spend an average of 6.9% on marketing, while B2C companies spend an average of 8.4% of the budget on marketing.
Step 4: Choose your marketing channels.
The marketing channels you should consider break down into four main categories. To generate the best return on the revenue you spend, market where your buyer personas go.
Digital marketing: These channels include social media marketing, online content marketing, automated or manual email marketing, online advertising with pay-per-click ads or social media ads (paid media), and search engine optimization.
Inbound marketing: Some inbound marketing channels overlap with digital marketing. There's SEO, blogs, videos on YouTube and Vimeo, e-books, and other types of content marketing.
Outbound marketing: Sometimes outbound marketing is difficult to track, so combining it with inbound marketing is helpful. The most traceable form of outbound marketing is email marketing. Other types of outbound marketing include TV and radio advertisements, direct mail, press releases, trade shows, and promo products.
- Brand awareness campaigns: These channels can also overlap with the above and may include social media marketing and advertising, content marketing, public relations, and video marketing and advertising.
Now that you have a better idea of the channels you should consider as part of a marketing strategy, you can better determine your budget. There are costs associated with marketing on each of the above channels. Social media advertising tends to be the most cost-effective.
Key takeaway: Build your marketing budget by identifying your goals, understanding your target audience and identifying the best marketing channels to reach your audience.
How much to calculate for a marketing budget
There are different strategies that companies use to develop a marketing budget. For example, a percentage of revenue was the common standard for setting a marketing budget in the past. However, companies now have embraced alternatives like goal-driven budgeting. The following are a few ways you can calculate the marketing budget for your brand:
One way to determine your marketing budget is to review your annual revenue sheets and set a percentage aside. Some businesses might allocate between 6.5% to 8.5% for marketing purposes. The percentage may be higher for newer business ventures. Businesses that are less than five years old should consider spending 10% to 12% on marketing.
Based on your prior research, you could also simply budget based on the same amount your competition is spending.
With a top-down budget plan, there isn't a set calculation on how much you should spend for the quarter or year. Instead, management comes up with a figure and asks the marketing department to stay within those parameters.
With goal-driven marketing, management and marketing determine goals and set a budget that can help achieve those goals. For instance, one goal may be to gain X amount of followers on social media. Another goal may be to achieve X amount of conversions online through your website. Then, you assign a monetary value to the goal. As an example, you could assign a social media follow as being worth 50 cents per user. For this goal, gaining 100 new followers would represent $50.
How much do small businesses spend on advertising and marketing?
A common marketing spend recommendation for profitable businesses making less than $5 million in sales annually is about 8% of your gross revenue, according to the U.S. Small Business Administration.
However, the exact amount of money small businesses spend on advertising and marketing ranges varies widely. To give you a better idea of what to spend, the following businesses shared their budget amounts and where those budgets go.
Dennis Vu, CEO and co-founder of Ringblaze
"We spend $3,000 per month on marketing. We're a startup in the SaaS industry, business phone app niche. We sell a business phone app that lets our customers easily open up new channels for their customers to call them," said David Vu, CEO and co-founder of Ringblaze.
"When it comes to the money we invest in marketing, most of it goes on SEO and content marketing," he added. "We realize that it's a long game, but so far, it's made a lot of sense in the amount of exposure and the number of leads we generated."
In two months, Vu's company doubled its organic traffic, tripled its website's domain authority, generated 10-20 backlinks to its website, and increased the number of leads it gets by around 30%.
"We may have just gotten lucky, but the results we got from digital marketing are excellent," Vu said. "Our doubts initially were that the agency we hired would not deliver at all, especially for a small budget like this one. Most companies that I know spend five times this amount monthly on marketing at the least, so we are pretty happy with the results we got."
Dave Madrid, solopreneur developer at p2p Business Awards
"I had hoped to bootstrap marketing, and my preference is still to do that where possible, as this fits with the ethos of my business," said Dave Madrid, a self-employed developer. "This means that my external marketing spend is currently very small, but growing month-on-month. External spend has gone on location-targeted Facebook ads, Google ads, off-page SEO activities and link-building."
Madrid added that he is increasing his internal investment in blogging, developing a social media following, engaging in local and startup Facebook groups, conducting polls, and asking questions to generate engagement.
"Up to now, I have found Facebook ads to be an effective approach to generate views (more so than Google ads), although engagement has been achieved best through Facebook groups, posting about our blog [and] engaging with others' questions."
The budget for Madrid's external marketing activities has increased from what he says was an unrealistic $1,000 per year to $5,000 per year. He continues to evaluate whether his budget needs to increase, as his business is new and he has to increase brand awareness and online presence to gain a foothold in his industry.
Madrid concluded that 15% or more is a reasonable amount of gross revenue for new businesses to put toward advertising and marketing. Established businesses can reduce that substantially; even as little as 5% of gross revenue could work. You can always start small and work your way up.
Kristin Marquet, creative director and owner of Marquet Media
Kristin Marquet said her company spends about $30,000 a year on marketing campaigns, tools and outsourcing, which equates to about $7,500 a quarter.
Behind that marketing budget is two brands: Marquet Media – a branding and design consultancy that offers branding, web design and PR services – and Fem Founder, a media company that publishes content on entrepreneurship and marketing for female entrepreneurs. Marquet also sells digital products on the website out of New York City, where she is based. A main marketing channel she uses is Pinterest, building email lists for her digital products and courses.
Marquet is clear on her profit margins, as all marketers should be. "For every dollar invested in promoted pins [on Pinterest], I generate about $1.30 in revenue. I also invest in email marketing software, which is about $600 a month. I use Leadpages for landing page software to capture leads, which is about $30 a month, and social media automation, which is about $79 a month."
Like many business owners, Marquet was unsure of marketing ROI when she started her businesses, so she was a little nervous about allocating any budget. She started off with a $500 budget and tested Google and Facebook ads, but she learned those places are not where her target customers spend the most time; they are very active on Pinterest instead.
Based on her experience, Marquet thinks any business should allocate at least 10% of its gross revenue for marketing and advertising, but 12% is best if it has the ability to invest this much.
Key takeaway: The exact amount a small business should spend on marketing depends on its circumstances, but experts suggest 7percent to 8 percent of annual gross revenue.
How to track your marketing budget
Tracking your marketing budget is key to gauge its success. There are dozens of marketing budget tracking tools, though many businesses simply use Microsoft Excel, which is sufficient for the task.
Create one line item per campaign that notes the campaign name and invested amount. Include the salaries of the involved employees and the total time it took to complete each campaign. Note where campaign and time adjustments are necessary.
Create one line item per lead with the date, lead source, campaign, assigned sales rep, notes, status and revenue generated.
When adjusting your marketing budget and tweaking a strategy, go slow, adjusting one key variable at a time. Something as simple as changing a photo on a Facebook ad and increasing its budget by just a few dollars a day could make a huge difference.
Key takeaway: You can easily track your marketing spend in Microsoft Excel, or you can subscribe to any of the dozens of marketing budget tracking tools available.
Marketing budget templates
For extra assistance, a marketing budget template can be useful. Here are some resources that offer marketing budget templates: