Every business marketing plan should include a marketing budget – a specific amount the business will allocate to promote its goods and services. Determining a marketing budget can be a challenge, especially if you’re new to marketing investments. And marketing spending can vary wildly depending on industry, location and a business’s goals.
A marketing budget specifies exact amounts to allocate for staff salaries, office space, equipment, marketing communications, ad design and specific marketing channels. Your budget helps you align marketing strategies with business goals and funnel money into marketing campaigns with the highest return on investment (ROI).
We’ll explore the steps for creating a marketing budget, what your marketing spending may look like, and how to track your marketing budget and gauge its success.
Businesses typically develop marketing budgets quarterly or annually. They should be comprehensive and include all the projects your team plans to develop in the short and long term.
Follow these four steps when setting your marketing budget.
Marketing aims to build a sales funnel or generate direct sales to boost gross revenue. To create an effective marketing budget, you must determine short-term and long-term marketing goals and set key performance indicators (KPIs) as part of your marketing strategy’s big picture.
These are examples of short-term goals:
These are examples of long-term goals:
When developing your buyer personas, get specific, and let data guide you. Here are some ways to gather data that will help you develop your buyer personas:
In each buyer persona, include the following information:
Market research, particularly buyer demographics, can help you better understand your target market.
To understand your market, gauge the following information.
Market budgeting also involves researching the competition. Consider the following questions:
Industry type can impact marketing spend. According to the February 2022 CMO Survey, B2B product companies typically spend an average of 9.4% of their revenue on marketing; the corresponding figure for B2B service companies is 10%. B2C product companies spend an average of 14.2% of their revenue on marketing; the corresponding B2C services figure is 8.7%.
To generate the best return on the revenue you spend, market where your buyer personas go. The marketing channels you should consider break down into four primary categories:
Companies use different strategies to develop marketing budgets, including the following:
Because there are so many moving parts involved in setting up your marketing budget, there are more opportunities to make mistakes. Any misstep in the process can lead to less effective marketing overall and potential financial challenges for your business.
Below are a few typical budget-planning mistakes. Watch out for them as you create your budget.
According to the U.S. Small Business Administration, a typical marketing spending recommendation for profitable businesses making less than $5 million in sales annually is about 8% of the gross revenue.
However, the exact amount small businesses spend on advertising and marketing varies widely. To give you a better idea of what to spend, the following business owners shared their budget amounts and where those budgets go.
“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 to 20 backlinks to its website, and increased the number of leads it generates 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.”
“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 or not his budget needs to increase.
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 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 are 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. Pinterest is one of her primary marketing channels. It helps her build 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 entrepreneurs and small 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 platforms 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 can invest this much.
Campaign tracking and lead tracking are integral to gauging your marketing efforts’ success.
When adjusting your marketing budget and tweaking a strategy, go slowly, 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.
For extra assistance, a marketing budget template can be useful. Here are some resources that offer marketing budget templates:
Effective marketing is vital to your company’s success. It’s how you attract new customers and keep current ones returning for more. Of course, there are usually only so many resources you can pour into your marketing efforts. Creating a budget can push your spending toward the most successful channels – and keep enough money available for all your other needs.
Isaiah Atkins contributed to the reporting and writing in this article. Some source interviews were conducted for a previous version of this article.