Behind every successful business is an effective marketing campaign, and behind every marketing campaign is a well-thought-out and planned marketing budget that efficiently and effectively uses resources to increase revenue and business growth.
Every business needs marketing efforts to improve and increase its revenue. However, poorly planned marketing campaigns—from budgeting to planning, execution, and monitoring—can do more harm than good, wasting resources on ineffective marketing efforts.
This article will discuss the basics of creating a marketing budget, its benefits, and how an effective budget plays a crucial role in a business growth strategy.
What is a marketing budget?
A marketing budget refers to the amount a company is projected to spend on marketing efforts related to selling its products and services. This marketing budget should forecast a specific period, usually annually, during which the company should spend the specified budget to help reach its goals.
Why is budgeting important for marketing?
Cash is a limited resource in business. Despite your business doing well, cash liquidity may be hampered by huge pending accounts receivables from customers, especially in an era with unprecedented levels of debt in America. In this sense, setting a budget helps ensure enough funds and resources are available for marketing efforts when needed.
Here are other reasons why budgeting is essential for marketing:
- It helps make realistic goals for your marketing efforts.
- It helps ensure that resources are available for the specific period where marketing efforts need to be performed.
- It helps set overall financial goals, especially budgeting for the company’s target revenue.
- It helps assess the ROI of your marketing spend.
- It enables you to compare your year-on-year budget vs. results comparison to assess the efficient use of resources for marketing.
What to consider when budgeting for marketing?
Most businesses fail to create an effective budget that generates positive results because concrete marketing plans from the get-go don’t support these budgets. Crafting a marketing budget requires a detailed study of the business’s marketing efforts from the start of the budget period to avoid wasting resources that may have been otherwise allocated to other income-generating activities.
When budgeting for marketing initiatives, remember to:
- Know your business and product inside and out.
- Have concrete marketing plans in place for the year.
- Align your marketing strategies with your brand.
- Be cost-effective and creative.
- Know your target audience.
- Know the right marketing channel for your brand.
Creating a marketing budget can vary from business to business. What works for one may not always work for another, so marketing managers must identify which type of marketing works best for their brand.
How to create a marketing budget
The process of budget creation isn’t any different across departments or businesses. Marketing budget creation, however, should focus on specific marketing effort metrics it wants to achieve.
Understand your business and marketing goals
It may sound cliche, but the first step in any business plan (including creating a marketing budget) is to better understand your business and marketing goals. Business owners and managers should consider these processes during their operating agreements, especially when considering the organization's overall goals.
This means that marketing managers should understand the importance of their department's role in attracting customers and generating revenue for the business to create effective marketing campaigns.
As marketing managers, is your goal for the year to:
- Generate new leads
- Increase revenue
- Increase brand awareness
- Boost engagement
- Increase website traffic
- Increase market share
- Launch and advertise a new product
- Enter a new market
- Retain or increase customer retention
- Increase positive reviews
Create a marketing strategy
Marketing strategies should always align with marketing goals. This ensures that resources, financial or otherwise, are being used appropriately and effectively.
The key idea in creating a marketing strategy is to hit the mark when examining your ROI and marketing metrics. However, you can’t do this when your marketing strategies are all over the place and don’t align with your products and audience.
Marketing channels
With the rapid technological advancements, marketing channels are increasing more than ever. What once was limited to offline and in-person marketing strategies is now dominated by digital marketing efforts like social media, SEO, content marketing, and website marketing, especially at an age where audiences are glued to their phones 24/7.
“However, not all digital marketing efforts work for all businesses. Some businesses find offline marketing still far more effective than online marketing. This is because offline marketing efforts like brand events, pop-up stores, trade shows, billboards, guerrilla marketing, and the like offer a more personalized touch and tangible brand experience than online ones,” says Sergey Taver, Marketing Manager at Precision Watches, a company that operates in the field of selling luxury watches.
For this reason, marketing teams must identify the right marketing channel for their products to allocate a suitable budget for each campaign.
Target audience
You can’t throw a dart at a random space and expect to hit a bullseye. This concept applies to identifying the right target audience for your marketing efforts.
“Many businesses fail in their marketing strategies despite knowing which platform to market because their materials don’t resonate with the type of audience they are marketing their products and services to,” says Peter O'Callaghan, Head of Marketing at ScrapingBee.
To create an effective marketing budget, identify your target audience and create content that works for them.
Study historical marketing data
A successful marketing budget should always involve studying historical marketing data, including past budgets, strategies, ROI, and other relevant marketing metrics.
Studying historical data in creating a budget allows teams to make more accurate and relevant decisions, especially in identifying marketing strategies, their costs, and the returns they have generated for the business.
However, these historical data should be as itemized and detailed as possible so that marketing teams can carefully assess the profitability of a specific marketing effort.
For example, if a marketing team has done offline marketing, like trade shows, as well as online marketing, like social media marketing, for a specific campaign, decision-makers should be able to identify the rate of return and actual expenses for each campaign to make more informed decisions (a.k.a. continuing with both campaigns or eliminating one) for the next budget period.
Jeffrey Zhou, CEO and Founder of Fig Loans, says, “These historical data allow businesses to set personal benchmarks to measure their progress and performance compared to prior years and against their market competitors.:
Create a marketing budget
Once you have identified all the tools, channels, and goals you need for your marketing strategy, it’s time to create a marketing budget.
Set a budget breakdown
Depending on your products and services, each business typically has more than one type of marketing campaign, be it offline or online. When creating a budget for your marketing campaigns, it is very important to be able to break down the costs based on the type of campaign you’re doing. Why?
- Each type of campaign has different sets of needs and expenses.
- There is a need to individually identify the ROI on each type of campaign.
“Breaking down your marketing budget helps you create a more detailed view of your projected expenses, eliminating the chances of budgeting errors and easily tracking what costs go to where. After the end of the financial period, these data can be beneficial in benchmarking for the next budgeting period,” says Reyansh Mestry, Head of Marketing at TopSource Worldwide.
Set allocations for hidden or emergency costs
Whether we like it or not, emergencies can happen, and they always come at a cost in a business setting.
This is why budgeting requires setting aside a specific amount for emergencies to keep the team afloat, especially if these emergencies are necessary for the marketing team to operate. Examples are inventory management software for steel and other manufacturing companies or accounting software for auditing and accounting firms.
For marketing teams that mostly rely on digital products like editing software, servers, computers, and smartphones, having emergency funds for repairs and replacements of these items is crucial to keeping marketing efforts going.
Track ROI and other key metrics
Budgeting is based only on projections of future marketing costs. Ultimately, this budget should be compared to actual expenses, the return on investment generated by the actual costs incurred, and other key marketing metrics to identify whether these expenses positively impacted the business’ performance.
Depending on the specific marketing campaign you’re working on, and your targets, here are some of the major metrics you should be keeping tabs on:
- Return on investment (ROI)
- Cost per lead
- Clickthrough rate
- Bounce rate
- Cost per click
- Page views, engagement, and traffic
- Return on ad spend
- Lead to customer conversion rate
- Customer lifetime value
- Website conversion rate
Tom Golubovich, Head of Marketing & Media Relations at Ninja Transfers, says, “Tracking ROI and major marketing metrics helps you gauge the effectiveness of your marketing campaigns and the return on the costs invested in them. It will also help you identify which campaigns to invest more in and which to scrap.”
Review and adjust budgets accordingly
While a marketing budget sets a boundary for marketing spending, companies should not be inflexible, especially when costs outside the budget become necessary for business operations. This calls for regular budget reviews and adjustments at regular intervals within the financial period.
Typically, budget reviews are done monthly to assess the budget versus actual performance of business costs, including marketing expenses. These monthly budget reviews also include explanations of the variances (positive or negative) in budget versus actual performance to assess the accuracy of budgeted amounts.
Budget adjustments are typically made at lesser intervals, either quarterly or bi-annually. They are reassessed based on prior quarter or month performance and whether there is a need to reallocate or add to budgeted amounts due to a change of plans or strategies.
Conclusion
Marketing teams play a key role in generating customers and revenue for the business, so every organization must allocate an adequate budget to marketing efforts.
Creating an effective marketing budget doesn’t stop at allocating amounts for marketing campaigns. To help in the business’ growth strategy, these marketing budgets need to be monitored, evaluated, and reassessed regularly to ensure that resources are being used efficiently to benefit business performance.
