Marketing budget: It's your best friend
‘A budget is telling your money where to go instead of wondering where it went’ - Dave Ramsey
It’s all about the money
Most articles on marketing will bring up budget as a critical step in planning and executing your marketing strategy. That’s because marketing should always generate more value than it costs. Sounds simple but it’s extremely easy to overspend and dilute your return on investment if you don’t set limits and track your costs. Setting a budget can be challenging but can help you get the most from your marketing efforts.
Here are five simple steps for creating a marketing budget that will help you stay on course and get the best ROI from your marketing.
- Set your dollar amount
- Base your budget on your marketing plan
- Break out marketing expenses by each activity
- Leave a little for a rainy day
- Keep your eyes on the prize
1. That dollar amount
This is usually determined as a percentage of your previous year’s gross revenue. However, the actual suggested ranges can differ significantly. An informal study of recent articles on the topic shows recommended percentages for financial advisors/brokers ranging from 4% to 12%. Guidance from the US Small Business Administration recommends spending 7-8% for marketing. This is based on sales under five million and net profit margin of 10-12%. Your own calculations might be higher or lower than that but it’s a good starting range.
2. A little chicken and egg game
Creating your marketing plan and budget can be a true chicken and egg situation.
You need to know what you can spend so you can choose your marketing activities. You also need to know where you need to invest your marketing dollars so you can calculate your budget.
A good first step is to set your marketing goals. Your goals will drive both the marketing plan and budget process.
In our next tip, we’ve created a sample budget estimation to highlight the process.
3. So, where is your money going to go?
First, create a high level outline of typical marketing expenses. These are the expenses you will likely be putting most of your budget towards:
- Advertising and campaigns (online and traditional)
- Content development
- Social media monitoring and participation
- Agency fees
- Printed materials and displays
- Events and sponsorships
How are those expenses actually going to be broken out?
These days, your marketing activities are usually 75% digital, 25% traditional. This is likely a good rule of thumb for your marketing spend as well.
So a sample budget break-out might look like this:
- Web and content development – 35% (includes email marketing, blog posts, newsletters, campaign landing pages)
- Social media and paid advertising – 40%
- Events and sponsorships – 15%
- Collateral and other traditional marketing material/signage – 5%
- Slush fund – 5%
These numbers are not set in stone. When you do your year-end analysis of the marketing plan, you will have better insight into how well the budget allocation performed. You will also see what worked well, and what didn’t, which will help with your budget planning for the next year.
4. A slush fund is a good idea
Putting aside a small portion of your marketing budget for unforeseen expenses is key to staying within the budget. These expenses will come up, and you will want to be comfortable taking advantage without worrying you are breaking the bank. Put aside 5% or even 10% if possible. If the money is left over at the end of the year, bring it forward to include in your next year’s budget.
5. Review and update constantly
Like your marketing plan, your budget is a living document. Always keep it updated and fresh so you are never caught off guard with costs you forgot you had incurred. You don’t want to spend your slush fund covering unexpected overages.
A well-organized and functioning budget is your best friend
Your marketing needs to produce for your bottom line. Keeping a balance between cost and return is critical. A budget is the best way to ensure you get the most from your marketing spend. Knowing exactly how and where you will be investing marketing dollars helps you focus on your customers and your business.
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