5 steps you need to know to plan your marketing budget
Many businesses make basic mistakes when budgeting for marketing that lead to wasted money and missed opportunities.
“Business owners often don’t give enough thought to their marketing,” says Mallika Kazim, a Senior Business Advisor at BDC who specializes in marketing. “A marketing budget is an important tool for understanding what you’re doing and how to get better results.”
Kazim says every business should follow these five steps to plan their marketing budget.
1. Define your business strategy and marketing plan
A marketing budget is simply an instrument to help you achieve your business goals. If your goals aren’t clear, you need to step back and work with your team to develop an up-to-date business strategy. It should include objectives for the coming months and years, and an action plan for achieving them.
“You can’t make a marketing budget if you don’t know where your business is going,” Kazim says. “For marketing to work well, you need a solid business plan.”
You also need to create a marketing plan as part of your business strategy. It should spell out how marketing will help you achieve your business goals. This is where you define your brand, product positioning, target customers and their purchase journey, your competitive edge and competitors’ offerings.
2. Determine your current marketing spend
Next, determine what you currently spend on marketing. This should include a detailed breakdown of everything you spend to promote your business, including:
- digital and traditional ads
- marketing personnel (whether in-house or external)
- digital assets (your website, social media, content production)
- marketing management tools (i.e., analytics services or marketing automation apps)
- events and marketing collaterals (i.e., trade shows, booths, promotional items, brochures, business cards, signs, samples)
- sponsorships and other branding efforts
“A lot of marketing spending is classified incorrectly in budgets,” Kazim says. “Many businesses don’t consider trade shows, sponsorships or digital content as marketing, but it is.”
It’s important to include plenty of detail. For example, you should break down ad spending into subcategories, such as Google AdWords, Facebook ads, newspaper ads, billboards and event sponsorship placements.
3. Measure the effectiveness of your spending
Track to gauge the effectiveness of your spending—for example, conversion rates, website traffic data or lead generation.
If you don’t track any metrics, now is the time to get going. “You can’t figure out your ROI if you don’t track these things,” Kazim says.
The metrics you pick should be tied to your key performance indicators. For example, if your goal is to promote your brand, you can monitor traffic to your website, bounce rates and conversion of website visitors into paying customers. If you’re going to trade shows, you can track the number of orders or email leads you got at the show and compare those to the cost of the show.
4. Optimize your efforts
With this information in hand, you’ll be able to create a marketing budget for the coming year. Look at your current spending for each line item, and ask whether you need to change the amount to match your growth plans. A key consideration is each activity’s ROI.
For example, if your goal is to increase sales by 20%, you may need to upgrade your website, buy more ads or hire more marketing staff. Consider both quick wins and longer term tactics for achieving your business goals.
Get input from your sales team on how to better target marketing spending. You can also benchmark your spending against industry averages to see how you compare with similar businesses. Also speak regularly with customers to ask them how you’re doing in your product offerings, pricing and value you bring them.
Kazim uses a 70-20-10 approach to guide marketing spending.
5. Follow up and give guidance
Once your budget is set, regularly monitor your metrics and actual spending—once a month or at least quarterly—and make any needed adjustments based on the effectiveness of various activities.
Also check regularly with your marketing and advertising teams. Your marketing plan is less likely to hit its goals if you don’t give them active guidance. “Marketing staff and agency partners often don’t get the support or information they need to do their job as well as possible,” Kazim says. “The business owner has to give strategic direction. It shouldn’t be a case of set it and forget it for ad placements. Each placement has to have a goal of bringing revenue to the company.”
Your marketing team needs to know about your business strategy and marketing plan, your sales promotion calendar, product release schedule, target customers and a list of events you support.
“Business owners often wait to the last minute to give their marketing team important information,” Kazim says. “They don’t understand that it takes time to get the work done.”