How to Set a Marketing Budget

Your budget needs to support your sales goals for the year. One of the most difficult numbers to nail down in the company budget is the marketing budget. Without a reliable system for calculating, this can be a struggle. You need a plan and method for calculating marketing ROI. While never an exact science, without a plan that can be refined based on ROI, you’ll never reach your sales and revenue goals. Here we provide an outline that will help you determine you marketing budget (and keep you team focused on goals). 

 Let’s dive in. 

Review Your Current Pricing Strategy

First, you want to determine your current status as a brand and look at your existing pricing strategy. 

1. Set Goals

Your annual goals should be set in a quantitative manner and include the following: 

• Company revenue

• Total number of new and returning customers

• Number of items/service packages sold 

2. Current Positioning

This is where your brand comes into play. 

• Current position compared to others in your market

• What about your business makes you stand out. Not sure? Conduct an online presence audit.

• The communication channels you use with potential customers

3. Products and Services

Any improvements you think need to be made to your products, identify those now. You might:

• Introduce a new line of products

• Offer add-on services to your customers

Develop Your Sales Plan

Developing the sales plan is essential to creating an accurate marketing budget. Some questions you’ll need to ask throughout this process include: 

• What specific markets will I target?

• How many additional sales reps will I need?

• What’s my comprehensive plan for addressing the needs of my current customers? 

Another important part of this process is reviewing your current performance targets for each sales rep and revising as necessary. A percentage increase in sales per representative should coincide with the increased revenue target for the coming year. 

Identify Your Major Marketing Campaigns

You won’t need to list every marketing campaign, but you’ll need to identify the top three most important; awareness campaign, new product #1 campaign, new product #2 campaign, and so on. As you’re doing that, you’ll want to include more detailed information about each one: 

• Your estimated Return on Investment (ROI) based on previous marketing spend or how you will be measuring current spend.

• Which marketing channels you plan on using to deliver your marketing content (i.e., social media, paid search, print marketing, etc.)

• Any additional resources you’ll need in terms of software and hardware to execute the campaigns

• How much of your budget will the top three require (you may need to revisit this once you arrive at your final number)

Who else needs to be involved in marketing budget creation? 

Determining who else will be involved will likely depend on the size and type of business you have. For example, if your business generates around $2 million in yearly revenue, you likely have a small marketing team made up of a marketing manager, a communications specialist, and possibly a part-time graphic designer.  With a team of this size, you can involve all in the process by asking each for input on how much budget they’ll require to perform the tasks related to their role. Larger companies of 10 or more marketing employees will need to have principal managers involved in the process. 

Consider a Hybrid Model

One way to maximize your marketing budget is to hire an outside consultant to complement your team members. This is a one way to control marketing overhead and is much cheaper than hiring additional staff members. When hiring an outside marketing professional, you’ll need to assign one or two point people to work with them on a regular basis to help stick to your marketing goals and plans. A consultant can also help train you in-house marketing team. Together, they can come to a consensus about which marketing campaigns to run and how to divide up the budget accordingly. 

Running the Numbers: How Much to Spend

After you’ve laid out your detailed sales and marketing plan complete with relevant goals for the year, you’ll need to follow general rules for allocating a marketing budget, based on your expectations for the year. 

New Business with Little Brand Equity

New companies should plan on spending more of their budget on marketing than established companies. Yes, more. You need to build awareness, trust and authority to achieve sales. You should set a sales goal based on what you want to achieve or based on an increase from the past two years of revenue. From that number, new companies should dedicate 12%-20% of project gross revenue for the year.

Established Companies with Brand Equity

Established companies, in business for 5 years plus AND with brand equity should budget 6%-12% of their total gross revenue for the year on marketing. Now, just because an existing company has been a business for 5 years doesn’t mean they’ve built up brand equity or the right brand equity to move sales. A company still struggling for awareness, trust, and authority may need to budget a little higher than the 12%.

Growing companies should also keep in mind how aggressive their new gross sales goal is from the previous year. More aggressive sales goals will dictate a higher percentage for the marketing budget.

Now you can go back to your three top marketing campaigns and allocate the necessary dollar amounts to each marketing channel based on the total marketing budget. We will discuss channel budgeting in future post. (In the meantime, contact us for help in setting goals, a plan and a budget.)

Marketing Channels to Budget

You will also need to allocate some of your marketing budget to: 

• Web Site updates (or a new site)

• Social media 

• Content development; emails, blogs, website, social, etc.

• Search engine optimization (SEO)

• Paid search advertising

• Consultant

Regardless of the size of your company, creating a comprehensive yearly plan with an accurate budget will help you save money, hit sales targets, and increase revenue to a point that meets your yearly projections. 

Kris Winter is a marketing strategist and speaker translating complex marketing concepts into actionable takeaways for all audiences. Her passion is helping small businesses chart a clear communication path to their most profitable customers.  Kris managed corporate marketing departments for 10 years before running her full-service marketing agency for 17 years.  She is now leading marketing strategy for a financial institution and speaks nationally on marketing and small business development.

Contact Kris at kristine@kristinewinter.com