How to Set a Marketing Budget
The world of online marketing changes quickly, but the basic running of a business is still the same. We plan, we set goals, and we create a budget to help us meet those goals.
So when you are setting your marketing budget you can count on this one solid fact: you get to determine how much power you will put behind your marketing efforts. Not an ad agency, not a colleague, not the amorphous entity known as the internet. You have the power!
The second piece of good news is that you can reduce marketing budget needs by investing time. This is also frequently true in the business world, but many online marketing tactics are easily learned and even a beginner can make an impact. So keep both these items in mind as you proceed.
5 Basic Approaches for Setting Marketing Budgets
Before you begin, you should decide how aggressive you would like to be in growing your company in the coming year. If you are a new company, you probably want the most aggressive plan you can afford in order to get a foothold in your industry or field. If you are looking for steady growth, your spend may be moderate, and if you are simply hoping to maintain the loyalty of your existing clientele, your final numbers may be on the lower side.
1. Start with the basic statistic: 2-8% of gross revenue
You’ve probably hear most small to mid-sized business (SMB) authorities report spending for marketing to be approximately 2-8% of gross revenue. You can use projected gross revenue, or the previous year’s numbers. This is a good place to begin thinking about your budget.
2. Consider your industry
Marketing budget percentages do vary by industry, however. Consider your local grocery store. Chances are you go to that particular store because it happens to be the nearest grocery, and at most there are only a few others within range. For that reason (among others), grocery stores average among the lowest in spending for marketing. You can probably get at least a little bit of information online about marketing spend in your particular industry by doing a little online research. You may also find this information in trade publications or through industry-regulating organizations.
3. The customer acquisition model
If you have been in business long enough to know about what it costs to acquire a new client, use that number (or your cost per lead) along with your business goals to calculate your marketing costs. You may be surprised at how effective this particular method can be, especially if you have been doing some traditional marketing techniques that involve a fair amount of travel and cold-calling.
4. Outbid your competition
This is a tough one, requiring some sneaky tactics. Ask vendors that run your competition’s ads what you would have to do to outspend them. They may not be willing to tell you precisely what the other guy is spending, they may be willing to have you spend more! This also works out nicely in paid search, where bidding for particular search terms gives you an idea for your budget in that particular area.
5. A tactics-based approach
Hopefully you have a marketing strategy written up. Your strategy should include your business objectives, along with specific tactics you intend to use to meet those objectives. Now you can price out the specific costs of each tactic. For example, you know about how much it will cost to build a website. There’s hosting, design, coding, content writing, and build. Once you know the total cost, you can determine whether this particular tactic needs to be handled on the cheap, or if you are going to put as many of your resources as possible into it, based on your goals for how important your website will be in the marketing of your business. The most important tactics get funded, and the less critical items wait for next year.
Don’t forget that you can save on costs with a little bit of do-it-yourself heroism. Time counts as money, but sometimes you really can invest more time than cash.
Finally, take your marketing budget seriously, and spend some energy with your staff determining what you can spend. This will not only make your business run more smoothly, it will also make marketing decision-making much easier.
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