A marketing budget defines how much you plan to spend to reach your marketing goals within a specific period of time. It is an important part of your business’s marketing plan, so you should put some time and thought into it. There are many areas to consider; media buying, printing, web developers, writers, photography, SEO, trade shows, etc.
Before we delve into the steps, let’s first take a look at how marketing budgets are allocated and spent as well as discuss factors that affect its creation.
3 Types of Marketing Budgets
Before creating a marketing budget, it helps to understand who makes decisions on how much your marketing budget is and how they’re allocated.
- Top-down marketing budget – This marketing budget comes from the higher-ups—CFO, CMO or someone in a similar position—and they usually distribute the budget to mid-level officers according to cost or functional area (product marketing, field marketing, etc.). Then mid-level leaders (marketing directors, etc.) will distribute the budget according to the needs or objectives of their teams.
- Bottom-up marketing budget – Individual marketers list programs and activities that will be added to the marketing budget. Small businesses and startups typically use this kind of marketing budget.
- Hybrid marketing budget – Basically a combination of top-down and bottom-up marketing budgets. Marketing targets will still come from the higher-ups, but marketers will be free to use it for programs and activities they believe will most likely result in the achievement of the set marketing targets.
Each of these marketing budgets has its pros and cons, and whichever you choose to use should be the one best suited for your organization.
Factors to Consider When Creating a Marketing Budget
Aside from knowing who decides how much marketing budget goes where it’s also important to take note of these factors:
- Perception of marketing – How does your business or organization view marketing? If they view it as an expense, then marketing becomes a cost center and they’ll tend to review past marketing expenses and base their budget allocations on an expenditure’s ROI. But because most marketing initiatives take time to bring in quantifiable results, it’s best to view marketing as an investment whose ROI will come over time.
- Organization stage – What phase is your organization in right now? If it’s in planning mode, your marketing strategy will mostly likely revolve around longer-term marketing (inbound content) that generates steady revenue growth. If it’s in growth mode, marketing efforts will be focused on generating revenue at a faster rate, which might require more investments in quick-win marketing techniques (iterative development and maintenance).
- Current and future trends – Technologies are always improving. Something new always comes along with the potential of reaching your target market more effectively. However, marketers should always keep their focus on the organization’s audience and how best to communicate with them.
How to Create a Marketing Budget
1. Determine how much money is allocated as a marketing budget.
Know what you’re working with. In this case, how much money do you have for marketing initiatives this year, this quarter, or this month? Common business practice dictates that businesses should allocate 7–8% of revenues to marketing—not what’s left over after paying for all expenses.
2. Know your sales funnel – This step helps you determine which channels bring in the most customers. If budget is tight, prioritize and spend only on channels that have the highest ROI.
3. Know your operational costs – This step helps you determine if you can afford and how much you’re going to spend on hiring an employee, outsourcing to an agency, or keeping marketing efforts in-house. Marketing operational costs refer to how much you pay to “keep the marketing lights on” for a given period (typically monthly). It covers website-related expenses, salaries, paid ads, etc.
4. Determine current marketing expenditure and effectiveness.
How much are you spending on where and is it effective, i.e., increasing revenue? Create a detailed breakdown of marketing costs, and it’s also important that you keep track of conversion rates, lead generation, website traffic data and other metrics that show if marketing has been effective. These metrics should be tied to your key performance indicators (KPIs). As a result of this step, you should be able to identify and eliminate ineffective activities, i.e., did not deliver results or had low ROI.
5. Align your marketing budget with organizational goals.
It’s important to create a marketing budget based on a marketing plan that targets your organization’s goals because the marketing team doesn’t operate in a vacuum. All marketing efforts and initiatives must move the business toward its objectives.
6. List all marketing activities and organize items by business objective.
Enumerate all the activities the marketing team plans to execute along with their estimated costs as well as all other costs associated to marketing, including hiring, website maintenance, paid ads, etc.
Then organize the items according to the organization’s objectives. This makes it easier for those not on the marketing team to understand how an activity helps achieve business objectives. That way, it’s easier to justify budgeting for that activity.
7. Emphasize results as much as possible.
Budgets focus on costs, but marketing results most often take time to materialize. So, if you’re presenting your budget to anyone outside the marketing team, it might make more sense to them if they know what specific results you’re expecting for an activity and how this activity leads to increase in revenue. So, instead of talking about click rates or web traffic, discuss customer acquisition cost relative to lifetime value and how marketing increases sales opportunity.
8. Assess your marketing budget and adjust as necessary.
Take a step back and review your budget. Ask the necessary questions: Does this item align with business objectives? What should we leave in and what can we take out? Your answers to those questions will guide your marketing budget revisions.
If this is for a big organization, this step might take several back and forths between marketers and between the marketing team and higher-ups. It would also take some time to finalize—from a couple weeks to several months, depending on the size of your business.