How do you set a marketing budget? That is a business question for the ages. Much of the advice on the subject deals in simplistic rules of thumb, such as setting the budget as a certain percentage of sales. Such rules of thumb have obvious flaws, of course; every business is different, and basing your budget on something like sales means that you'll spend more on marketing during the boom times when it is less needed.
A more realistic approach involves determining what you can afford to spend, what you need to spend in order to reach your goals and how to get the best return on your marketing dollar.
What Can You Afford?
The first step in creating a realistic marketing budget is to figure out how much you could spend. How much money are you certain will be available during the budgeting period?
Though we are looking for the maximum amount available for budgeting, it needs to be based on the minimum revenue projection. If you know that sales are likely to be between $80,000 and $100,000, a realistic budget will need to be based on the $80,000 projection.
You would then subtract out the variable costs associated with that sales level and the fixed costs that will be the same no matter what.
For a startup, the process would be somewhat different: you may have little to no revenue, and yet you have additional startup marketing costs such as designing a website. You will still need to determine how much you can spend, but it will be based on your funding rather than revenue.
What Should You Spend?
Just because you have a dollar available does not mean you have to spend it. The next step in creating a marketing budget is to determine how much of the available funds you should spend.
For this step, you need to look at your goals. What do you need your marketing to accomplish, and what will it cost to accomplish that?
This will again have much to do with where you are as a company. Are you looking for aggressive growth? Then you will need to spend aggressively. If your business is a mature cash cow, then your goal may be to maintain sales and save as much income as you can.
How Should You Spend It?
There are many, many marketing options available. So how should you divide up your marketing budget?
To allocate funds effectively, you need to consider:
- Who you are trying to reach?
- Where and how such people can be reached?
- What your goal is in reaching them?
- Which marketing media are best at achieving that goal?
For example, if you are targeting parents of young children and one of your goals is to build brand awareness, you might pay for display advertising on parenting sites. For a long-term approach, you may include content creation in your marketing budget and become one of the results people will find when searching for parenting advice.
As you go along, you should track the performance of your various marketing efforts so you can refine your approach, either by changing your marketing mix or improving your existing channels.
By constantly evaluating your choices and striving to improve their effectiveness, you can get the most out of the marketing budget you set.
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