How to Create a Marketing Budget
Digital marketing has been the most leveraged marketing technique since the advent of the digital era. Businesses, whether large or small, established or start-ups, have benefitted from the exceptional outcomes of digital marketing. And, there is no doubt that this was possible only because they have contributed an ample amount of their revenue in digital efforts. That is, they had set aside a portion of their revenue for digital marketing budget every year so that they can spend adequately on their marketing.
Being a marketer, you too have to plan an average digital marketing budget so that you can get the most out of your digital practices. You have to work on your digital marketing budget breakdown so that you can distribute your marketing dollars among the right practices and in sufficient proportions.
Before I make you understand how you can calculate your digital marketing budget for 2019, I would like to you to emphasize on the importance of planning a budget for digital marketing practices. This would help you to develop the right strategy in calculating the average digital marketing budget.
Importance of planning a marketing budget
It is rightly said that, to earn money you have to spend it. But what is more important is to analysis how much you have to spend to get more from it. A marketing budget works as a guide that ensures that you are on the right track to balance the difference between the actual cost of marketing and the estimated costs. It allows you to measure your investments in gaining new leads and maintaining the existing customers. It helps you to decide on what terms you have to spend and what you can save on. Planning an average digital marketing budget every year makes it easier for you to make improvements on the weak points of the previous year.
Okay, so now when you are very well aware of the significance of a digital marketing budget, we can look forward to deciding on the strategy to calculate it.
I think you should first know what trends your competitors are setting up for you. For 20189-19, 57% of the Gartner CMOs are planning to increase their marketing budget owing to their revenue in 2018.
Let me tell you about the main psychology of marketing budget. You have to increase your marketing budget with the increase in conversions and your revenue every year. But, again the same question, HOW MUCH?
Let’s dig deeper into the problem.
Many of you think you can invest in your campaigns as soon as there is a demand for new leads
Your company never always demands new customers. So, you may be thinking that you can spend on marketing whenever you feel the need. And, you also assume that, whenever you start a marketing campaign say, Facebook ads, your followers will immediately visit your website and purchase that particular item.
Unfortunately, you are wrong. Marketing does not work this way. Even, it may happen that YOUR business would not profit from this idea. The main thing is marketing campaigns do not work according to your assumptions. It’s not like you can start marketing anytime and your visitors will immediately turn leads and then to customers. Most importantly, you have to keep in mind your audience while promoting your services. The customer is not always ready to buy anything.
It’s shocking but true that a lead takes approximately three months to about a year to turn into a business term or a customer. And, it is this buyer’s journey that proves your assumption wrong.
Let’s have a look.
The buyer’s journey
In simple terms, buyer’s journey describes how a buyer first comes to know about their problem, then looks for solutions to the problem, and then finally opts to buy a product to solve the problem. Hence, the journey has three stages of passing through:
1. Awareness stage
In this stage, the buyer gets to know that they have a problem in something or they need something to improve their current position.
2. Consideration stage
Here, the buyer then elaborates on their problem and tries to find a solution for it. They look for the available options.
3. Decision stage
The buyer now finally decides to buy a product that can solve their problem. They select the most appropriate of all the options available to them.
Hence, you may be now agreeing with the fact that it takes a very long time for a lead to pass through your sales funnel.
The main reason why I made this clear is to make you realize that you have to plan a digital marketing budget to keep your campaigns working throughout the year and you do not have to wait for long when your company needs new leads.
I consider these points while planning my marketing budget
- I first look at my current branding status, like does it need any development or more elaboration. I make sure if my company is worth calling a credible one, checking all the marketing materials like website, logo, brand image, etc. to be at the right place. Then I work on those aspects which need to be improved and include those in my budget.
- Next, I gain insights into the expenses of my marketing and advertising activities. What am I spending on them and is it enough because if it is not, then my target audience will forget me? I have to maintain a sufficient amount of budget to keep these activities ongoing and generate fruitful results.
Determinants of marketing budget breakdown
Now let’s come to the leading players in your company that will decide how much you are going to pay for your digital practices. These factors would allow you to allocate the right amount of your marketing dollars to all the important terms.
1. How much your company earns
The revenue of your company is, however, the main lead of your business. Whatever you earned the last year determines what are you going to spend this year. What you got from your marketing campaigns the previous year will help you to invest in the present year. But you have to look at the other side also. If you will not spend more on your marketing efforts, your campaigns would not earn you enough. That is, you have to spend more of your company’s revenue to your budget so that it can bring you more profit.
This kind of give and take process is known as a causal relationship where spending back a portion of your revenue into your marketing campaigns is the cause of your profit from them. In this way, you would be able to persistently trigger more leads for your business and in turn high revenue.
As per Gartner’s CMO spend survey 2018-19, the company is going to spend 11.2% of its revenue in the marketing budget. It is close to the previous year’s expenditure, 11.3% of revenue.
2. Where do you stand in your industry?
It is crucial that you analyze where your business stands in the list of your industry. Is it a start-up or a well-established business? As it helps to decide on your marketing budget breakdown, considering the overall revenue of your company.
As a matter of fact, start-ups and young enterprises should spend more on their marketing campaigns as compared to well-established firms. New start-ups have to make their reputation in the market while the established companies have already proved themselves in the market. Therefore, the former must be more dedicated to their expenditure on marketing and advertising to increase their brand awareness. The more they will invest in their marketing efforts, more are the chances of reaching a larger audience at faster rates.
But I recommend larger firms not to decrease their budget based on this analysis as they have to maintain their reputation in the industry and stay competitive among the start-ups that are going to make their position. If you are an established business marketer, then you have to be determined with your marketing campaigns to beat the rush.
3. Why do you expect from your marketing campaigns?
And why do you want to spend on your marketing campaigns? What are your goals?
Just simply ask the following questions to yourself before you start planning your digital marketing budget. This is important because if you don’t know why and for what are you spending you won’t invest your money in the right way.
- What are the main objectives of your business?
- Do you want to try a new channel?
- Are you looking forward to staying ahead of your competitors?
- Do you want to increase your brand awareness?
- Are you working on just increasing your customers and revenue of your company?
You have to answer these questions to decide where you want to see yourself with the results of your digital marketing strategy. When you have highly relevant goals and a predefined strategy, you will be able to pour sufficient money in your marketing campaigns.
Now we head towards calculating the digital marketing budget
Follow the procedure.
Calculate what your company earned the last year
The first step in determining the marketing budget is to determine the revenue of your company so that you can find the right percentage. To do this, you must make sure that you consider the gross revenue for calculation and not the net revenue.
Determine your operational costs
Whether you are thinking of outsourcing your marketing to a freelancer or an agency or investing in an in-house team for marketing, the cost is the most crucial factor. Although the cost of hiring an agency for digital marketing services is more than that of an in-house team, it depends on the type of your business. If you own a start-up company, then though it is costly but profitable for you to outsource your marketing. But if your company is an established one, then you can obviously invest in building your in-house marketing team.
And the cost of these services decides how much you should spend on your marketing budget. You should know which method works the best for you and determine the cost in each of them. Then if you want to increase your budget to add to your revenue, you can opt for the agency to outsource your marketing.
Time to finally determine your digital marketing budget!
When you are done with all the analysis based on the costs, goals and your position in the industry, you are now ready to find the actual percentage of revenue.
A general study by Wordstream says that if you are a start-up marketer, then you should invest 12 to 20% of your revenue in marketing practices. Whereas, being a large business owner, you can spend 6 to 12%.
But the reverse can also be considered if you own a well-established business willing to invest in a new channel, you can spend more in your marketing campaigns to promote your brand. Also, if you own a start-up, and you have enough leads then instead of investing more in marketing, you can look forward to increasing your sales.
Let’s assume that you are the owner of a company ABC. You have started your business with 15 employees.
You are now looking to get exposure and increase your brand awareness as your first preference. Your company made 2,50,000 dollars in the past half year. It is now clear that if everything goes the same way, your company will make another 2,50,000 dollars in the next half year. That is, your total revenue is 5,00,000 dollars.
Now if we go according to the rule, you are investing 20% of this revenue in your digital marketing budget. That is, your budget allocation becomes
$5,00,000 × 0.20 = $1,00,000
That means you have to contribute 1 dollar of your revenue to marketing practices.
So, in spite of all the confusion you face while calculating an average marketing budget for your marketing efforts, if you look forward to deciding it step-by-step, working on the above-discussed points, I am damn sure it will be much easier for you. Just keep in mind the main formula and you are done.