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May 10, 2021

How To Come Up With Your Marketing Budget

Learn how to know your numbers and make the best decisions so that your marketing dollars actually work to grow your business.

Most businesses have a love/hate relationship with the idea of marketing. You know you need it, but your experiences with advertising or marketing probably haven’t been the highlight of your career. A lot of that frustration comes from an ambiguous concept of marketing.

Most business owners focus so much energy working in the business that they fail to leverage opportunities to work on the business. 

You know that you need a quality product, good customer service, and a convenient location to have a successful business. But how do you let your customers know that you exist? 

That quickly becomes a grey area. 

You are sure that marketing is the answer, but what that actually means in practice and what impact that makes on your budget is often difficult to define. Whether you choose traditional media outlets or new digital platforms, it’s important that you start out by knowing your own numbers. Then you can make better decisions about what strategies work best and how to prioritize different marketing to grow your business. 

What’s Your Investment?

Contrary to what you may have been told in the past, your marketing dollars should absolutely be an investment. This means that the dollars you allocate towards marketing efforts for your business should have a measurable form of ROI just like you would expect from any other investment. 

Don’t view your marketing as a sunk cost expense. Hold it accountable to growing your business. 

Most successful companies are spending around 10% of total revenue on marketing. Studies have suggested that anything under 5% results in little to no business growth. This means that a fair benchmark for successful marketing is roughly $10 in revenue for every $1 you spend on marketing. 

Take the time to give your own budget an honest audit. And if you don’t have a budget, add up all the dollars you’ve spent on marketing during the last fiscal year and then divide that number by your total revenue dollars. If your number comes in over 10%, it could mean that you need to reevaluate whether you're spending your money on the right marketing tools or platforms. 

Don’t Forget About Your People

Especially if you’re a business that is using multiple marketing tools in an attempt to grow, don’t forget to include the labor cost into your budget. Take into account the time your employees spend on any marketing activities. Hold that part of the equation accountable to its success as well. 

The right tools in the wrong hands won’t work. And the best people without the right tools can’t do their jobs well. If you invest in marketing tools, make sure your employees know how to make the most of them. 

Finding Your Marketing Budget Number

The first step to creating a marketing budget for your own business is to set your growth goal. Knowing what you have done in the past, what growth would you like to see moving forward? One way to establish this is by figuring out what the average customer or client is worth to your business. Then figure out how many new customers you would like to see coming into your business. 

Factor in your closing percentages on the sales side. Let’s say that for every 10 potential leads that come your way, you’re able to convert 1 of them into a new customer. If your goal is to get 25 new customers, then you’ll simply divide the number you want by your conversion percentage to get the total number of leads you’ll need to generate those new customers.

25 (number of new customers desired) / .10 (conversion percentage) = 250 (leads needed)

Now you have a goal for your marketing plan. You know you need 250 leads to meet your new customer acquisition goal. 

Knowing Your Options

The next step is to decide what it will cost you to obtain those 250 leads. The key metric here is your cost per lead. That metric can vary based upon what mediums you choose and your strategy as a whole. 

Each business has a different customer with a different lifetime value and a different length sales cycle. You must decide what monetary value is “worth it” to your business to acquire a new customer. 

Most media outlets should be able to give you an estimate based on their experience of how many leads they can help you obtain or, at the very least, give you measurable statistics such as cost per click and average conversion rates within your industry that you can expect.

If your cost per lead is $50, and you need 250 leads to meet your customer acquisition goal, then you’ll need to spend $12,500 on your marketing efforts to meet your goal.

Strategic Efforts

Now that you have a basic understanding of how to calculate your marketing expenses, the biggest determining factor of your marketing budget is truly a cost per lead. With the multitude of marketing options available today, it’s vital that you have a strategy wrapped around your efforts. 

Figure out which platforms best suit your business, your budget, and reach your ideal customer. Is it a traditional media outlet such as newspaper, radio, or magazine print? Or do you want to focus the majority of your prospecting efforts online? 

Whichever option or combination you choose, make sure to strategize so that your efforts are working together in a complimentary way. Make sure your staff knows how to implement your marketing tools, or if it’s more cost effective to outsource this effort. 

The bottom line is that marketing should be measurable. Your marketing dollars should have a direct correlation to the growth of your business. Know your numbers, and hold your budget accountable. 

Need Some Help? 

If this sounds too overwhelming, or you’re not exactly sure what your numbers truly represent, we’ve got you covered. We work day in and day out with the different types of media and can craft the right strategy for your business. 

Whether it’s digital marketing, content creation, or branding, we have the experience to develop the right formula for you.