How to set your marketing budget
Do you have a marketing budget?
I really, really hope you answered yes! I talk to so many businesses that when I ask them what their marketing budget is, they either say, "I don't know." or "We don't have one.".
As we’re coming to the end of another financial year, we're all looking towards the next financial year and planning our business budgets. Or at least we should be 😊.
It's really, really important to actually have a marketing budget included in your overall business budget for each financial year.
Why is having a marketing budget so important?
Let’s look into this in a bit more depth.
Having a set annual amount that you are going to allocate to marketing means that, not only do you know how much you're going to invest for the year on your marketing, you won’t overspend on that investment. Yes, there is such a thing as overspending on your marketing!!!
By knowing how much you’re going to invest in marketing, you can really focus in on those marketing activities that will give you the best return on your marketing investment.
And, to know which marketing activities are giving you the best return on your investment, you need to measure them.
So, there’s three great reasons to have a marketing budget.
Now, how do you set your marketing budget?
Setting up your marketing budget
It's a process - boring, but essential
We have a process that we take our clients through when helping them set up their marketing budget.
The first step is asking them, in an ideal world with no barriers, what marketing activities would you carry out?
This involves listing everything – every single marketing activity you can think of that will attract, engage and connect with your target market.
And we put a dollar figure beside each activity: an annual figure, as in what you would spend annually on that marketing activity.
It’s important to make sure that that marketing activities you list are going to connect and engage with your ideal customer and your target market. There's no point saying, "In an ideal world with no barriers I would to spend $5,000 per month on Facebook advertising." if your market is not on Facebook.
So, while you might identify advertising on Facebook as something you’d like to do in an ideal world, if your target market's not active on Facebook, then you don't really actually include that in your ideal world marketing activities list.
In an ideal world you will understand your ideal customer, your target market.
Actually, knowing who your ideal customer, your target market is, should be part of your reality. If you don’t know who that is, then your investment in marketing is wasted, because you don’t know that the marketing activities you carry out are actually reaching, attracting, engaging, and connecting with your market.
Once you’ve identified all the marketing activities you could do to attract and engage your target market, add up what your total marketing investment would be.
You usually ended up with a pretty scary figure when you add up every single marketing activity that you want to do for the year.
So, then what we do is prioritise.
Getting your best ROI
This next step, prioritising, is where the best return on your investment comes in.
So, you look at the amount of money you have allocated for your total marketing budget for the year.
Then work out which marketing activities are going to deliver the best return on investment that are achievable within that budget. I’ll repeat that – that are achievable within your marketing budget!
A ROI example
As a small business, let's say your marketing budget for the year is $30,000. (Oh, and don’t stress if your budget is smaller than that – the process is the same.)
Having a clear understanding if your target market, you would know they are on Facebook. And you can work out what return on investment Facebook advertising will give you.However, you don't want to put all your eggs in one basket.
In your ideal world list, you might have allocated $60,000 to Facebook advertising. Well, let's bring that back to a more realistic figure and say, for the year, you’ll spend $5,000 on Facebook advertising, estimating this will deliver a $20,000 return. That’s a 300% ROI.
Now, that leaves you with $25,000 to invest in other marketing activities that will give you a return on investment.
So then you work through all the marketing activities you have identified, working out the ROI for each.
Then prioritise the number of activities based on those that give you the best return on investment and cumulatively add up to no more than your total annual budget.
Continuing the example, if you choose six activities that are going to give you significant ROI, but they total a $40,000 investment then you have two choices:
- increase your total marketing investment, or
- drop an activity (or more) to work within your $30,000 marketing investment.
Bright shiny things
We get it. Sometimes, things may happen throughout the year where there's an opportunity to invest in a different marketing activity. These are often the bright shiny things that distract us from our best marketing activities. They seem exciting and new!
Having your set marketing budget where you've allocated and prioritised your marketing activities, helps you decide if the bright shiny thing is actually worthwhile.
Well, what you can do, rather than just increasing your marketing budget, which is not part of your marketing or business plan, is look at that marketing activity opportunity and say, "Well, is this going to deliver a better return on investment than the current activities that I'm doing, that fall within my budget?"
If the answer is yes, then you look at what current activity you’re going to stop doing so you can replace it with this new activity.
If the answer is no, this new opportunity is NOT going to give me the same return or better return on investment than my existing activities, then you walk away from it.
You walk away, you say no to the shiny thing because you're focused on delivering the marketing activities that give your business the best return for your investment.
How much should I spend on my marketing?
You can Google “how much should my marketing budget be” or “how much should I spend on my marketing” and there's lots of theories around.
They say “If you're at this stage in the business cycle, you should be spending this percentage of your revenue on marketing.”. Or, “If you're at a different stage, it should be a different percentage.”.
We work with small business owners and we basically say, "What can you afford to allocate to marketing for the year? Make that amount your marketing budget.”.
So, if you can only afford to invest $10,000 for the year on your marketing, then that's your marketing budget. Then work out what's going to give you the best return on investment for that $10,000 investment.
Or, if you can afford $60,000 or $100,000, then work out what's going to give you the best return on investment for that amount.
So, it really depends on you and your business and what you can actually afford to invest in your marketing.
What if I don't have any money to invest in marketing ?
Marketing your business is essential. It's not something you simply can't do, but if you can't afford to invest any $$$ on marketing, that's okay. There are options.
What we suggest is working out what marketing you can do that is time based. Marketing that you can carry out that is going to give you a return in terms of attracting, connecting and engaging with your target market to improve and drive sales.
Believe me, there are activities that you can do that won’t require a financial investment. We don't say they're free because they're time based and everyone’s time is worth something. Check out our blog on 23 marketing freebies as a starting point.
Now is the time
So, now you know why having a marketing budget is really important and how to go about setting a marketing budget.
It’s the end of the financial year, and now is the time to actually go and work out what your marketing budget is for the 2021 financial year.
If you need help, working through this process then get in touch.
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