How to Create a Marketing Budget

marketing budget
If you’re a business owner, marketing could (and should) be your best friend—but one wrong move, and it takes the form of your worst enemy. It all depends on how you use it. Are you investing in it enough? Are your marketing dollars going to the right places? How are you measuring marketing success? Do you have the right people in place? None of these questions have black and white answers, and things can get very grey, very fast. 
Keep reading for our definitive guide to creating your ideal marketing budget. 

The Dilemma

Having a love/hate relationship with marketing is nothing new. It can seem elusive and intangible, and as humans we crave real things that we can hold onto. The good news? If you’re doing it right, ROI is concrete and trackable, especially in digital marketing.  
Most companies claim to have large marketing budgets, but what they actually mean is that they have a large sales budget—that’s mistake #1. 
Sales has an obvious impact on the bottom line, but marketing results aren’t always so obvious. Figuring out the value and the cost of marketing tools and services can be really frustrating  because they aren’t always in your face. That’s how marketing ends up on the backburner for a lot of companies. 

The Truth

The simple fact is that all successful companies invest a significant amount in marketing. The big guys often spend more than 10% of their total revenue on marketing alone—again, that’s separate from sales. A study by Footwasher Media revealed that when companies fall below 5%, they see very slow growth, or no growth at all. Numerous studies have shown that there’s a direct correlation between a company’s success and its investment in marketing. 
The important thing to remember, though, is that spending more doesn’t automatically mean more revenue. It’s absolutely essential that you spend your marketing dollars the right way for your specific business. If you use it in the right way, studies have shown that every dollar you put in that marketing budget comes out as $10 in revenue. Most businesses miss out on this equation by not putting in the time (and yes, money) to see those results. 
Again, sales and marketing are completely separate, and they should be kept that way when crafting your budgets! If your current marketing budget includes sales, and you’re spending 10% of your overall revenue, your actual marketing budget is probably close to 3%.

So, Where Do Your Marketing Dollars Go?

It doesn’t matter how much you spend on marketing tools and services—if you put little or no strategy behind them, you won’t see much ROI at all. So many people in the industry find that they regret spending money on specific tools or services because they don’t learn how to use them (or hire the right people to do that) or strategize at all. 
Time equals money. You’ve heard it before, and you’ll hear it a thousand more times. Personnel is one of the most important facets of your budgeting process. You have to factor in the time it takes for people to learn and use the tools and services you’ve invested in! Marketing is not a machine—you can’t dump money in and expect ROI to magically appear. It requires intentional strategy and careful management. 
A great example of this is marketing automation. Many companies in a variety of industries are adopting software that automates marketing, but they find that they see very little results. That’s because they think simply having the platform in place is enough to drive sales. If you spend big money on marketing tools, but don’t hire the right people to manage them, you’ll feel (and rightly so) like you’ve wasted valuable time and money. 
A study released by CMO magazine in February found that even marketing leaders, even though they were investing heavily in analytics tools, weren’t getting the ROI they were hoping for due to a lack of proper training and personnel. Without ROI, they were reluctant to apply analytics to almost 70% of their marketing programs. 

How You Find the Magic Number

When you’re deciding on a marketing budget, you have to factor in a lot more than just how much the tools or services cost themselves. It’s essential that you factor in the time that you and your staff (or your marketing agency) will put in to accurately optimize your budget.
First, take a good, hard look at your marketing team. Identify who is full-time, and who is part-time. Add up all of the hours they put into marketing. If they don’t already, have your employees log all of the time they spend on marketing so you know exactly how many hours are dedicated to it. Add up all the hours, then divide their salaries by the total. This gives you the hourly time investment in cash form. 
Now, take a look at how much you spent last year on external services, like events, tools, agencies, etc. Add this amount to your internal investments. Compare that total to your end-of-year revenue. 
If you’re right around 10%, you’re doing a pretty good job. If you made more, you’re killin’ it. If you made less, some things probably need to change. 
After you have all the numbers, consider your goals for the coming year. Is the budget you have currently, including expenditures and personnel time, enough to reach your goals? If not, then you’ll have to consider a greater investment in marketing. 
Now you might be asking, should you invest more in personnel, or services? The answer is both, because an imbalance will only hinder your growth. If you hire experienced people, but don’t give them the tools they need, you won’t see results. If you spend your entire budget on tools, but don’t have the right people to manage them, you won’t see results. 

The Formula

Now that you have some idea of how much the work and time will cost, it’s time to think about leads and get some hard numbers. 
First, how many leads do you need?
Determine the number of leads that your company needs in order to reach X new customers. You can do this by dividing your new customer goal, with your average conversion rate. Let’s be optimistic here and say that your company has a goal of 50 new customers, with an average conversion rate of 10%. 
50 / 0.1 = 500
This means that you need to generate at least 500 new leads in order to reach your goal of 50 new customers. 
Now the really fun part—how much will that cost you?
You can easily determine how much it will cost to generate 500 new leads by multiplying your goal by the average cost per lead. Being optimistic again here, imagine that you’re maximizing every dollar, and your average cost per lead is $75. 
500 x $75 = $37,500
That means, in order to get your 50 new customers, your company should plan to spend at least $37,500 on marketing, or $3,125 per month. 
The truth is that, as flashy and Mad Men-esque as marketing may seem sometimes, it’s not a magic button. It takes a lot of work, strategy, and creative thinking—not to mention, a one-size-fits-all plan doesn’t exist. It’s true, marketing isn’t exactly cheap, which is a big part of why marketing often takes a backseat—but it’s because it isn’t an all-or-nothing kind of thing. It’s not something you can do halfway and expect to see results. It’s all about having the right people, strategizing for your specific goals, putting your marketing dollars to work, and adapting to all of the frequent changes the marketing industry sees daily. 
It sounds like a lot, but we’re here to help. Give us a call, and we can chat strategy.