How should a company set up their marketing budget?
No matter whether your business is a start-up or a fully established operation, every year there comes a time when business goals need to be revisited and new objectives set for the following year. Alongside this comes the sometimes difficult task of setting a marketing budget.
Marketing is key if you want to see your business grow, but regularly companies don’t allocate enough money to marketing and simply want their team to find ways to do things for free. While there are ways to maximise return from your investment, you do still need to have some level of investment in marketing if you expect to see returns, and especially if you want to see significant returns quickly.
How much budget should you allocate?
This is the key question that is often asked, and the answer is that it depends! It depends on the goals and objectives of your business, the amount of money that your business can afford to put in and the impact you’re looking to see from the investment.
The first thing to do when asking this question is to get a good understanding of your current financial situation, so you can set a budget that is realistic. You should know how much revenue your company makes, how much needs to be used on running costs and therefore how much is left that can be invested across the business. Once you know this you can then determine how much of that pool of money you wish to spend on marketing.
Quite often businesses will just allocate a certain proportion of revenue to their marketing budget and this can range from anywhere from 2 – 20%. As a general rule newer companies will need more investment as they look to ramp up operations, and will allocate between 12-20% of revenue. For established companies this is more likely to be in the region of 6-12%.
However when you do this you also need to consider the industry you’re in, the growth stage of your business, your competition and of course your business’ health overall. Generally you can only afford to have this level of investment if you have profit margins in the range of 10-12%. If you don’t, then you may need to reconsider the proportion of budget allocated to marketing.
Spend it wisely!
Just because you’ve negotiated a good budget, that doesn’t negate the need to spend it wisely. Spending your marketing budget wisely is critical to project success and overall business growth. Your ability to manage it wisely and prove return will also impact on future budget allocation and determine the likely response if you need to ask for more.
This means that you require a solid marketing strategy, with a plan on how you’re going to get a good return on investment from your budget. Within this you should breakdown the budget into allocations for various goals or marketing activities throughout the year, with the costs outlined clearly.
It’s important that once you’ve created a budget that you have a plan in place to measure how much you’re spending and the ROI you are getting for that. Compare tactics across campaigns and learn which work best for your business, look at industry standards and see if you’re receiving a comparable return.
Some tactics will be tricky to measure, or you know that you will need to allocate spend to regardless (eg printing brochures for conferences), but keeping a close eye on your budget and directing it to the most effective areas will really help ensure growth for your business.
Your budget should be reviewed regularly, and if there is a material change in circumstances either within or outwith the business then it should definitely be re-evaluated to ensure it is still adequate to meet the needs of the business.
Don’t be afraid to change it
Just because you have a plan, that doesn’t mean you can’t ever change it! Marketing can move fast and if you’ve allocated budget in one area and haven’t seen the desired return, then it may be worth reconsidering that continued spend. Opportunities may also arise that you didn’t know about when doing your plan, and you shouldn’t let your plan stop you from considering these if it is the right thing for your business.
If you are continually evaluating your success then this will be easy to do, after all it’s more important to achieve your marketing goals and stick to your original budget plan.