Budgeting is at the heart of any successful business venture, but it’s often not an easy task. There are so many factors to consider that it can be overwhelming for small business owners to truly assess how much of their budget should go towards marketing and advertising, especially since these tactics don’t always have a direct and measurable return on investment (ROI).
What is the best way to determine your marketing budget, and what elements should it include? Let’s find out.
Determining Your Budget
Step 1: Get all of your finances in order.
The first thing to do is understand your current financial situation as a whole. What type of revenue can you rely on each month? If you find your monthly earnings fluctuating slightly (say between $4,000 and $6,000 a month), budget toward the smaller amount. This is the money you should feel confident you will earn.
Once you know your monthly revenue (or available savings), subtract all your expenses, being sure to distinguish between personal and business costs. Your business expenses should include:
- Office Rent
- Loans and Credit Payments
- Services (i.e. site hosting and maintenance, legal and accounting retainers, etc.)
Before you start a business, you will also need to make sure your personal expenses are in order. You will need to be able to cover these expenses and keep them separate from your business costs:
- Home (i.e. rent or mortgage, insurance, warranty, maintenance and repairs, taxes, etc.)
- Auto (i.e. car payments, gas, insurance, tires, maintenance, registration fees, etc.)
- Utilities (i.e. electricity, water, gas, trash, phone, internet, cable, etc.)
- Food (both groceries and eating out)
- Healthcare (i.e. medical, dental, vision, etc.)
- Personal (i.e. clothing, hygiene products, medicine, etc.)
- Entertainment and others (i.e. gym membership, movies, games, sports events, holiday shopping, vacation, etc.)
After you’ve totaled your expenses and subtracted that amount from your monthly reliable income (whether that be from business revenues, savings or other capital), you will have your total monthly disposable income. Your marketing budget will come from this pool of money.
Step 2: Understand your goals.
As with any move you make in business, first and foremost you should understand your overall goals. What do you hope to accomplish with marketing? Go beyond the obvious answer of “more customers” or “higher revenue.” How will these goals be quantified? Do you want more of certain type of customer? Perhaps you’re looking to expand into a new industry or geographic location. How much more revenue are you looking to generate? Five percent? Ten?
The more specific you are with your goals, both short- and long-term, the more accurate you can be when designing your marketing budget. And the easier it is to quantify your success.
Step 3: Set aside what you can comfortably afford.
It might be tempting to take as much disposable income as possible and work it into a marketing budget, but a modicum of caution might be in order. Unexpected and necessary expenses will spring up (like needed repairs to your office space or a cargo vehicle); you don’t want all of your income committed to a marketing plan if you need to make a quick payment.
For a more concrete figure, it is recommended that small businesses allocate between seven to eight percent of their total annual revenue to marketing. However, that figure that can balloon to ten or fifteen percent depending on certain factors.
Some reasons to increase your marketing budget include:
- Focusing on growth
- Opening a new office/location
- Acquiring a new company or division
In the end, the percentage doesn’t really matter; what matters is how profitable your business is and how much of that profit you’re willing to put back into the business to encourage growth.
Elements of a Marketing Budget
Some of the more common elements of a marketing budget include:
- Advertising (i.e. print, online, mobile, broadcast, out-of-home, etc.): Advertising can be costly for new business owners, but it may be a necessity depending on your target market. You’ll either need to hire a creative team (i.e. a writer and a designer) or learn how to design the creative yourself in order to start an ad campaign. Ideally, your designer should be able to handle multimedia production, but if you plan on creating billboards, radio spots, TV commercials and anything else other than print and digital banners, you’ll most likely need to hire various specialists. You’ll also have to account for the expense of media buys (i.e. how much will it cost to run a 30-second spot on a local TV station?). If you can’t afford the cost of production and media buys, consider whether you can hold off until you have a bigger budget.
- Search Engine Marketing (SEM): This is similar to an advertising budget, except you can forgo creative and focus solely on writing great sales copy. Running an SEM campaign isn’t as hard or time-consuming as a full-on advertising campaign, so you may be able to manage it on your own. Check out our guide to AdWords to see if it’s something you can undertake. If you don’t have the time or energy to manage your SEM campaigns, you can hire an SEM expert to build and manage them for you.
- Search Engine Optimization (SEO): This will require a lot of writing and a bit of web coding. Professionals who specialize in SEO can manage your campaign, but be sure to check the search engine rankings of their previous clients to see if his or her fees are worth it. If you’re a good writer and fairly tech savvy, you should be able to handle the basics of SEO. Check out this guide to SEO to aid your campaign.
- Social Media Promotion: Social media has become an essential part of modern marketing, and it’s an appealing tool for new businesses because it’s free. That being said, managing multiple social media accounts can be time-consuming. Luckily, social media management is one of the few items on this list that can be handled by an intern. Younger workers are very adept at social media, and if you give an eager and creative marketing major the chance to manage your accounts, he or she may turn into a valuable asset for your marketing team in the future.
- Reputation Management: This involves all your public relations needs. At the very least, you’ll need a writer to handle press releases (or learn how to write them yourself), but if you’re trying to get publicity for a big launch or are handling a tricky public-image issue, it’s best to hire a PR professional. If your company is in the public eye a lot, it may also be a good idea to hire a publicist on retainer to maintain all your PR issues as they arise.
- Corporate Branding: Branding allows you to establish a style and tone that, if effective, will resonate with your target market. At the very least, you’ll need a brand name and a logo, and these two marks should drive the rest of your marketing efforts; they should set the tone for all aspects of your campaigns. You’ll need to hire a designer for the logo, and it’s also a good idea to hire someone to establish a style guide that allows you to develop and maintain a consistent tone throughout your site and other communication channels. You might also consider hiring interns as “brand advocates” who can take to the street and social media to promote your company and hopefully gain a bit of brand recognition. Having these workers hand out branded swag is a good way to accomplish this; just make sure you account for the cost of producing this paraphernalia in your budget.
- Industry Events: A key factor of your industry might be attending conferences or special meetings and speaking to potential customers. All of the expenses relating to these trips, including travel fees, should be accounted for in your marketing budget.
Finances: Check. Budget: Check. Now What?
The most important factor to designing and implementing a marketing budget is the follow-up. You must keep a close eye on your marketing and advertising endeavors and track their success. For many online tactics, such as advertising and SEM, these metrics are baked into the content management platform. For other types of advertising, including print and broadcast, you might need to get more creative in your tracking methods (for example, through customer surveys that ask where they were referred). Additionally, you’ll want to set up an easy-to-implement system for tracking sales, new clients and qualified leads when attending industry conferences and trade shows. Some of these tracking methods may require fees, so make sure you budget for them at the beginning of the process.
Remember, the success of your marketing efforts is directly related to the specific goals you set in the beginning. If you’re not looking for new clients, but would rather increase the revenue you’re earning from your current customer base, don’t focus all of your measurements (or resources) on customer acquisition. Instead, put your energy into promoting services to your current clients and upselling them for future products. Then you can measure the month-over-month or year-over-year revenue to see how successful these efforts have been.
That is just one example of how to make your marketing budget work for you. To recap, here are the key things you should know when developing your budget:
- Understand your finances
- Set your goals
- Invest a comfortable amount in marketing
To make your business successful, you’ll need to re-invest some of your earnings back into the company in the form of marketing. By making smart, well-informed decisions about the type of marketing you need and the budget you can afford, you can easily turn this investment into earnings.