How to develop the right marketing budget
We get the question, “What should my marketing budget be” from almost every business we talk with and it’s a great question. The problem is that there is usually never a simple answer. There are many factors that one needs to consider when developing a marketing budget. If you are one of these businesses, we’ll guide you to how to make a marketing budget and what to consider when developing a marketing budget.
What to consider when developing a marketing budget:
Know your market / industry:
Understanding your business’s place in a larger market is important to know how to attack the market. We’ve broken this section down to provide more detail on what to consider.
Competition:
How competitive is your industry? If your industry has lots of players and not enough customers, you’ll most likely be paying more to get in front of your target audience and vice versa the opposite. Is your industry aggressive or passive? If your target audience tends to be lifetime customers and not switch products / services, it’s important to grab consumers as they enter the market for their lifetime value. These markets lead to aggressive marketing. How strong are the companies that you’re competing against? If you’re a new soda company going up against Coke, you’ll have some issues. You’ll never outspend them so you’ll have to find creative way to get consumers attention and grow brand awareness through more organic forms of marketing/ advertising. These are all important questions to ask because it will lead to how your formulate the size and scope of your marketing campaigns which will affect the marketing budget.
Market share:
Market share is important to calculate because it tells a business how much control they have over their market. If you notice that your market share has been dropping over time it could be that new products / services need launched or that the business isn’t doing a good enough job showcasing to the public how awesome their product / service is. Typically the more you invest into displaying the value of your product (and if it’s a good product) you’ll see a bump in market share. Depending on where you want to sit on the pendulum will dictate where your marketing budget will need to be. This type of analysis is easier to use if the business has years worth of financial and trending data.
National or local:
There is such thing as not spending enough in a market. Depending on the campaign type, local geo-market, and industry, a business will have to budget a floor amount to penetrate a market. Planning local market budgets is the best way to configure a national marketing budget. You’ll want to add up all your local research to get yourself to that bigger number. This will be very different for almost every company and we understand that after reading a simple 1000 word blog you still may not have your answer. Give us a call, we’ll discover the details of your business and we’ll help you develop a marketing budget.
Brand awareness:
Are you trying to build a brand from the ground floor, rebrand an existing company, or trying to maintain your status as an established brand. All three of these situations involves different long and short term campaign strategies and vary in cost. Obviously if your business is getting off the ground or rebranding there will be significant costs associated with branding the business to the market. On the other hand, if an established business is trying to maintain awareness, it could cost a considerable amount when you factor in the reach they need to cover to continually spread their message.
Value of product / service:
Depending on how valuable your product or service is, you may not have to do much marketing. The reason being is great products and great business sell all by themselves. They keep customers coming back and word of mouth referrals pumping in.
How does your product pricing affect your marketing budget:
Understand your product and its pricing. Products that cost $100,000 have different marketing strategies and costs associated with them compared to products that costs $10. If you own an existing business and have done marketing in the past, research your CPA (cost per acquisition). This metric will help you plan and budget your marketing expenses because you roughly know how much you need to spend to complete a sale. ex) You have 100 items in your inventory and you know your profitable CPA is $10, you’ll have a projected marketing budget of $1,000.
How to make a marketing budget:
Discuss the marketing operations with your team:
Pulling your entire team together to go over any subject might surprise you. Good leaders have a knack for finding hidden talent within their teams and finding a creative person in a marketing meeting isn’t unusual. Discuss with your team that you’re looking at developing a marketing budget and ask for areas in which the team can contribute to these overall efforts. You may find that someone on the team has the ability to complete these efforts themselves or have valuable contacts within the industry. Either way both will impact the overall budget.
Go over current & forecasted financials:
Understanding what you’re working with provides you with a range for a marketing budget. After your financial analysis you’ll have a better idea of what the top side of a marketing budget will look like. Yes, in theory a larger marketing budget will produce more revenue but it’s important to note that you should always lean on the conservative side when forecasting sales. This will allow you to leave yourself in a good financial position even if your marketing campaigns underperform.
Review Goals:
It’s always important to align the company’s activities with its short & long term goals. Understanding where the company is currently in those goals will dictate how aggressive or passive marketing campaigns needs to be. During this time it is also beneficial to reflect if the company is behind in its goals. Investing more into marketing might be the right answer to get the business back on track.
We can help:
We work with clients in all different industries from start-ups to established businesses. We can work with you to discover what the right type of campaigns and budgets are right for what your business’s short and long term goals are.
