How much should you be spending on your marketing? This is a question we get all the time and one that has many different answers.
First off, simply asking “How much should I be spending?” is the wrong question. Your budget should be driven by a carefully-constructed marketing plan - rather than the other way around.
So, before setting a budget even crosses your mind, you need to start with:
- What do I want to achieve?
- How am I going to achieve it, what do I need to do, and who will do it?
- How long will this take?
- And, finally, how much will this cost - and is that affordable for the business?
Once you’ve really nailed these questions, the rest will come easy.
Here are four steps to help you do that.
Determine your marketing goals, strategies and tactics
You might want to generate leads, drive brand awareness and increase sales. As well as communicate that to stakeholders, invest in marketing tech and hire new employees.
All of these need consideration and funding, so it’s important to set out specific goals, as well as the strategies and tactics you plan to use to achieve them.
1. Set goals
Start by setting out SMART goals for the business. Remember: these should be specific, measurable, achievable, realistic, and within a certain time frame.
For example, if it’s realistic and achievable for your business, your goal could be to bring in 100 new customers in 12 months.
Check out this explainer on how to set marketing goals if you could do with some help.
2. Determine strategies
Next, translate these goals into strategies. This is essentially where you ask: what does our marketing need to do to enable us to achieve these goals?
For example, if your goals are around growing revenues from existing customers and bringing on new ones, your strategies might include building a customer retention programme and establishing profiles for your brand and CEO.
3. Decide on tactics
Once you’ve determined your strategies, they need to be underpinned by tactics and resources. These are what your strategies are built on and what actually puts them into action.
For example, if you decided on the strategies above, then your tactics could include:
- Case studies
- Hosting a customer summit event
- Net Promoter Score (NPS) programme
- Website redesign
- Event speaker engagements for CEO
- Social media posting calendar
Finally, are these doable with your existing resources and teams? Will these help you achieve your goals in the most efficient and effective way?
In this next step, you’ll need to calculate how much each of the things you need to do to achieve your goals will actually cost.
When you’re doing this, don’t just look at it annually - take a month-by-month view, too. This will help you with resource planning and give you a clearer view of benefit delivery. It’ll also help you decide where you need to make any tradeoffs for priorities.
Once you’ve costed up your plan, you should then cross-check it against your goals.
Does spending this amount of money make sense for your business? What would be the impact of not making these investments?
If yes, then go ahead and implement your plan.
If no, then you’ll need to re-organise this a little until it’s a yes.
Need help setting and focusing your budget? Our Marketing Directors can help. Get in touch!
Figure out how you’ll measure those goals
Now that you’ve set your goals, figured out what you need to do to achieve them, and determined that the benefits outweigh the costs, the next step is to determine how you’re going to measure ROI.
As the business owner, try to stay focused on business-level metrics (like cost per acquisition) rather than channel-level metrics (like email open rates). Channel-level metrics are important, but it’s better to let your marketing team worry about them, so you can focus on the big picture.
Metrics that you could track include:
- Cost per acquisition
- Customer lifetime value
- Churn rate
- Customer retention rate
- Return on marketing investment
- Marketing expense as percentage of revenue
- Conversion rates - MQL to SQL and SQL to a win
Once you pull together your tactics, costs and metrics, you’ll have a properly budgeted marketing plan.
Revisit your budget over time
By the time you reach this final step, you’ll have implemented your plan (congratulations!) and hopefully will be beginning to see some results.
But it isn’t over yet.
Setting and allocating a marketing budget isn’t just a one-and-done activity - it’s a continuous cycle that needs to be revised and revisited as time goes on and circumstances change. Good marketers will review results weekly and likely review overall budget spend at least quarterly.
Over time, you’ll be able to figure out which activities work particularly well for your business and contribute towards a positive ROI - as well as the ones that don’t quite work so well. Once you have a view of these, you can adjust your plan and budget accordingly.
If you know that what you’re doing is working and you’re getting a positive ROI, then spend your budget until you have no more. Because, in this case, anything you spend will likely generate more in profit than it costs.
Use benchmarks as an internal measure
On a final note, a common question we hear around setting marketing budgets is: How much should I spend as a percentage of my revenue?
And, if you look at other companies’ benchmarks, you might see figures between 2-12% or even 50% for eCommerce or direct to customer businesses.
But this is the wrong way to approach it.
Things like tracking your budget as a percentage of your revenue and cost of customer acquisition are great as internal measures. But basing your budget on other companies’ benchmarks won’t get you the results you want.
Stick to basing your budget around what you’re looking to achieve, instead.
Get the results you want
Deciding what you want to achieve with your marketing and setting the right budget to enable you to get there can feel like a mammoth task. But it doesn’t have to.
Working with one of our experienced Marketing Directors will give you the insight, knowledge and know-how to make the right strategic decisions for your business and get you the results you want.
If that sounds like it would benefit your business, feel free to get in touch any time.