How to create a marketing budget

Building a successful business begins by developing a standout product and then effectively using marketing ideas to ensure your audience discovers it. Yet, many companies either allocate insufficient resources to marketing or overspend on ineffective channels. For instance, targeting an older demographic might necessitate different marketing approaches than social media campaigns.

Crafting a startup marketing plan and budget is crucial for smart resource allocation. By following a well-structured plan, businesses can use marketing funds to onboard more customers and grow revenue. This article provides insights into developing a marketing budget—from setting clear objectives to understanding your sales funnel. Additionally, we delve into practical tools, like marketing budget templates, and real-world examples of marketing budgets.

What is a marketing budget?

A marketing budget is a structured outline detailing the expenses a company intends to incur to promote its products or services within a specified timeframe, typically from a quarter to a year.

It includes all costs associated with advertising initiatives, spanning paid advertisements, video marketing, content marketing, email marketing, staffing requirements, website development, print and outdoor advertising, television commercials, and more. Effective budgeting is critical to ensure optimal resource allocation to align with the company’s marketing strategies.

Stakeholders in determining a marketing budget

Determining a marketing budget involves collaboration among key stakeholders to ascertain available resources. Typically, the following parties collaborate in drafting, approving, and allocating the budget:

  • Finance and executive team: Managers from finance and executive departments convene periodically to distribute funds across the organization, guided by profitability and sales forecasts.
  • Marketing managers: Team leaders propose budgets aligned with anticipated expenditures necessary to achieve marketing objectives.
  • Program managers: Individuals overseeing specific programs, like digital marketing or social media, provide detailed budget requests for their respective areas.

Regardless of the budgeting approach, consistent tracking of spending and return on investment (ROI) is essential.

What is the size of a typical marketing budget?

In recent years, marketing budgets have fluctuated, with a low of 6.4% of revenue in 2021, rebounding to 9.1% in 2023, but still below the 2016 industry average of 12.1%. These budgets also vary based on company revenue, with smaller companies typically allocating a higher percentage of both revenue and overall budget to marketing.

While the 10% guideline may apply to some, it’s essential to recognize that optimal budgeting varies across businesses.

What do marketing budget expenses consist of?

A comprehensive marketing budget encompasses various essential components to drive successful campaigns and innovation. Typical areas of investment include:

  • Paid campaigns: Including PPC, banner, or social media advertising.
  • Events: Event marketing campaigns such as conferences, trade shows, or in-store events.
  • Freelancers and agencies: Providing support in content creation, design, PR, and SEO.
  • Research: Conducting surveys, customer research, focus groups, and other market research.
  • Tools: Utilizing software and infrastructure, such as analytics platforms, SEO software. AI marketing tools, and website management systems.

Key criteria to consider when creating a marketing budget

When formulating a marketing budget, several critical factors come into play:

Company revenue and expenditure analysis

The financial performance of the company directly impacts the allocation of resources to marketing initiatives. Finance teams assess both gross and projected revenue to provide insights into available funds. Additionally, a thorough evaluation of quarterly expenses, including internal teams, contractors, and departmental costs, helps leaders determine the marketing budget.

Brand awareness goals

The stage of business maturity influences marketing requirements. Startups often necessitate heightened marketing efforts to establish brand recognition and cultivate a loyal customer base. Conversely, established organizations focus on sustaining brand presence and customer retention while expanding their market reach.

Marketing needs assessment

Regular evaluation of past marketing campaigns informs budget adjustments and reallocations. Flexible budgeting allows for iterative adjustments aimed at achieving product-market fit and emerging opportunities, such as product launches or target market expansions.

How to create a marketing budget for your business

A marketing plan should include an understanding of your target market, competitive positioning, tactics for market outreach, and differentiation strategies. Below are seven steps to guide you in creating a comprehensive marketing budget:

1. Set clear objectives

Set SMART objectives, they answer the “what” and “why” of your budget, ensuring resources are directed towards achieving tangible goals.

  • Specific: Clearly define your marketing goals. Aim for quantifiable outcomes like “increase sales by 20%” or “generate 100 qualified leads per month.”
  • Measurable: Establish Objectives and Key Results (OKRs) to track progress. Track key metrics such as website traffic, social media engagement, and conversion rates to gauge success.
  • Attainable: Be realistic about your goals and budget limitations. Aim for ambitious yet achievable targets.
  • Relevant: Ensure your goals align with your overall business objectives.
  • Time-bound: Set deadlines for achieving your marketing goals. This fosters accountability and helps you adapt strategies.

Clear objectives act as a compass, guiding your budget and measuring its success.

2. Understand your sales funnel

Visualize your sales funnel – a representation of the customer journey from initial awareness to final purchase. Identify each stage of the funnel (awareness, consideration, decision, and action) and tailor your marketing activities accordingly. For example, in the awareness stage, you might focus on social media and content marketing, while in the decision stage, targeted ads and personalized email campaigns could be more effective.

3. Analyze customer needs and goals

Delving into your target audience’s needs and goals is crucial. Conduct market research, analyze customer data, and engage with your audience directly through surveys or social media interactions. Understanding their pain points, aspirations, and preferred communication channels allows you to craft targeted messages and choose the most relevant marketing platforms.

4. Assess your existing marketing costs

Before allocating new funds, analyze your current marketing spend. Track expenses across all channels, including paid advertising, content creation, marketing software subscriptions, and event participation. This helps identify areas where you’re already seeing success and provides insights into cost optimization opportunities.

5. Determine conversion rate and cost

Calculate your conversion rate – the percentage of leads or website visitors who take a desired action (e.g., purchase, sign-up, download). Analyze the cost per acquisition (CPA) – the total marketing spend divided by the number of conversions. Understanding these metrics helps you determine the effectiveness of your existing efforts and guides future budget allocation for channels with the best return on investment (ROI).

6. Define the number of leads needed

Based on your sales goals and average conversion rate, calculate the number of leads you need to generate to achieve your objectives. This helps determine the scale of your marketing efforts and the budget required to attract that many potential customers.

7. Allocate budget across marketing channels

Based on your objectives, audience insights, and cost analysis, allocate your budget across different marketing channels. Consider a mix of paid, owned, and earned media, including:

  • Paid media: Paid advertising on social media platforms, search engines, or display networks.
  • Owned media: Your website, blog, and social media channels where you control the content.
  • Earned media: Positive PR mentions and reviews from customers and industry publications.

Data-driven decision-making is key here. Use the insights gleaned from analyzing past performance and industry trends to prioritize channels that deliver the highest ROI. Remember, there’s no one-size-fits-all approach. A successful budget includes resources allocated to various channels, tailored to your unique business goals and audience.

Common marketing budget mistakes

Avoid these common marketing budget mistakes when planning and monitoring your budget:

Overspending on low-performing channels

Before allocating significant resources, conduct thorough research to assess the channel’s alignment with your target audience and its potential for generating a positive ROI. Focus on optimizing your existing channels based on data-driven insights. If a channel consistently underperforms, consider reallocating those funds to strategies with a proven track record of delivering results.

Ignoring data-driven optimization

Regularly monitor key performance indicators (KPIs) such as website traffic, conversion rates, and customer engagement across different marketing channels. By analyzing this data, you can identify areas for improvement and optimize your budget allocation.

Neglecting current customers

Businesses often focus solely on acquiring new customers, neglecting the potential of nurturing existing ones. Loyal customers are more likely to make repeat purchases, advocate for your brand, and offer valuable feedback. Moreover, user retention is significantly more cost-effective than customer acquisition.

Allocate a portion of your budget to churn prevention strategies. This could involve loyalty programs, personalized email campaigns, or exclusive offers. By investing in customer retention, you can ensure a predictable revenue stream and potentially reduce customer acquisition costs in the long run.

Basing budget solely on past data

While historical data is valuable, relying solely on past performance can be restrictive and hinder your ability to adapt to evolving market trends and customer behavior. Stay informed about emerging marketing strategies and technologies and be willing to experiment with new approaches within your budget constraints. A/B testing different elements of your campaigns can reveal valuable insights and help you optimize your budget for future success.

Marketing budget templates

A marketing budget template is a pre-formatted spreadsheet to help you structure and organize your marketing budget plan. It typically includes sections for:

  • Overall marketing budget: This section outlines the total amount allocated for marketing activities throughout a specific period (e.g., year, quarter).
  • Marketing objectives: This section lists your SMART marketing objectives, reminding you of the goals the budget aims to achieve.
  • Marketing channels: This section breaks down the budget allocation across different marketing channels, such as paid advertising, content marketing, social media marketing, email marketing, and offline marketing initiatives.
  • Cost categories: This section further details the specific cost items within each channel, such as ad costs, content creation costs, software subscriptions, and event participation fees.
  • Performance tracking: This section may include space to track key performance indicators (KPIs) relevant to your marketing goals, such as website traffic, lead generation, and conversion rates.

Benefits of using a marketing budget template

Here are a few advantages of using a marketing budget template:

  • Standardization: Ensures consistency and clarity in your budget planning process.
  • Organization: Helps you categorize and track your marketing expenses efficiently.
  • Planning: Guides you in allocating resources strategically across different marketing channels.
  • Monitoring: Allows you to track spending and compare it to your projected budget and objectives.
  • Flexibility: Can be customized to fit the specific needs and budget size of your business.

Where to find marketing budget templates

Many online resources offer free and paid marketing budget templates in various formats, including Excel, Google Sheets, Notion, Airtable, and other spreadsheet software. You can search for them using terms like “marketing budget template,” “free marketing budget spreadsheet,” or “marketing budget planner.”

image alt text Image source: Hubspot

The above image represents the Master Marketing Budget Template, which lets you effortlessly integrate and consolidate your marketing budget, streamlining your financial management process. Remember, while templates provide a helpful framework, customize them to fit your specific business needs and marketing goals. You may need to add or remove sections depending on your unique marketing strategy and budget complexity.

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