How to create a marketing budget
Marketing powers business growth. It is how you build overall brand awareness and encourage people to consider your product. While word-of-mouth marketing is ideal, the reality is that you will need to pay to attract prospective buyers. Part of your job is to create a marketing budget that allows you to efficiently generate and engage leads.
There are plenty of areas you can invest in — from content marketing to agency partners. But because there are so many different approaches you can take, deciding how much to spend on each program is a tricky balance. It is not always clear which programs or tactics will generate meaningful results for your organization. And folks across the company — particularly B2B sales teams — have lots of opinions about where marketing should invest time and money.
That is why it is so important to set goals at the marketing level that align with broader organizational objectives. With a clear definition of what you want to achieve — and how your efforts will impact the company as a whole — you can zero in on the tactics that will best help you get there. Then you can analyze costs and projected returns of those efforts in order to effectively allocate your budget.
Approach budget discussions with a clear plan that includes objectives, how you will achieve them, and the projected return of those efforts. This will help you feel more confident in the budgeting decisions you make.
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Who is involved in determining a marketing budget?
Before you can decide how to distribute your budget, determine how much money you have to work with. The following stakeholders typically work together to draft, approve, and allocate a marketing budget:
Finance and executive team: Finance and executive leaders across the organization may come together on an annual, biannual, or quarterly basis to allocate funding across the organization. Typically, the amount allocated is based on profitability and sales projections.
Marketing leaders: Team leads may propose a budget based on the anticipated spend needed to achieve the marketing goals.
Program leaders: Program leaders, such as the digital marketing manager or social media manager, may provide detailed budget requests for a given program.
No matter how your team arrives at the budget, you will be expected to make the most of what you are allocated. Be prepared to track spend and ROI closely — vying for a larger budget in the future depends on it.
How big is a typical marketing budget?
Marketing budgets vary greatly. The more aggressive a company's sales goals, the higher the marketing budget. Some research shows that companies spend an average of 12 percent of the overall budget on marketing.
An organization's industry, size, and maturity also play a role. Business-to-consumer (B2C) companies tend to spend more on marketing than their B2B counterparts. So do organizations in a high-growth stage with ambitious lead targets. Newer companies make more quarter-over-quarter budget adjustments than mature organizations, which have a deeper knowledge of what has worked well in the past.
What expenses does a marketing budget typically cover?
The best marketing teams enhance core programming with fresh ideas and innovation. It is important to leave room for experimentation in your budget in addition to funding the always-on efforts. These are the areas that marketing teams typically invest in:
Paid campaigns: PPC, banner, or social media ads
Events: Conferences, trade shows, or in-store events
Freelancers and agencies: Content, design, PR, and SEO support
Research: Surveys, focus groups, and other market research
Tools: Software and infrastructure (e.g., your website)
Determining the amount you allocate across all of these tactics and efforts requires trade-off decisions. Some marketing activities are better suited to lead conversion while others amplify brand messages. For example, if you want to attract new leads, you might spend more on digital ads. If you want to generate sponsored or earned media placements, you might hire a consultant or agency.
How to distribute the budget across marketing activities
Your budget decisions should be based on tangible goals. Here is how to calculate the estimated cost and determine the appropriate spend:
Start with goals
Marketing goals should be time-bound and associated with measurable success metrics. Your target for each of these metrics should be practical and achievable. You may need to rank goals in order of importance — this will help you understand where you need to spend more of the budget.
Marketing goals and success metrics typically fall into these areas:
Goal: Build brand awareness Success metric: Website traffic, clicked links, ad impressions
Goal: Target new customers Success metric: New leads
Goal: Increase sales Success metric: Conversions (e.g. trial signup or purchase)
Estimate the cost of each goal
Now determine what it will cost to achieve each goal. You can estimate costs using data from prior campaigns. If you do not have historical data, refer to the averages for your industry. Identify the following across marketing activities:
Average cost per new lead
Average cost per conversion
Average cost per website visit or impression
Calculate spend
The next part requires a bit of math. For example, imagine that are planning a social media campaign that promotes your thought leadership content. You have set a target of 200 new leads. Based on prior campaigns, you know that your average cost per lead on social is $100.
GOAL (200 leads) x COST ($100/lead) = ESTIMATED SPEND ($20,000)
Allocate an appropriate amount of the budget to reach the lead target and repeat this process for each of your goals. If the cost to achieve your goals exceeds your budget, you can evaluate other marketing activities with a lower cost or adjust the goal target.
Tracking ROI and adjusting the budget
Much of this early budgeting work is based on projections. But as you begin to launch marketing programs and campaigns, you need to track progress towards your goals. Based on that progress, you might need to adjust tactics as well as spend.
Lots of marketing teams talk about tracking results and being data-driven, but few do it exceptionally well. It is easy to get stuck in the detailed work and forego reflection. For example, when attracting new leads, it is not simply about hitting the lead target number. Not all leads are qualified leads — some will be cheaper to generate but will never convert to a sale. That is why data-driven marketing teams calculate projected ROI during the budgeting planning process and then evaluate and adjust efforts based on the actual returns.
Projected ROI
Let's return to the social media campaign example to project an ROI. First, you need to estimate the revenue you will gain from attracting 200 new leads. This requires two additional metrics — lead-to-sale conversion rate and average sale price (based on organizational data or industry averages). In this example, lead-to-sale conversion rate is 5% and average sale price is $5,000.
[LEADS (200) x CONVERSION RATE (5%)] x SALE PRICE ($5,000) = ESTIMATED REVENUE ($50,000)
With this estimated revenue number, you can now calculate projected ROI using this formula:
[REVENUE ($50,000) - MARKETING COST ($20,000)] / MARKETING COST ($20,000) = PROJECTED ROI (150%)
Not all marketing teams use revenue to calculate ROI. Many teams focus instead on potential revenue added to the sales pipeline. Still, this is a valuable exercise because you now have a set of concrete numbers to use as a baseline.
Actual ROI
As programs and campaigns get underway, compare projected ROI to actual ROI to select the optimal marketing mix going forward. Depending on the length of your organization's average sales cycle, you will need to make adjustments that work for your unique situation. To track actual ROI as you work, pay close attention to these metrics:
Number of new leads/conversions/impressions
Cost per new lead/conversion/impression
Total cost per program, campaign, or activity
Lead-to-sales conversion rates
Revenue or sales pipeline
This process is fairly simple for digital activities that have straightforward tracking, such as paid social media and search ads. For PR and content marketing, it may be more difficult to attribute new leads, conversions, and sales revenue directly. Marketing automation tools and tracking URLs make it more feasible to attribute leads or conversions to certain activities. But that cannot always account for a prospect's mixed use of devices (e.g., mobile and desktop) and other online variables.
When you know the ROI of your marketing spend, you can identify opportunities, limit wasted expenses, and refine the next round of budget planning.
Effective marketing depends on validated strategies as well as new experiments. Pay close attention to which efforts are working and do your best to duplicate that success. Strategic marketing teams use purpose-built software like Aha! to plan programs, prioritize activities, and show impact.
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