Building a successful company almost always involves successfully marketing your product, your service, or yourself.
Far too many companies underspend on their customer-facing efforts, or instead they overspend trying to reach a specific target audience. For example, if your target audience is older consumers, marketing money spent on social media campaigns may not be effective in reaching them.
One of the best ways to make sure that your marketing money is being well spent is to develop a comprehensive marketing strategy and come up with a solid marketing plan. Following a well-defined plan will help ensure you’re spending your marketing funds wisely and appropriately.
A marketing plan should includes everything from understanding your target market and your competitive position in that market, to how you intend to reach that market (your tactics) and differentiate yourself from your competition in order to make a sale.
Your small business marketing budget is an essential component of your marketing plan. It will outline the costs of how you are going to achieve your marketing goals within a certain timeframe.
Here are the six steps to developing a marketing budget as part of your marketing plan:
1. Know Your Sales Funnel
Building an effective marketing budget requires a deep dive into your sales funnel, where you’ll track results throughout the revenue cycle, from prospect to customer. Harvesting this data from your marketing automation software or CRM makes this process relatively simple:
- How many site visits do you have per month?
- How many leads are you generating per month?
- How many of the leads convert to sales qualified leads (SQLs)?
- What’s the cost of generating these SQLs? (e.g., website development, outsourced content creation, Pay-Per-Click, time spent by marketing and/or sales to nurture these leads, etc.)
- How many leads convert into opportunities?
- How many of those opportunities close as new deals?
- What’s the typical value/revenue of a new deal?
2. Know Your Operational Costs
Next, you’ll need to understand your operational costs:
- How much would it cost in time and labor to deliver contacts?
- Does your internal staff have the bandwidth required for this work, or will you require additional headcount along with the related employee benefits costs?
- How much would it cost if you hired an agency of record? (The upfront costs will be higher than doing it in-house, but the results and return on investment could justify the additional expenditures.)
- What are the potential costs of your inaction? (Be sure to calculate rapid changes in the marketplace and if you can afford to reduce your market share in the face of current and future competition.)
3. Set Your Marketing Budget Based on Business Goals
Determine your business goals by asking yourself the following questions:
- What are your business objectives for the quarter?
- What are your business objectives for the year? How about three years out?
- How many of those contacts need to be delivered to your sales team, based on their close rates, to impact revenue enough to achieve those objectives?
It’s common for small businesses with revenues less than $5 million to allocate 7-8% of their revenues to marketing, splitting that between brand development costs such as websites, blogs, sales collateral, and promotion costs, as well as campaigns, advertising, and events. Never base your marketing budget simply on what’s left over after covering all other expenses.
4. Position Marketing as an Investment, Not a Cost
More often than not, marketing budgets descend from the top of the organization where marketing teams are considered cost centers and the marketing budget is perceived to be an expense.
By this thinking, organizations will look at last year’s marketing expenditures and make a decision about where they want to spend more or less. Instead, your marketing budget should be treated as an investment, something that will bring a quantifiable and ascertainable return on investment over time.
5. Consider Your Growth Stage
Setting your marketing budget will also be influenced by whether your organization is in growth mode or planning mode.
Growth Mode. If you’re in growth mode, you’ll need to generate top-line revenue at a faster rate, so you might consider deeper investments in more of the quick-win marketing techniques.
Take an iterative approach in further developing your website, so your website can become a central marketing hub rather than an online brochure. Iterative development and maintenance could consume a significant part of your budget, but the rewards are well worth it.
Planning Mode. If you’re in more of a planning mode, where steady growth is more welcomed than spikes in revenue, you’ll want to consider a longer-term marketing play through earned media. This includes generating and publishing great inbound content and eventually earning new business over time.
6. Understand Current and Future Trends
An understanding of current and future marketing trends can also help you to navigate the budgeting process.
When setting a marketing budget, it’s important for marketers to adopt and apply different technologies to their marketing stack to keep up with the pace of industry changes. If you are using email in your marketing strategy, take advantage of features such as contact insights, email tracking, and email scheduling. (Check out 6 Email Marketing Tips That Will Actually Make a Difference for helpful tips.)
Many times companies react to the latest “marketing” idea without validation and research that they will successfully reach their target market. A marketing budget should include traditional market approaches as well as the emerging social media market. Focus on your audience, what form of communication they are likely to respond to, and what your message to them should be.