As a rule of thumb, your marketing budget should be a percentage of your revenue. B2B companies should spend between 2% and 5% of their revenue on marketing. For B2C companies, the proportion is often higher—between 5% and 10% of their revenue. Below are 10 tips for creating an effective marketing budget, along with the most common marketing mistakes and how to avoid them.
10 Tips to Create an Effective Marketing Budget
These tips cover everything from the planning phase to execution. Developing a marketing budget was never easier!
1. Plan in Advance
Waiting until the start of the new year to do a marketing budget is a great way to have a disorganized budget that leads to wasted money on marketing efforts that don’t convert. You need time to walk away from your initial marketing ideas so you can come back to them with a clear head. And when the numbers don’t add up (and often they don’t), you need time to develop new marketing solutions.
2. Start with Your Sales Goals
Setting goals is an important step in building a marketing budget.
- How much revenue do you need to make each month?
- How many sales do you need to make your monthly revenue goals?
- How many leads do you need to generate?
- How many of those leads need to convert into sales?
Research what percentage of your leads typically convert. If you’re just starting, research typical sales conversion rates in your niche to get a realistic target.
3. Develop Your Customer Buyer Journey
A customer buyer journey is a series of steps your potential customer takes to purchase your product or service. Outlining your buyer journey will help you understand your marketing needs:
- How do your clients find you?
- What do they need to know before they buy?
- What major factors contribute to their final decision?
- How will you retain your customer?
- How will you convert your customers into advocates for your brand?
Whether it’s social proof, videos, or free resources, knowing what your customers need during their journey can be eye-opening and inform your marketing plans and budget.
4. List Your Operations Costs
You need to know exactly how much money is going out and how much is coming in to create a marketing budget for your small business. Create a spreadsheet with all your current or anticipated operational costs. Costs may include staff, inventory, SaaS subscriptions, web hosting, sales tax, professional fees, social media promotion fees, and whatever else you need to run your business. These essential business expenses will paint a realistic picture of what you have to work with regarding your marketing budget. It’s important to carve out a monthly marketing budget.
5. Assess Last Year’s Budget
If you are already in business, start with what worked well and what was a waste of money the previous quarter or year. Were there areas you went well over budget? Were there categories in which you never spent a dime? Look at your current marketing expenses. What drives website traffic and sales results? That will let you know where to invest your time and money in a new marketing budget.
6. Understand Your Niche Market
You need to look at what your competitors are doing with their marketing efforts. Look at your top three competitors. Use the website spyfu.com to check out where they spend money on their website. Are they buying online ads? Are they building inbound leads with thought leadership blogs, a podcast, or videos? What methods do they use for advertising? Do they favor direct mail over social media ads? Are they investing in every possible marketing platform or a select few? You might want to start with the basic tactics your competition is already using and see what works for your business. Remember, success leaves clues.
7. Assess Which Marketing Efforts Drive Revenue
Not all marketing is an expense. When you host a live conference or a paid webinar and charge people to attend, you are marketing your business and deriving income from that activity. Knowing what marketing efforts bring in money is a great way to assess their impact on your business. It also shows what is worth continuing and what needs to be scrapped. If none of your marketing activities drive income or leads, it’s time to strategize a few new marketing ideas.
8. Develop or Update Your Marketing Plan
Building a marketing plan is the fun part. By this point, you should understand where your business is and where it can go. Use the information from the above steps to build your plan.
- How much money will you need to spend to achieve your sales goals?
- What basic marketing tools can you use to get started?
- Do you understand how your customers spend time online?
- Do you know how they want to be marketed to?
It will be important to prioritize your spending. Focus only on what would make you more competitive sooner than later. Don’t launch a marketing tactic you can afford to invest in at least three to six months. Once the plan is fully fleshed out, setting a marketing budget for your small business will be easy.
9. Know the Difference Between a Sound Marketing Strategy and a Fad
You may have your heart set on a marketing tactic, but if it doesn’t support your overall business or the numbers aren’t showing up, it’s time to cut it and move on. If it seems that a trendy tactic being used by everyone else could work for you, keep in mind your business is different. What works for one company might not work so well for another. Focus on your customer’s needs and develop a unique, hard-to-copy marketing approach.
10. Expect the Unexpected
Remember that your marketing budget has many of the same characteristics as your personal budget. No matter how well you plan for every eventuality, something will come up without notice. Leaving a little wiggle room in your marketing budget for unexpected expenses lets you make sound decisions. Label a special column for emergencies, so the wiggle money doesn’t get needlessly spent on something frivolous for the office.
5 Common Marketing Mistakes
Now let’s discuss the most common marketing mistakes and how to avoid them as you build your marketing budget.
1. Failing to Set Clear Goals
One common mistake small business owners make when creating a marketing budget is doing it without clear sales goals. You cannot budget for something you have not even defined in the first place.
2. Not Testing Your Customer Buyer Journey
A broken customer buyer journey could also impact your marketing efforts and lead to failure regardless of your marketing budget. Therefore, you should test it regularly and make any necessary adjustments.
3. Failure to Coordinate Marketing Strategy and Sales
Suppose you do not coordinate the marketing budget with sales. In that case, you may end up with an advertising campaign with no direct impact on revenue, which is a waste of money unless it is strategic to build brand awareness.
4. Solely Focusing on New Customers
You may feel tremendous pressure to add new prospects to your company’s buyer journey. However, it will cost you about five times more to gain a new customer than to retain an existing one. Focus on keeping your current customers happy.
5. Failing to Evaluate Your Marketing Strategy
Marketing is a field that is constantly expanding and changing. This requires consistent learning to make the most out of your investment in your marketing efforts. You cannot learn whether your marketing budget has been put to good use unless you regularly evaluate the current strategy. Do an in-depth analysis of your marketing efforts. Look at the execution and results. Learn your cost per lead and your cost per sale. Also, evaluate whether all the marketing tools available to your team are used effectively.
Final Tips!
Creating a marketing budget for your small business doesn’t have to feel overwhelming. But with persistence and a willingness to study the competition, try new tactics, and track measurement, the process can help you build a solid foundation for your business for years to come.
A tight budget shouldn’t stop you, either! DIY marketing works too. Start small. Get specific about your marketing channels; this will make you feel more confident in your marketing efforts. When you’re learning to set a marketing budget for your small business, try one or two things to see what’s working.
And if you’re uncertain about how to market your business, take time to educate yourself! My Become Your Own Boss course has several weeks devoted to various aspects of marketing, including branding, planning your marketing approach, and creating your marketing strategy. Meanwhile, if your small business is already up and running, you may benefit from the information shared in my course How to Sell and Market Online.
As a final tip, I want to remind you that marketing is an ongoing effort. It is challenging to manage your business operations and lead your marketing too, but you must work on marketing one day a week or two hours every day. Marketing is the engine driving your business results. Focus on it.