With the new year upon us, companies are beginning to set their goals, priorities, and budgets. In this episode, we discuss how to set up your marketing budget to meet the growth goals for your business.
KRISTA: Hi, everyone. Krista here. We're gonna be talking a little bit about marketing budgets today. This is the time of year when everybody is really looking at setting a budget for the next year. So I thought it was a good time to just kind of run through that process. Talk about, you know, a good way to set a marketing budget internally and even go back and look at overall ROI.
So let's start off by just kicking around what is a marketing budget in general, well it's really a marketing plan in terms of cost. So a marketing budget is really an estimated amount of what we think is going to be required to promote a particular product or service. The budget is a, generally a part of the marketing plan overall, and it's really crucial that you have one in place. So you really have a better idea of costs and you can really circle that back from a reporting perspective. So this can include anything from promotional costs like advertising, PR, all the way to employing staff and office costs. Anything that's really included in overall marketing is going to kind of get included in this budget.
One thing that I get asked a lot is what comes first, the budget or the plan? And this is really kind of a chicken or egg scenario here. And honestly, you can start either way. You know, it's do you figure out what you need to do and then put dollars to that or do you figure out what is my overall budget and then try to maximize within that budget to reach your goals? Honestly, I generally do some sort of combination of both of those things. So what do I know are my hard costs, and what do I think I want to do, and how can we maximize it within what we feel is an appropriate budget from there? You know, it's really like I mentioned before, it's really important to make sure you have these budgets set up upfront so you can really go back each year and look at overall ROI. How did our marketing perform? How did we do as far as our investment, return on investment? Are we getting our money back? In general, some of these pieces are a little bit harder to report on than others.
If we're doing more awareness campaigns, that's going to be a little bit harder to find your overall ROI. Just for simplicity's sake, we'll look at just overall investment dollars to sales dollars today just because that's the simplest way to look at ROI. But there's lots of different ways you can do it. As far as sales, qualified lead traffic, those types of things, those all have ROI calculations as well. So today, again, we're going to be looking at growth and marketing budget. So that simple calculation can really just be taking your overall sales growth from a business or product line, subtracting your marketing costs and then dividing that by your marketing costs, and that's going to give you your ROI. And here in a few, I'll kind of run through an example here where we can look at, you know, your total marketing budget, what that growth is and then what that return on investment would be if you actually hit your goals. So one thing to keep in mind here, as we're kind of establishing this budget is it's going to be a little bit different for each company, depending upon where your companies at.
So one thing that we want to look at is kind of mode of the company. Are you in a growth mode? Are you kind of a younger company who is really looking to make big strides, making really big growth, you know, impact over the year? Are you more of an established company who's been around for a while? You're not looking for really aggressive growth, but you're looking for steady growth over time. That's going to affect how much you really need to invest in your overall marketing to kind of hit those particular goals. So, again, that's a really important thing to kind of consider. Another thing to consider when you're putting together your marketing budget is going to be your competition. So how does your company fit into your overall landscape? How aggressive is your competition being in their marketing and advertising? How much brand awareness do they have and how much do you have and how much are you trying to gain in that marketplace? So having to see a really good idea of where do you fit and how aggressive are you really going to have to be? How many impressions, for lack of a better word, are you going to need to have out there in order to start making some of your goals?
Speaking of goals, that's also another really important thing to have in place. Just to make sure, again, you're really tracking back towards something. So as you're spending these dollars, you know you have a purpose. You know, you're trying to hit a certain objective, you know, so looking at, you know, what your business objective for the quarter, for the year, even three years out, you can kind of back that out and say, how aggressive do I need to be? Where do I really need to be putting my dollars? And then how many of the, how many contacts need to be delivered to your sales team or how many leads need to go to your sales team. Based on their close rate, based on their impact, you know, how kind of backing that all the way out. So from a traffic standpoint, from your website, how many visitors do we need to get to generate X amount of leads to generate X amount of closed deals? So kind of backing it all the way out to that can give us a good idea of again, how much we need to put or how much effort really we need to put in from a marketing perspective and then kind of leaning a little back again towards established company versus growth company. You know, how big is your company? How long have you been around? How established are you? Know that's going to make a really big impact on how much you need to spend.
So now we kind of have an idea of some of the things we need to look at as far as what makes an appropriate budget, what kind of things do we actually need to include in that marketing budget? I talked a little bit about it earlier, but this is literally everything that you're going to need to have to do marketing, you know, so it's trade shows, print pieces, promotional items, digital marketing, traditional marketing, software. They're going to need to execute on platforms, tools, websites, content marketing, reporting, social, advertising, branding. All of those different things need to go under this budget. Not to mention any personnel or anything like that, that needs to be included as well. So it's really important that you have a good number here. Something that really makes sense, and you're not kind of skimping on this because there are a lot of items that need to go under this budget or that should go under this budget to really kind of help things be successful. And one other thing that I would consider under this budget that oftentimes gets overlooked is allocating some budget for experimentation.
So there are new technologies that come out every year. There's new platforms that come out every year, and it makes sense to have a little bit of money to be able to play with those. See what's going to work for your company and just giving you that flexibility to not quite be so rigid and be able to explore new things that are out there. So now we have all these different pieces. Well, how do we actually break those down into a budget? Well, I can kind of tell you how I look at it. I'm sure many others have different ways of kind of looking at how we want to do this. But generally speaking, how I approach this as I look at all my hard costs first. So I look at the things that I know are going to be there. I know that each year these things are going to come up and I have to make sure I have place for them in my budget. So I look at software, trade shows that have already been established that I know I need to attend, media buys, any services that I have in place in order to execute on those marketing materials or marketing services. Any of those established costs. I want to make sure I have a line item in my budget for those. And then I look at adding in items that I want to include. So these could be new items, I might be promotional items or new software or anything like that that maybe I didn't do last year. But I know I want to try to include this year or new technologies or something like that. So you don't have to get as granular as I want to send out five e-mails per quarter or something like that. You just need to know, I need to have this amount of money in my budget to be able to utilize the software and you can back that out into your actual plan after you kind of have this in place or vise versa.
So from here, I also prioritize based on what I think the value is going to bring to the table. So, you know, I'll kind of way out. Is this particular item going to have more value than this other one and prioritizing my budget based on that? So if something does need to get allocate or reallocated or cut, I kind of have an idea of what should kind of go first, cause I really want to make sure that the pieces that have the highest value definitely make it into my budget versus the pieces that maybe just have some delight factor for customers. You know, so this could be anything again from brand recognition, ROI, engagement, all of these pieces kind of have to be considered in here. Generally speaking, I start from an annual perspective, so I kind of get the annual budget done first and then we can break it down into quarters or months depending upon how you actually want to track spend. It's great if you have the time to track your actual spend versus your projected spend. So that as the year kind of goes along, you can make adjustments, you can reallocate or you know why you are over or under budget as you go. Some companies have kind of a "use it or lose it" budget. So you kind of have to have a really good grasp on what you're doing, how it's performing, to know where you should really allocate your money at the end of the year if you have extra.
So let's get into the nitty-gritty here really quick and just kind of go over maybe an example and kind of get into some actual percentages of what we feel like is an appropriate marketing budget. Generally speaking, what we recommend is using a percentage of annual revenue or overall a growth initiative. So if you look this up online, you're going to get about a thousand different answers. Everybody has kind of a different opinion about really what that percentage should be. What we have found is appropriate in this industry is really kind of an eight to eight to ten percent in the Gartner reports would kind of back that up. They feel like that's a relatively appropriate budget, especially for B2B. Now B2C companies generally spend a little bit more. They might spend more like 15 to 20 percent on their overall marketing efforts just because their efforts are a little bit different than B2B companies. But again, if you're a growth company, you may have to kick a little bit more in there just because you have some more aggressive goals. You may need to spend a little bit more. And then again, make sure you're allocating some of that budget to actually complete the services, whether that's with your in-house team or with an external team. You want to make sure you have kind of that budget in there for actual execution on your marketing efforts as well.
OK. So let me walk you through an example here. I mean, you use nice round numbers to make my life a little bit easier. So let's say you're a 10 million dollar company and you want a three million dollar growth. So an appropriate marketing budget, if we're going to use that 8 to 10 percent range might be somewhere between $800,000 and a million dollars. So to go back at the end of the year and then calculate the ROI on that, let's say we did hit that 3 million dollar growth we were going for and we use the marketing budget of eight hundred thousand dollars. So you take the three million dollars in growth, subtract your marketing investment, which is the eight hundred thousand, and then divide it again by that eight hundred thousand, which is gonna give you 2.75. Now to make that a percent, multiply that by 100. Which is going to give you your overall ROI which is 275%. So you had a 275% return on investment, if you had a ten million dollar company, achieved the three million dollars growth, and had an eight hundred thousand dollar marketing budget. So hopefully you guys can kind of see how that comes together if you plug some of your numbers in there. You know what your company size is, what your growth is and then what your marketing budget is and then kind of be able to come back and do that ROI you can get a pretty good idea of how that money's returning for you. Is that a positive ROI and something you can really kind of keep tabs on throughout the year? If you're really tracking your budget appropriately.
So just to kind of follow backup, summarize some of these points. You know, it's important to establish an appropriate marketing budget for your company based on size, goals, how established your company is. You want to break that budget down into parts. You clearly know how much to allocate per marketing component and track your budget and results year-round. Also, don't forget to experiment some new technologies and find out what works for you guys. Thanks, everybody. Hope you found that insightful, and don't forget to rate in review.
Co-founder & VP, Client Services
Krista also has more than a decade of professional experience under her belt. Her expertise lies in graphic design, project management, and digital marketing for both high-profile and growing businesses. Currently, she functions as the VP of Client Services and lead strategist.
Building a great company is a marathon, not a sprint. Each week Krista Ankenman and her team at TANK New Media take on growth challenges, explore technology, and interview business leaders dedicated to growing better through continuous improvement. If you’re ready to build repeatable and scalable systems to drive your business forward, this podcast is for you.
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