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How To Create The Right Marketing Budget

One of the frequent questions new clients ask me is what should their marketing budget be?

Figuring out your marketing budget is an important aspect of your overall marketing strategy. Successful businesses know how to properly budget their marketing efforts. You don’t want to underspend because it means you are giving up the potential for growth. But you also don’t want to overspend and waste money.

In this post, I explain how to properly and accurately create a marketing budget. I also go through all the various cost items of your budget. And finally, I discuss how to forecast your future marketing and advertising cost.

Being a successful marketer isn’t just about thinking strategically or creatively. It’s also about accurately forecasting your cost, sales and return on investment.

If you are a startup or even an established business, the CEO will most likely be asking “So, how much do we need to spend on our marketing to hit our sales target?”. Your job as a marketer is to have the right answer to that question each and every time.

However, your job also means figuring out how to be cost-effective and spend in the right marketing efforts. And that includes cutting cost on marketing initiatives that are not successful.

What is a marketing budget?

A marketing budget is the amount of money your business is willing to spend on all of its marketing initiative and efforts. It includes all and various marketing activities including:

  • Marketing team cost
  • Marketing technology tools cost
  • Advertising cost
  • Content marketing cost
  • Creative production cost
  • Marketing agency cost
  • Marketing material and print cost
  • Non-Digital channel cost (TV, Radio, etc.)

It’s important to not confuse a marketing budget with an advertising budget. Your advertising cost is just a subset of your entire marketing budget.

Measuring your marketing budget

There are 4 main ways to measure your marketing budget.

  1. How much money you spend on marketing.
  2. The percentage of the marketing cost of your total business cost.
  3. The percentage of the marketing cost of your revenue
  4. The return on investment of your marketing cost

It’s important to measure your marketing budget across all four metrics and benchmark your business across the industry you are in.

According to Deloitte’s Feb 2021 CMO survey, businesses in the U.S are spending 11.7% of their overall budget on marketing. And their marketing budget represents 13.2% of their firm’s revenue. In other words, every dollar spent on marketing returned $7.62 in revenue. Of course, this varies across sectors and business sizes, but it should give you an indication of where your business currently stands.

CMO Survey - Feb 2021 - Marketing Budget

CMO Survey – Feb 2021

In saying that, the general rule thumb is that ambitious growth plans require bigger budgets. So, if you are currently spending around the average of 9% to 11% of your budget on marketing, you might want to consider increasing it.

What should your marketing budget focus on?

According to the same CMO Survey, Optimization of the company website, Digital media and search and Direct digital marketing were the top 3 priorities. Almost 75% of businesses invested in optimising their sites. And about 2 in 3 businesses invested in Digital Media and Search.

However, what your business should invest in will depend on your sector, business goals and business model. Your priorities can vary dramatically.

To decide on the allocation of your budget, a great place to start is by making small adjustments. For example, if the allocation of search ads is lower than your industry average, consider increasing it.

Another great way of deciding on budget allocation is by utilising attribution modelling to understand what marketing efforts are contributing the most to sales. To learn more about attribution modelling, check out this guide.

How to prepare a budget?

To create a marketing budget, the first step you need to take is to create your sales forecast. Knowing how much sales you need to generate will help you calculate how much you need to spend on marketing.

For example, if your goal is to generate $20 Million in sales next year, an average marketing budget should be around $2.64 Million (13.2% of sales). However, if your current sales figures are quite lower than your sales targets, you will probably need to invest a lot more.

Once you figure out how much you need to spend, start breaking down the budget into the various cost items.

Generally speaking, you should allocate 10% to 15% of your budget on new and unproven initiatives. And the rest of the budget should go to marketing initiatives that have a proven return on investment.

Here are a few budget templates that can get you started.

Author avatar
Rani Arsanios
Founder and Director of SAVV Digital, Rani has spent over 15 years working and consulting brands and businesses globally on how to improve and optimise their sales and marketing capabilities.

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