Table of contents
- What Is a Marketing Budget
- Why Do You Need to Define a Specific Marketing Budget
- Cost: List of Marketing Expenses
- Value: Plan Your Revenue Goals
- 3 Steps to Plan Your Marketing Budget Effectively
- 5 Typical Marketing Budget Mistakes to Avoid
- How to Measure Your Marketing Budget Effectiveness
- Utilize Marketing Analytics with OWOX BI CMO Dashboard
The Ultimate Guide to Effective Management of Marketing Budget
Masha Efy, Creative Writer @ OWOX
Planning a marketing budget might feel daunting, but it's definitely doable. A solid budget ensures your strategy aligns with your business goals. In this article, we'll guide you through creating an effective marketing budget to simplify your planning.
What Is a Marketing Budget
A marketing budget is a document that demonstrates how much money a company will spend on promoting its products or services over a specified time - 3 months, 1 year.
The marketing budget should include expenses for planned marketing efforts, such as ads, organic content, public relations, direct marketing, and other activities aimed at promoting a product or service.
Why Do You Need to Define a Specific Marketing Budget
Making a marketing budget can help you in many ways:
- You can decide which projects are most important and where to spend money.
- Use the money in smart ways, like for tools or projects.
- See if you're doing better than before, year after year.
- Save money for projects coming up, so you're ready to start.
- With a budget, you can explain why certain projects are valuable to others.
- See if the money you spend on projects provides you with a better return.
- You can show others why your projects are important.
- If your projects make money, you might get more budget next time.
- If you need extra hands for your plans, you can set money aside for that.
A good marketing budget is not only about money. It's a tool that will keep you safe from problems and will help you show others why your work is important.
Now, let's consider the marketing expenses to include in your budget.
Cost: List of Marketing Expenses
Marketing costs include all the money a company spends on selling, promoting, and developing its brand. This covers advertising, software, team, and content creation.
Setting aside budgets for marketing is important because it helps people know about your business and makes it grow. Even though companies often cut down on marketing activities when things get tough, they start adding it back bit by bit when things get better.
According to the Gartner survey, which involved 410 CMOs and marketing leaders from North America and parts of Europe, the channels that require more budget allocation are social advertising, digital video advertising, influencer marketing, digital display advertising, and SEO. These channels are likely receiving more attention because they work better for reaching and engaging with customers online.
When you're making a budget, keep in mind a few things to decide how to split up your marketing funds.
We've prepared a Google Sheets budget template that you can use to control your marketing expences.
Digital Marketing Budget
Digital marketing budget is typically managed by the marketing team, especially the Chief Marketing Officer (CMO) or Digital Marketing Manager, who controls the distribution of resources to different digital channels. It includes costs for various online activities such as social media advertising, search engine optimization (SEO), email marketing, and paid online campaigns.
Website Management Budget
A Website Management budget includes funds to support and improve your company's website. The responsibility often falls on the IT or web development team, ensuring the site functions well and provides a positive user experience.
Content Marketing Budget
Creating content, such as blog posts, videos, and images, writing outreach articles, and sharing it with your audience also costs money. The responsibility for managing this budget often falls on the marketing team, particularly content strategists and content marketing managers, who plan, create, and distribute content through different channels.
Paid Ads Budget
The advertising budget is the money for promoting a brand or products through paid methods within a certain timeframe (a year or a few months). Companies use this budget to pay for running the ads (often counted by clicks or views), creating the ad materials, and other costs like hiring an agency to handle the ad campaigns. The size of your ad budget can influence the kind of campaigns and strategies your brand can use.
Product Marketing Budget
This budget covers expenses related to launching and promoting new products. Product managers and marketing teams collaborate to manage it and support activities like market research, product launches, and promotional campaigns.
Design & Creative Budget
Money for branding and creative marketing covers printing, supplies, IT equipment, and special software. Allocating resources to this budget allows you to create beautiful graphics, logos, and other creative elements that differentiate your business. These visuals not only attract attention but also communicate your brand's message, encouraging customer engagement and loyalty.
PR & Events Budget
The PR & Events budget supports your company's public image and is important to participate in industry events. PR managers and event coordinators typically handle it, covering activities like media relations, press releases, and event sponsorships. Investing in this budget helps build brand reputation and promote valuable connections.
Analytics and Tracking Tools
To keep growing, you need to put a good chunk of your budget into analytics. How much you spend on analytics usually relies on the tools you choose, the people you hire, or whether you get help from outside agencies.
Value: Plan Your Revenue Goals
The revenue goal is the financial target you need to set for a specific period, like a month, quarter, or year.
Setting a revenue goal is necessary as it provides a yardstick for the company's performance. If your business falls short of its revenue goal, you have to make improvements to enhance its financial outcomes.
Determine Your Overall Revenue Goal
To calculate your total revenue goal, start by evaluating your current earnings and growth ambitions. Take into account expenses, market dynamics, and industry trends. Then, break the goal into manageable stages aligned with your business strategy, and regularly monitor progress to adapt strategies as required.
Define the Sales Cycle for Your Business
Defining the sales cycle for your business means understanding the journey a customer takes from initial interest to purchase, which includes awareness, consideration, decision, and action. Identify touchpoints, stages, and interactions required in each phase to create an effective sales journey.
Decompose your Revenue Plan by Channels
Lastly, take a closer look at your revenue plan by considering different ways you make money. Break down your goals into specific channels like online sales, partnerships, or direct sales. Decide how much money and effort you'll put into each area. This organized approach increases your chances of not only hitting but even exceeding your revenue goals.
3 Steps to Plan Your Marketing Budget Effectively
Now that you understand the importance of a marketing budget, let's take a look at three steps on how to create one:
Step 1: Identify Your Business & Marketing Objectives
Every guide on creating a marketing budget will tell you this step is important – and they're right. Your goals can be increasing sales, generating more leads, and social media followers, etc.
When you choose your goals, make them specific and smart. Instead of "selling more," aim at "increasing online orders by 30% within the next three months." This way, you have a clear target – you want to see a 30% increase in online orders – and you've set a timeline, which is the next three months. It helps you and your team focus on a clear objective and work together to make it happen.
Step 2: Fill Out Your Marketing Budget Planner
Completing your marketing budget planner involves more than just numbers; it's about aligning costs with your goals.
If you focus on increasing awareness, put more budget into social media like creating eye-catching posts, running targeted ads, and collaborating with influencers.
Also, consider supporting public relations activities such as press releases and events that will help get your brand noticed by a broader audience. This strategic distribution ensures your resources are directed where they'll have the most effect and get you closer to achieving your specific goals.
Step 3: Put Your Marketing Budget Into Action
Once you've got your budget all set, check the numbers and how much you're actually spending. This helps you see what's working and what's not, so you can make changes.
Now it's time to put your marketing budget into action by following these steps:
Approve your marketing budget. Prepare a detailed marketing budget proposal that outlines your goals, strategies, and how the allocated funds will be used. Include a breakdown of expenses for various marketing activities and channels. Your Founder, CEO, or Board members might have questions, so be ready to answer them and acknowledge potential risks in your marketing plan.
Discuss the new marketing plan with the team. Have a meeting with your marketing team to lay out the new plan. Share your business plan, marketing strategy, sales schedule, product launches, target customers, and events you're involved in. Talk about the goals, strategies, and what everyone's role will be.
Conduct weekly team meetings. Regularly sit down with your marketing team to plan out the week ahead. Begin by reviewing the tasks and goals set in the previous meeting: discuss what was accomplished, any challenges faced, and the lessons learned. At the end of the meeting, assign responsibilities, and deadlines, and ensure everyone understands their role moving forward.
Measure and evaluate progress. Keep track of how things are going. Are you reaching the targets you set? Are you spending according to the plan? Determine the specific metrics that align with your goals. For instance, if your goal is to increase brand awareness, metrics like website traffic, social media engagement, and reach might be relevant. Based on your analysis, make necessary adjustments to your marketing strategies. If you find that one channel is not performing as expected, think about reallocating resources to more successful channels.
Define budget effectiveness and improvement. As you go along, figure out what's working and what's not. What parts of your marketing budget are really effective and what areas need improvement? This will help you adjust your budget for the future.
5 Typical Marketing Budget Mistakes to Avoid
Making a good marketing budget can be hard, and if you make a mistake, it could cost a lot. Moreover, you might not have as much money as you want for your budget. So, it's important to know the common mistakes businesses make when planning budgets.
Let's look at these mistakes and figure out how to avoid them:
Mistake 1: Not Aligning Marketing Budget with Business Objectives
One of the most critical mistakes is creating a marketing budget that doesn't directly support your business goals. It's a good idea to ask your team members how their work helps achieve the company's objectives. Sometimes, they may spend money on things that don't really help the company.
For example, they had $10,000 planned for a campaign but only spent $8,000. What happened to the remaining $2,000? This is what is called "trapped budget." People might spend that leftover money on something not directly linked to helping the business, like buying more stuff for a trade show.
To prevent this, keep an eye out for non-strategic spending.
Mistake 2: Spending on Marketing Channels with Low ROI
It's essential to regularly evaluate the performance of different channels and allocate resources to those that generate the most results. Analyze main metrics like conversion rates, customer acquisition costs, and revenue generated from each channel to identify where your budget should be focused.
Mistake 3: Focusing Only on New Customers, Discounting Current Ones
Actually, it's more effective and cheaper to keep the customers you already have. Instead of always looking for new ones, invest in strategies to keep your current customers happy. For example, you can create loyalty programs, send them personalized messages, and give them exclusive deals.
Mistake 4: Tweaking the Previous Year's Marketing Budget Without Evaluation
If you only use last year's budget without checking how well it worked, it could slow down your growth. Things change – how people buy and what they like. Instead of just changing numbers, look at what happened with last year's budget. If your costs remained relatively stable and within budget last year, you might consider maintaining similar spending patterns.
Mistake 5: Failing to Use Data and Analytics for Evaluation
Combining data from various sources can easily lead to errors or lost data, which in turn will mess up your budget calculations. But good analytics can stop these problems and give you trustworthy information for smart planning.
Build end-to-end marketing analytics with OWOX BI
How to Measure Your Marketing Budget Effectiveness
Let's go through the following steps to see if your marketing budget is effectively planned.
Keep Your Data Points Handy
Use spreadsheets or specialized software like Looker Studio to store and analyze the data. Using marketing tools can make a big difference in how you work. For instance, automation or analytics tools can tell you where your results are coming from, how much each lead costs, and how many people are actually becoming customers. It can also help you find new leads and take care of them until they're ready to buy.
Calculate CAC for Each Channel
CAC (Customer Acquisition Cost) estimates the cost of acquiring a new customer. It considers not only the cost of generating leads but also the expenses associated with converting those leads into paying customers.
To calculate CAC for a specified period, divide the total costs (marketing + sales) by the number of new customers. Then, repeat the calculation for each marketing channel you're using to compare the efficiency of different channels.
Calculate Customer Lifetime Value
Customer Lifetime Value (LTV) is a method to predict the total amount of money a customer will spend over the entire duration of their relationship with the company.
Average Purchase Value (APV) = $50
Purchase Frequency (PF) = 2 purchases per year
Customer Lifespan (CL) = 3 years
LTV = $50 × 2 × 3
LTV = $300
In this example, the Average Customer Lifetime Value (LTV) is $300. This means that, on average, each customer is expected to generate $300 in revenue over the course of their relationship with the business.
Calculate Other Metrics for Each Channel
There are also other important metrics you can calculate for each marketing channel:
Cost Per Lead (CPL)
CPL = Marketing Costs / Number of Leads
What it shows: CPL helps you understand how much you're spending on generating each lead. It's good for comparing the efficiency of different channels in terms of lead generation. Lower CPL indicates more cost-effective lead generation.
Conversion Rate = (Number of Conversions / Number of Leads) x 100
What it shows: Conversion rate tells you the percentage of leads that actually become customers. It helps you measure the effectiveness of your sales funnel and how well your leads are being nurtured and converted.
Number of Leads Needed
Number of Leads Needed = Desired Number of Customers / Conversion Rate
What it shows: This formula helps you calculate the number of leads required to achieve a specific number of customers, considering your conversion rate. It helps set realistic lead-generation goals.
Let's calculate these metrics for different channels for an online store. Let's say that a store is running two marketing channels: Google Ads and Instagram Ads. In a month, it spends $500 on Google Ads and $300 on Instagram Ads. Let's see some metrics for each channel:
Number of Leads: 100
Number of Conversions (Sales): 10
Conversion Rate: (10 / 100) x 100 = 10%
CPL: $500 / 100 = $5
Number of Leads: 120
Number of Conversions (Sales): 12
Conversion Rate: (12 / 120) x 100 = 10%
CPL: $300 / 120 = $2.50
So, what these figures can tell us? Since Instagram Ads have a lower Cost Per Lead (CPL) of $2.50 compared to Google Ads' $5, the store might consider allocating more budget to Instagram Ads to generate more leads at a lower cost.
Both channels have the same conversion rate of 10%. This indicates that the sales process is consistent across both platforms. However, it doesn't necessarily show which platform is more effective at converting leads. The store might want to analyze other factors like the quality of leads, the effectiveness of sales tactics, or the user experience on each platform.
Calculate Blended Customer Acquisition Cost
Blended Customer Acquisition Cost (CAC) is a metric that shows the total cost of acquiring customers across all marketing channels. To calculate it, add up all your marketing and sales costs for a specific period, including expenses from various channels, such as advertising, content creation, sales team salaries, and tools. Then, divide the total costs by the number of new customers.
Let's say your total marketing and sales costs for a quarter were $10,000, and you acquired 100 new customers during the same time frame.
Blended CAC = $10,000 / 100 = $100
A Blended CAC that is lower than the average customer lifetime value is generally considered good. For example, our average customer lifetime value is $300 and Blended CAC is $100. It means that we can confidently allocate a portion of our budget to the channels that are contributing to this favorable CAC, while also considering investing in efforts to maintain high customer retention rates.
Calculate LTV: CAC Ratio
The LTV:CAC Ratio is calculated by dividing the Lifetime Value (LTV) by the Customer Acquisition Cost (CAC).
LTV:CAC Ratio = Lifetime Value (LTV) / Customer Acquisition Cost (CAC)
In this case, the LTV:CAC Ratio would be:
LTV:CAC Ratio = $300 / $100
LTV:CAC Ratio = 3
A ratio that is higher than 3 suggests strong ROI from customer acquisition. Thus, you can adjust your budget accordingly:
Allocate more budget: Invest more in successful acquisition strategies for better returns.
Expand channels: Justified higher costs mean exploring new channels with potential long-term gains.
Optimize efficient channels: Scale and refine channels contributing to the positive ratio.
We have uncovered the strategies of improving LTV:CAC ratio in this article.
Keep a Closer Look and Track Expences
To sum up, you should consistently monitor your marketing expenses to stay on budget. Then, adapt your budget according to campaign performance, focusing on successful channels and trimming spending on less productive ones.
Utilize Marketing Analytics with OWOX BI CMO Dashboard
Using OWOX BI can help you track how well your budget works in real time. OWOX BI uses data to guide your decisions on where to put your money for the best results. You can see if your online marketing is making the profits you want from all the channels where you promote your business.
Elevate Your Marketing Insights with the CMO Dashboard
What key factors should be considered when determining the allocation of a marketing budget?Allocate your marketing budget based on business objectives, target audience, channel performance, competitive landscape, and the potential ROI of different marketing strategies.
What is marketing budget management?Marketing budget management involves planning, allocating, tracking, and optimizing financial resources for various marketing activities to ensure the highest ROI.
How do I set up a marketing budget?Create a marketing budget by setting business goals, evaluating past spending, pinpointing marketing activities, and allocating funds strategically to achieve objectives.