Set Your Marketing Budget By Asking These 6 Questions
One of the biggest challenges with marketing is determining how to set a marketing budget.
No one can tell you exactly how much money is the perfect amount to spend on marketing. There are many factors that determine how much a brand should spend, and it’s never a good strategy to simply pull a number out of thin air and use that to guide your marketing budget.
The better approach is to analyze your business, goals, customers, and industry to determine what is the right amount to spend.
Here are a few questions to help you set your marketing budget.
6 Questions to Help You Set Your Marketing Budget
To set an accurate marketing budget, go through these questions at least once a year. We recommend revisiting these questions two or three times a year to make sure you are on the right path with the right resources to reach your brand goals.
#1) What’s Your Annual Revenue?
To set your marketing budget, it helps to start with an initial amount that you can increase or decrease based on other factors. You can get to that starting point by looking at your annual revenue and taking a percentage of that to set aside for marketing.
According to a CMO study conducted by Gartner, companies generally spend 7-10% of their company revenue on marketing. Take this percentage of your annual revenue to give you a starting point for setting your marketing budget.
#2) What Are Your Competitors Spending?
While looking at the average amount of revenue businesses set aside for marketing is helpful, it is even more helpful to look at metrics related specifically to your competitors.
For example, budgets may be higher for B2B brands than B2C brands. If you run an Italian restaurant, you likely don’t need to spend as much on marketing as a SAAS company. So look closely at the spending of your competitors.
- Research to find the average marketing spend for others in your industry. What’s a normal percentage of revenue to spend in your category?
- Conduct competitive research to measure industry spend on specific marketing initiatives. For example, what’s your industry’s average cost-per-click in digital ads, search, and social media? What’s an average cost per lead for your industry?
If you want to stand out from your competitors, you will likely need to spend more than them. You may need to increase your budget to meet or match your competition.
#3) What Are Your Goals?
A primary factor that will direct you to increase or decrease your marketing budget is your list of brand goals.
If your brand plans to maintain the status quo, you may be able to keep or decrease your marketing budget from the previous year. But if your brand plans to grow, you will likely need to add to your budget. Growth goals require more investment. So plan to increase your budget if your brand goals include things like:
- Increasing revenue
- Growing your customer base
- Moving into a new market
- Introducing new products/services
- Opening a new location
Even if you don’t have growth goals, pay close attention to your objectives. Assign key performance indicators (KPIs) to help you determine how much you’ll need to spend to reach your goals.
#4) What’s Your Customer Lifetime Value?
To determine how much to spend to attract a customer, it helps to know how much a customer is worth to your business.
Knowing customer lifetime value (CLV) -- the total revenue that comes from one customer over their course of doing business with you -- will help you determine how much is too much or too little to spend to attract the customer. For example, if you know the lifetime value of a customer at your restaurant is about $250 (each customer on average comes in for five visits and spends $50 per visit), you can confidently spend $20 to acquire the customer.
Data on customers is key in determining the value that each customer brings to your business. A customer data platform that creates profiles for customers so you can monitor how often they visit and what they spend will help you set an accurate CLV. If you don’t have data about your customers, set up a customer data platform to help you generate important customer sales metrics.
#5) What Marketing Tactics Do You Want to Use?
To run effective marketing campaigns, you need a realistic budget. You may need to tweak your marketing budget depending on the campaigns you want to run. For example, if you only have a budget of $500/month for search ads, but each click costs $20, you may run out of budget quickly. You may need to increase your budget.
Take time to review the marketing campaigns you want to run and the average cost associated with each. This exercise will either inform you that you need to increase your budget or cut certain marketing tactics out of your planning.
#6) What Marketing Assets Do You Need?
Marketing budgets must cover the cost of things essential for promoting your business. There are certain materials, tools, and software you will need to run the most basic marketing programs.
Consider the marketing assets you need and the cost associated with each. Basic marketing costs may include:
- Business cards
- Email marketing software
Then, consider the costs associated with any new marketing tactics you want to try. Go through each of your new initiatives and outline what marketing assets (creative, team members, tools, etc.) you will need to launch each new campaign.
Need Help Setting Your Marketing Budget?
Setting a marketing budget requires research, analysis, and planning. By answering these questions, you will get closer to the right marketing budget for your business.
But if you’d like expert help with working your way through the factors that determine the best budget for reaching your brand goals, MyArea Network is here to help. Talk to our team about how we can help you set a budget and create a marketing plan aligned with the right spend for your business.