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How to Decide Your Organization’s Marketing Budget
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How to Decide Your Organization’s Marketing Budget

Marketing Budget – What should it be? Should be $50, $500, $50K, $500K or even more?

Business owners generally get into analysis paralysis mode while deciding their marketing budget. And eventually, due to lack of proper mechanism, they end up with a budget that is not appropriate for the business.

Here are four ways that will help you choose the right marketing budget for your business. All of these ways have their pros & cons. Do consider them.

 

  • Competitive Parity:

This is the method used when you are completely unsure about the metrics of your business. It eventually looks at the competition, understands what activities they are doing in their marketing & their costs, and finally trying to match up or exceed their spending.

To get an understanding of competition’s marketing spends, they look at – published company accounts, industry reports or reports by media/research agencies. They are pretty close to the right number most of the times.

However, this method assumes that the competition is spending accurately and we have a comparable business with them. If that’s not the case, then our marketing budget will be inaccurate as well.

Let’s combine the above method with the next step, and we will be more powerful & accurate with our marketing budget.

 

  • Objectives & Tasks

This is the most effective & logical method. It suggests business owners to decide what business objectives they want to achieve and what tasks they have to do to achieve those objectives?

Let’s take an example here.
Business Objectives – Generate 1000 New Visitors to the Website
Marketing Tasks to Do – Activate Facebook Ads
What Business is Comfortable Paying Per Visitor – $3
Marketing Budget – $3000 Per Month

Now, the above example is quite straightforward. While implementing this method, there would be a lot of business objectives to achieve (users, new users, sales, etc.), a lot of marketing tasks to do (PR, Google Adwords, SEO). Ensure you look at the costs incurred to do these marketing activities – Facebook ads will require you to update creatives, so there is a designer cost to be included in it.

Eventually, once you have all at one page – you will be able to add the entire cost and come up with a marketing budget.

If you feel this is a lot of work, there is an easy way to decide marketing budget as well. Keep reading.

 

  • Percentage of Sales

This method ties the marketing budget with revenue of the business. 5-20% of the sales is what is ideal for marketing activities. More revenue and your marketing head will end up with a higher marketing budget & vice versa.

However, a major downside of this method is that it looks at the previous year/month sales to decide this year/month’s marketing budget, which might not be the ideal situation for the current financial year.

Do consider outside forces as well while making calculations.

 

  • Affordability

The last method that a lot of startups end up using is deciding on the budget that is affordable. A number is decided by calculating business & resource costs and income that the business generates.

Sometimes, business owners re-allocate costs among different activities to try to increase marketing budget & vice versa.

Feel free to share your thoughts about this article in the comments.

If you own a business and need marketing help, you might want to consider working with me.