It can seem daunting and challenging to figure out how much money you should spend on marketing. Many of us need to figure out where or what to look.
Many factors go into determining your marketing budgets, such as your business goals and industry.
Budgeting is not a one-size-fits-all approach, but there are proven ways to budget your marketing budget accurately.
Get to know your numbers
Let’s get started with the numbers. You need to understand your business’ numbers and what they mean.
Let’s begin with a list you need to know before you decide on your marketing budget.
- Profit margin Learn how much you earn for each sale and then use it to calculate your net income.
- Price per inquiry: Learn how much it costs to obtain one enquiry or sell
- Price per sale/service: The amount you must spend to sell a product or service.
- Conversion rate This is the percentage of visitors who complete a practical action/convert to a total visitor.
Percentage revenue or fixed budget?
Knowing your numbers will make choosing the proper method to calculate your marketing budget easier. The correct method is crucial for your business, so don’t rely on your gut instinct. Instead, use the numbers we’ve discussed to help you make a decision.
Let’s discuss the two most commonly used methods.
Percentage of revenue
Marketing accounts for between 7-12% of total revenue in most businesses. This is why it’s such a powerful method. It’s because you have to spend money in order to make money. This is especially true as more businesses realize the importance of marketing.
You can avoid missing out on opportunities by not having a fixed budget. For example, if a channel is generating lots of sales, stopping it because you need more budget would be a poor decision for your company.
This is the flip side. If you aren’t meeting your revenue targets for 2018, setting aside a percentage for marketing will ensure that you don’t commit to something you cannot afford.
It all comes down to ROI (return-on-investment) in practice. You’ll continue to invest in a channel that covers all costs and provides a positive return. This is where your numbers really matter. It’s important to ensure that it’s possible with all costs and profit margins.
Fixed Budget
An alternative to using a percentage for marketing purposes is setting a budget. This is the best method for newer businesses as they don’t have historical data about their total revenue. Therefore, they must set aside a certain amount for marketing activities.
You’ll need a solid plan to market your business. This is why you need a marketing plan. Instead of spending too much on different channels and spreading yourself too thinly, choosing one SMART goal and focusing your efforts when creating a new company is better.
This method has one problem: there is no percentage or way to calculate it. Therefore, no one can tell how much you should spend. Research is the best way to establish your fixed budget. Ask other owners of similar businesses about their budgets and find out if it’s feasible for you. Do not compare yourself with large brands selling similar products/services. Instead, find a brand that is comparable in size so you can compare numbers.
Choose which marketing channel receives the investment
You don’t have to decide how much money you will spend on marketing. It’s also important to consider which channels to invest in when determining your marketing budget.
A common mistake businesses make is believing they must use every marketing channel. It is wrong. You should always ask yourself “How will this channel help my business?” You should only spend money so that you can see a return on your investment. Also, measure the impact of marketing activities.
Start by looking at the customer journey. Focus on each phase, such as awareness and consideration, when deciding which marketing channel you should invest in, especially if your new business still needs to be.
