How to Plan a Marketing Budget

A marketing budget details your expected marketing expenditures over a specified time period. But how much should you spend, and where should you spend it?

Marketing budgets are usually formulated on a quarterly or annual basis. The budget will cover expenses such as the salary of your marketing personnel, marketing-specific software, advertising, marketing communications, and other activities. Developing well-planned budgets allow you to align your marketing strategies with your business goals.

Remember, the purpose of marketing is not to generate sales overnight but rather to reach your target audience and communicate the benefits of your product or service.

The big question is “how much is the ideal marketing budget?”. Marketing spend varies by industry, target market, competition, location & area, your company size, and other variables. According to the 2021 CMO Survey, a company spends between 10.4% and 13.7% of its total company budget on marketing.

However, according to this article that surveys of several SaaS IPO companies found that the median Sales & Marketing is 45.55% over their OPEX.

Step 1: Projecting Revenue & Strategy

Before we go into the numbers, it is easier to start with what is going to achieve in the next period? how many sales do you want to accomplish? how many leads do you need? what channels do you want to establish? what kind of marketing methods & tactics do you want to use?

Those questions are going to define what kind of activities and initiatives that requires in the future. First, You need to determine your business’s goals, plan short-term and long-term goals.

Planning a marketing budget is very close to defining a marketing plan. According to this article, A marketing plan contains one or more marketing strategies. It is the framework from which all of your marketing strategies are created and helps you connect each strategy back to a larger marketing operation and business goal. After you have a clear vision of the marketing plan, you should be able to view your Key Performance Indicators(KPI), list initiatives to support your effort to meet marketing objectives, identify your target market and persona and map out your competition.

In most cases, the sales target or revenue goal is already defined by the company. Achieving that target need to be clear on how many new customers will be acquired in the projected period. Here is a simple formula calculating the number of new customers.

Step 2: Define Activities & Budget Allocation

Marketing operational costs are the costs required to run your marketing activities. Activities and initiatives of course vary on the industry,

It is easier to group into budget types:

• Material, Tool & Software

These budgets might include the cost of production of marketing kits, content production, license of digital assets, email template, content planner software, competitive analysis tool, web analytics software, marketing research.

• Events

The budget also must be allocated on the event category including webinars, podcasts, exhibition, demo day.

• Ads & Promotions

Ads and promotions are basically the core of marketing activities and we should allocate a certain budget to cover this operation. These include the PPC campaign, social media ads, offline promotion, print ads, coupon and discounts, endorsement.

• Indirect and Others

This budget might include marketing operational salary, freelancer, marketing agency, and other overhead.

Step 3: Do Marketing Math

Instead of limiting our marketing budget by surveys about how much is the ideal marketing budget, personally, I prefer the other way around which is the cost of the activities based on the KPI defined in the marketing plan. Let say as a B2B company we need 15 deals, and prior to the deal, there are several journeys in the sales pipeline like awareness, hot lead, opportunity, and meeting. We need to define the conversion rate for each step. how many (%) awareness become lead, how many (%) lead become an opportunity, and so on and so forth. This method is sometimes called a goal-based budgeting strategy.

Here is the sample; On the left is our historical data, on each client we acquire we need to have 20 meetings which 5%, prior to meeting there is 500 lead that interest which 4%, before a lead is an interest we need to have at least 50,000 awareness (click, page view, etc) which 1%. To put in our case above, if we need 15 deals on a period, the calculation should be like in the right table.

After we found the number based on our previous conversion rate, we can specify what kind of marketing activities support our goal. What kind of content on social media, how many times do we post a blog post, how many events we need to have, how many expos we need to attend or have.

The above example is might be not suitable for your business and organization. You should identify your sales cycle or customer journey that fits your business.

That conversion rate is taken from the historical data which means that the company is already in the operation. You should encounter a great obstacle when you don’t have those data. In my personal experience, when you don’t have the data, there are two options, one is by assumption and the second is by quick A/B testing campaign. Both ways, we need to make a quick adjustment based on the data sampling on the marketing plan, target, and budget.

Back to our numbers, in order to calculate the budget, we can start evaluating our previous data.

Example:

A SaaS company, on the previous period, spends $500 on advertising and generate 50,000 visitors, and 5 become customers.

50,000/5 = 0.01%

$500/5=$100

With those figures, You can calculate the projecting cost. If the company needs to have 15 customers in the next period then the budget would be $100*15 which is $1500.

Final Words

Planning usually comes first, however you should close monitor how well your marketing performed. Evaluate and tweak your marketing as needed. Monitoring your marketing performance is important to know which activity or campaign is better than the other. That way you can maximize the effectiveness of your budget compared to the goal you want to achieve.