“Where do I start?” As Vice President of Account Service, that’s typically the first question I get when a client is about to begin the daunting task of developing their annual marketing budget.
While there are no hard and fast rules on how best to establish a marketing budget, I usually recommend starting by asking a series of questions — about the company, the competition and customers. Here are five questions to ask to get your budget discussion started.
1. What’s the state of your marketing engine?
Before you embark on any budgeting and development, it’s essential that you audit your company’s overall marketing health. Do you have a well-established brand in place with logo, color palette, brand identity and key messages locked down? What about an established website or a system of sales tools that your sales team can use to win new business? If you’re missing any of these key components, chances are you’ll have to allocate a big chunk of your marketing budget to build out these deliverables before you can embark on a true marketing campaign.
2. How long have you been in the business?
For businesses that have been operating for one to five years, a good rule of thumb is to allocate anywhere from 7% to 10% of your gross or projected revenue on marketing. If you’re an established company with more than five years of business under your belt, you may be able to commit less. If you’re in a competitive industry, you may need to allocate more. While these guidelines don’t work for every business in every industry, it’s enough to begin a conversation about what percentages are best for your company.
3. What are your sales and marketing goals?
Once you have some rough numbers in place, a good next step is defining your sales and marketing objectives. What does success look like a year from now? For some companies, success may be a 10% to 20% increase in sales. For others, success may be landing one big fish. By defining your end goal, you can start laying the groundwork and begin outlining tactics. Once you have goals established, be sure to share them with your team and check back throughout the year to ensure you’re on track.
Also, your objectives and goals of any marketing plan should include what KPIs will be used to ensure success. For example, if 20 new clients are worth $20 million to the business, and if you can attribute your marketing efforts to driving qualified leads that turn into those 20 clients, would it be worth investing 5% of that value to acquire the business? Set expectations as to your costs per lead and track that constantly.
4. What do your customers’ buyer journeys look like?
How do your customers find new business partners? If it’s primarily online, then allocating a large proportion of your budget to digital outreach is a smart choice. But if your customers rely on old school one-one-one sales, then you may need to bolster your sales tools. Chances are, you’ll probably require a mix of online and offline tactics to reach your customers. If you’re unsure about customer buying patterns, then I suggest you start with the development of audience personas. This can help define customer pain points, outline business needs and paint a picture of your customer’s overall mindset.
5. How competitive is your industry?
Do you operate in a highly competitive field where you are one of a hundred players competing for limited mindshare? Are you a startup with little name recognition? Or maybe you’re lucky enough to be the industry leader and you just need to use marketing to maintain your pole position. Each of these scenarios provides its own unique challenges. Typically, the more competitive your industry, the more budget you’ll need to get noticed. So be honest about the competition and be realistic about your marketing goals. That’s the only way to create a budget that yields results.
Remember. Math is hard.
Developing a marketing budget is not easy. You have to look at a number of factors and data points, all while managing demands from players within your organization, from the CEO to the sales team. It takes hard work, research and some good old-fashioned guesstimating. So go ahead and get a first draft on paper and then refine from there. Seek advice from your counterparts in similar companies. Share a draft with your sales team. Or better yet, share your marketing budget with your agency to get their feedback. We do it all the time and we’re always here to help. Good luck and happy budgeting.