How to calculate your marketing budget
How to calculate your marketing budget & where to spend for the best return
When it comes to marketing, the right amount of money can make all the difference.
This is especially true if you’re new to marketing or haven’t put much thought into how much you should be spending on your advertising efforts. The following steps will help you determine how much money you need to allocate towards your marketing campaigns so that they produce results.
How much should you spend on marketing?
Your marketing budget is a key part of your business plan. It’s the money you allocate for all of the activities that will generate revenue for your company, including:
- Paying for ad space or other promotional activity on websites and in magazines
- Running contests and sweepstakes to grow social media followers and drive traffic to your website
- Creating content (such as blogs, videos, infographics) that builds an audience and promotes your brand
Step 1: Take total revenue
Your first step is to take the total revenue of your business. This can be measured in many ways:
- Total number of customers served
- Sales volume (in dollars or units)
- Profit or loss
Step 2: Select percentage of revenue
Now, you have to select the percentage of revenue that you want your marketing budget to be. This is one of the most important decisions because it determines how much money you’re willing to allocate for marketing, and how much time and effort will be spent on doing so.
The best way to decide on this percentage is by considering three factors: (1) your business goals, (2) your target market, and (3) your marketing budget.
Step 3: Track your current marketing spend and if it works
- Start by tracking how much you already spend on marketing each month. You can use a spreadsheet
- You don’t need to be an expert in Excel to track your marketing spend. If you are not comfortable doing this, it might make sense for you to hire someone who is!
- Tracking your current spending will allow you to identify opportunities where improvements can be made and ensure that your budget is being spent wisely.
Step 4: Reflect on the strength of your offer.
The fourth step of the process is to reflect on the strength of your offer. You need to be able to answer these questions:
- Are you offering a unique and different value proposition?
- Is it relevant for your customers?
- Are you clear about what you want from them in return?
How to allocate your marketing budget?
The best way to allocate your marketing budget is based on deciding where your ideal customers are. For example, for local service businesses, 87% off people search online for a local service and read reviews before deciding to contact a business. An effective way to spend marketing money for local businesses is on Google, Yelp, Thumbtack, Angi, Facebook, and other localized platforms.
When building a marketing plan, it’s important that you take into consideration what kind of offer you want to promote. The following questions can help determine how much money should be allocated towards each type:
- What is my main target market? Do they have more disposable income than others?
- How many people do I expect to buy this product or service in a year? Will it be worth spending $20 per sale if I make 10 sales per month? Should I spend more if I only make one sale per month but that person spends $100 every 6 months (think carpet cleaning)?
There are a number of reliable methods to calculate your marketing budget while getting the best return on investment.
- Before you start any campaign, it’s essential to set a budget. If you don’t know how much money you can afford to spend on marketing, it will be difficult to make decisions and stay within your means.
- Tracking your marketing spend is essential in determining the value of your campaigns, seeing what works and what doesn’t, and making improvements where necessary.
- Reflecting on the strength of your offer is crucial when determining if there are additional ways for growth or if it’s time for a change.
Allocate Your Marketing Budget
Once you have calculated your marketing budget, it’s time to allocate it accordingly. Allocating the budget can be tricky as there are several factors that come into play when deciding how much money should go towards what type of marketing. It all depends on where you want your business to go and what kind of ROI (return on investment) you expect from each type of investment. Hiring a marketing company for your business is a great way to get access to a marketing expert and start building a marketing plan that is effective. Discuss your business with us here.