Lido’s Guide to Creating a Marketing Budget in 2023
If you’re running a startup business, chances are that you give most of your attention to polishing your products and services, as well as to how to promote them so they will make a huge splash once you launch them. If you’re running an established business, you must be focused on increasing your revenues and minimizing your costs.
To do these things, you need to devote a portion of your funds to a marketing budget. A carefully-crafted marketing budget will help you pursue your business goals. This guide will help you do so, plus show you some tools you can use right now!
Why have a marketing budget?
Someone running any business knows how important money is. You have to spend the money, but it has to be spent on the right stuff so your business will grow. If you spend the money on the wrong stuff, it will cause losses on your side. Therefore, you need to do the following:
Plan your expenses, up to a single cent
Don’t underspend
Get the biggest bang for your buck
This is only possible if you have a marketing budget. Why have a marketing budget, then? WebFX lists the following reasons:
It helps you stay on track financially. A well-planned budget means that your expenses are also controlled. You can also allot a portion of your budget to unexpected expenses that may arise during the period covered, thus minimizing the impact on the finances of your business.
It helps you allocate funds to the right places. When you create your marketing plan, you set a series of goals and set up strategies to achieve them. You then mold your marketing budget to make it possible to implement these strategies.
It helps you set benchmarks and goals. Since your marketing budget is tied to the marketing plan, you can set expected outcomes for each strategy you plan to implement. Additionally, you can easily see which investments are giving you the largest return of investment (ROI). You can then spend more on those investments in the next budget period.
It helps you plan long-term. Businesses need to plan both for the short-term and long-term. Having a marketing budget helps you plan for the long-term by setting an assured source of funds throughout the budget period.
It’s an investment in your business’s growth. As you will learn later on, you don’t just invest in the immediate costs such as ad space but also on initial investments whose growth in value reflects after some time such as training costs and wages for your employees.
A marketing budget is not designed for you to lose money but for you to increase your revenues, so you shouldn't hesitate to plan your marketing budget even if you're a startup business still working on polishing your products and services.
How big should your marketing budget be?
The answer to this question depends on whether you're running a startup or a business with an established marketing plan. The general rule is, you have to spend a bigger slice of your initial budget on marketing if you're running a startup. Why?
You need to exert more effort to attract your first customers
You need to make sure you make the best first impression that you can of your business and the products and services you offer
This is also the time you make your initial investments in your marketing capabilities
These are the reasons you have to spend a bigger portion of your budget initially. Once you have established your business, you would notice that you can spend a smaller portion of your budget on marketing, but that depends on the marketing plan you have adopted, so always make sure you have a good marketing plan! We will talk about it later.
Are there any general patterns in the amount of budget allocated for marketing? Yes, there are. Here are some stats:
The marketing budget ranges from 2% to 10% of the sales of a business. On average, it ranges between 4% and 6%. Some companies spend up to 20% of net sales. (Empiread)
New businesses allocate 12-20% of revenue toward marketing while businesses older than 5 years allocate 6-12% of revenue toward marketing. (CoSchedule and Nuphoriq)
B2B businesses allocate 7-8% of revenue while B2C businesses allocate 9% of revenue. (CoSchedule)
While you can use them as your benchmark, we still recommend that you pursue a goal-driven marketing budget, where you align your expenses with what you need to achieve the goals you set for growing your business.
What should be considered in making a marketing budget?
As we have said in the first section, your marketing budget is tied with your marketing plan. The following factors should be considered when you start drafting your marketing budget:
The financial position of your business. If you are running a startup, you would naturally have a small budget. Remember: a small budget is not a hindrance! We now have more ways to market our products and services, especially with the existence of the internet.
Your market. Market research is now an essential fixture in the marketing world. The results of your market research will ensure that you can set the right and realistic goals, therefore setting a realistic marketing budget.
Regular market research is like the crew of a ship regularly checking if the ship is sailing in the correct direction. Regular market research will help you quickly react to changes in the trends in the market, thus minimizing potential losses if they ever happen.
Competitor actions. Both startups and long-established businesses will benefit from studying their competitors, both successful and unsuccessful ones. There are good reasons competitors prefer some marketing strategies and abandon others, and learning them early on will keep you from losing money on dead ends and bring you more revenues by implementing the proven strategies.
The demand for and the price of marketing services. You should want to maximize your ROI from your marketing campaigns, and one way is to reduce the costs. You can do so by scouting for the available marketing channels, their respective prices, and their ROI. Often you would spend money on multiple marketing channels and budget them accordingly by scheduling your use of them. For example, you would schedule Facebook ads so people can see them at least once each month or week throughout the entire year, instead of putting them up everyday only to last for a short period.
Existing marketing plans and previous marketing performance records. If you are running an established business with an existing marketing team, chances are they have existing marketing plans, records of the marketing strategies they implemented in the past, and how successful they have been. You should first analyze the existing marketing plans to see if they are worth keeping or not. You should allocate funds towards maintaining marketing plans and strategies that still work well and show promise of further growth. Afterwards, you could then look at new marketing plans and strategies that you can invest in.
In general, the ideal ROI is 5:1; that is, you earn $5.00 per $1.00 spent. This is not a straightforward calculation. You need to answer the following questions:
What metric or metrics should you measure in order to quantify the sales growth attributable to the marketing budget?
Once you answer that question, you now need to set up ways to measure these metrics that quantify the effectiveness of your marketing budget. Here's some advice from some of the marketing experts, as compiled by Databox:
“Define and set up tracking for your marketing channels, so you know where the best ROI lies—before dumping any money.” - Quincy Smith of Ampjar
“Ensure that you have the right marketing technologies in place to be able to measure and capture data at every point possible in your marketing plan.” - Kyle Turk of Keynote Search
“If you collect data and can attribute dollars spent with dollars earned for each channel, the allocation process will become much more intelligent and successful for your organization over time.” - Kelley Wrede of Revenue River
Clearly, the solution is to compile data across all your marketing channels into a single analytics tool that will analyze it and calculate the important metrics that will help you see whether your marketing plans and strategies are successful or not.
The ideal analytics tool should give you a big picture and also allow you to zoom in to individual data - helping you fine-tune your strategies and pursue profitable ones when needed.
One such analytics tool is Lido, which will help you integrate the data from multiple marketing and e-commerce channels into a single dashboard and calculate the chosen metrics, helping you see whether your marketing plans work or not. Click here to learn more about Lido.
What are the steps in creating a marketing budget?
After going through the considerations such as your budget and your market, you can now finally create a marketing budget that will help you fulfill your business goals.
Step 1: Identify your marketing foundation, or establish it before launch
Your marketing foundation is what you have. This includes the following, as identified by PR 20/20:
Brand. This includes not just the name, logo, and values but also the brand awareness and brand positioning. Brand awareness describes how many people easily recognize your brand. Brand positioning describes how you tell the story of your brand and its associated values. Brand awareness is important as a strong brand awareness will give you an advantage in launching your future marketing campaigns. Brand positioning helps dictate not just the tone of your future marketing campaigns but also even the content of the ads.
Customer and lead databases and buyer persona profiles. If you are part of an established business, you would already have a database of customers and leads. You can run an analysis on them to discover patterns among the customers and leads, such as the demographics of the customers. From that data you can construct buyer persona profiles that will help you set up targeted marketing campaigns more easily.
If you are part of a startup, however, you would instead get similar information through market research, so make sure you conduct it before crafting your marketing plans and strategies.
Website and online store. You need to stake your flag in the vast universe of the Internet. This is best done by launching your own website with an online store for your products and services. The website will also include an “About Us” page where you exhibit the ideals of your brand and the history of your business.
Competitive advantages and opportunities for growth. Upon conducting research on your competitors, you can identify the advantages that you have over them. Also, identify what opportunities can you pursue given the advantages that you have. Incorporate them in the resulting marketing plan.
Identifying them will give you the big picture of your business, which will help you craft your marketing budget. Your marketing budget should be directed to the marketing strategies that maximize your advantages, giving you the biggest ROI.
What if you're creating a marketing budget for a startup? Then what you have above is your list of targets for investment. You need to polish them first, as they will set the tone of your future marketing plans. For example, the success of your business can depend on the brand positioning, so you cannot afford to underspend on these important things that your business should have first.
Investigating your marketing funnel yields a huge amount of insights, including “weak links” that you can target in your next marketing plan and budget.
Let us review first what the marketing funnel is. ClickFunnels defines the marketing funnel as the path the customer takes from being aware of your brand to becoming a paying customer.
There are three main steps in the marketing funnel, with the corresponding insights you can gain from investigating them:
Lead generation: generating awareness of your brand. This is how your customers find you in the first place.
Lead nurturing: converting that interest to intent. Customers often ask for additional information before they decide to buy your product or avail of your service.
Sales: fulfilling the intent to buy by actually availing the product and/or service. At this point, the customers make the critical decision to buy your product or avail of your service. There are several things going on in their mind when making that decision.
To investigate your marketing funnel, you need to make sure you get data from all these important steps. FullStaqMarketer lists down the following metrics you can measure to assess the performance of your existing marketing funnel:
Pageviews, time spent each session, new viewers - shows whether your content is effective in pulling new visitors to your website.
Keyword ranking positions - a good way to show how your content performs compared to other similar content on the internet.
Content shares and reviews - how the target audience perceives the quality of your content
Traffic to your content and lead quality - can be measured in terms of specific content. You can also be creative in doing so; for example, you can track interest in certain content, converting it to a lead magnet and then requiring email registration before accessing them.
Lead, sales, and ad revenue - they finally measure how effective the bottom stage of the marketing funnel is.
Step 3: Select your marketing goals
Your marketing goals depend on the current situation, which we have identified in Step 1 and Step 2.
If you are a start-up, you should prioritize building your marketing foundations, as listed in Step 1.
If you are in an established business, you have more potential goals to pursue. OutboundEngine lists the following questions you can ask yourself:
How much revenue do you need?
How many sales do you need to make your revenue goal?
Determine how many leads you need to convert the right number of sales. At what percentage do your leads typically convert?
Some of the goals include earning more sales, increasing leads, earning more subscribers, or increasing brand awareness.
Step 4: Choose the marketing strategies and channels to use
There are now several marketing strategies and channels you can use. The following are the most commonly-used strategies, as defined by WebFX:
Search engine optimization (SEO): SEO is the process of boosting your website’s rankings in search results to help drive more relevant, organic traffic to your page.
PPC advertising: PPC ads are paid advertisements that appear at the top of search results pages and on other web pages. These ads allow you to reach more leads that are ready to convert.
Social media marketing: Social media marketing enables you to connect with your audience one-on-one and deliver informative content to them. This strategy allows you to build relationships with leads and nurture them into customers.
Social media advertising: If you invest in social media advertising, you’ll focus on creating compelling ad copy targeted at specific leads. These ads appear seamlessly in their newsfeed, allowing you to build brand recognition and earn more leads.
Email marketing: Email marketing enables you to nurture leads towards conversion by sending them tailored content that fits their interests. You can send promotional emails, exclusive deals, abandoned cart reminders, and more.
Content marketing: Content marketing enables you to drive more leads to your page by sharing valuable information with your audience. Whether it’s blog posts or videos, you can share your knowledge with your audience and establish yourself as an authority in your field.
Local SEO: With local SEO, you optimize for local keywords and claim your Google My Business listing to help drive more local traffic to your business. Below, you can see an example of a GMB listing!
You should consider not just the viability of the strategy but also its associated costs. For each strategy, there are several services to choose from, in which you need to also compare. Most of the time, businesses avail of more than one service for the same strategy. For example, a company can pursue social media advertising via Facebook, Instagram, and Tiktok.
Step 5: List down the prices and costs
At this point, you should have decided on the marketing strategies to pursue. You are now ready to go to the spreadsheet to list them down.
There may be several things you have to spend on. This is a list of potential items you should include in your budget:
In-house: If you decide to stick to your in-house team, the cost will come in the form of salaries and materials you need to execute your campaigns. You may still need to hire outside help or invest in tools that enable you to manage your campaigns.
Freelancers: Freelancers are people who specialize in one type of strategy or dabble in a few of them. If you hire a freelancer, you’ll typically pay by the hour or on a per-project basis. The prices may be higher if the freelancer is more experienced or uses software–which they include in their rate.
Digital marketing company: If you hire a digital marketing company, you’ll get everything you need, from tools to people. Unless you’re doing a one-off project, you’ll pay per month to keep a digital marketing company on retainer.
SEO: $500 – $20,000+ per month
PPC: 5-20% of monthly ad spend
Content marketing: $2000 – $20,000 per month
Social media marketing: $250 – $10,000 per month
Email marketing: $300 – $2500 per month
The actual prices will depend on the actual services and items you availed for your marketing campaigns.
At this point, you are now ready to implement your marketing budget!
Conclusion
It should be crystal clear to you now that you need to create a marketing budget that aligns well with your marketing goals. Plan well, and achieve your goals this year!
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