Jumping out of a plane, throwing the first pitch at a baseball game, or climbing all the 14ers in Colorado might be more daunting than creating a marketing budget. But, as a marketer, I can’t think of anything more unnerving than creating your very first marketing budget, especially in the Covid-19 era.
As you undertake the task of creating a marketing budget, you might be asking yourself:
- How much should we spend on marketing?
- What percentage of revenue should be allocated to marketing?
- What’s included in a marketing budget?
- Where and for what tactics are marketing dollars allocated?
- How do I show what’s working?
If you read those questions and shrugged, that’s okay! We’re here to help you figure it out. (Or at the very least, put you on the right path and point you in the direction of helpful resources.)
Without further ado, here’s how to create a marketing budget, including a downloadable marketing budget template to help you get started.
Step 1: Understand influencing factors
The first thing you should know when creating a marketing budget is that there are factors outside of your control that will change your marketing budget. All companies, businesses, and brands are different with unique needs and goals.
However, regardless of the industry or business type, there will always be internal and external factors that influence your marketing budget. Some of these might be within your control, but many factors aren’t. (Covid-19 being an obvious one.) It’s important to be aware of these factors to identify when changes need to be made.
- Growth or decline of the business: As your business grows, you’re likely to add new products, services, or offerings. All will need marketing support and resources that will adjust your marketing budget. Also, if you remove products or make business changes, they will have a significant impact on budgeting decisions.
- Target market opportunities: If your business uncovers a new target market, it would be good to revisit your marketing budget since it could influence budget allocation, goals, and revenue. It’s better to realign on resources early in the process before you realize you’ll come up short on goals.
- Team changes: This goes across the entire business. Someone leaving their position can impact the skills and resources you have available to see the budget and plan through. You need to evaluate where budgets should be reallocated while you determine your next course of action.
- Length of sale: Marketers and businesses often forget how the length of the sale influences decisions on marketing investments. If your business has a long sales cycle, then budget increases or decreases won’t be seen immediately. As a business, you should evaluate what are the long term impacts on our sales pipeline if you make adjustments to your marketing budget.
- Seasonality: For most marketers, you know the ebbs and flows throughout the year for your company. Marketers should be ready to support all periods, and the budget should reflect those changes.
- Industry changes and competitors: This is a hard factor to plan for, let alone predict, but it can be one that makes a significant difference in marketing budgets and plans. Your competitors or industry will make adjustments throughout the year, and marketing is expected to help work through them.
- Everything else: The world around your business can be a huge influencing factor in your marketing budget. This includes political strife, public health crises, economic downturns, and so much more.
The good news for marketers: According to the 2020 CMO Survey, “Marketing budgets have risen to the highest percentage of organization budgets and revenue in the Survey’s history (12.6 percent and 11.4 percent respectively).”
In addition, many marketers who lost their budgets during the early months of the pandemic will start to see them return in 2021 and beyond.
Step 2: Gain alignment on goals
While we all understand that marketing can be a massive driver of growth and revenue for a company, it’s tricky to gauge how resources should be allocated to reach your end goal.
Guessing wrong can be costly. Be too frugal, and that money may end up completely wasted because it didn’t allow you to make a dent in your target market to turn prospects into customers. Spend like you have a hole in your pocket and you may end up with the same results that could have been achieved with less.
While there is no exact formula that works for everyone, there are a few approaches and some data to help align your marketing budget based on your total company budget and your revenue goals.
Align marketing budget percentage to the total company budget & projected revenue
According to the 2020 CMO Survey, marketing budgets comprise 12.6 percent of total company budgets on average.
Creating a budget without the end goal in mind is difficult. Using projected revenue (aka your goal) is helpful to gauge how much you should include in your marketing budget. The 2020 CMO Survey also says companies, over the course of the pandemic, spent an average of 11.4 percent of total revenue on their marketing efforts.
Based on your company type, here are a few benchmarks to use as you create your marketing budget.
B2B Product: 11.3%
B2B Services: 11.3%
B2C Product: 17.3%
B2C Services: 14.9%
Also, the percentage of revenue that companies commit to marketing continues to rise, even during the pandemic. It’s really no surprise that marketing budgets as a percent of revenues have risen over the years as consumer behavior shifts to be a digital-first buying environment. Especially now, as marketers rush to retain customers, maintain brand awareness, and increase their digital presence.
Align marketing budget to market opportunity
A core aspect of creating a marketing budget is to understand your market opportunity. You’ll need to know how the age of your company, as well as your total addressable market, could influence how much you spend on marketing. The marketing budget will be significantly higher for an early-stage company than a well-established company which is known in the market.
There aren’t any industry benchmarks to use a guideline. To understand your market opportunity and your current market share to better, align your budget to what is realistic (and achievable).
Step 3: Determine what to include in your marketing budget
If you’re like me, this next step will be frustrating. What to include in a marketing budget varies from company to company. So much so, that there isn’t a consensus across all marketers. For example, in the 2019 CMO Survey, less than half of companies included expenses for marketing employees in their marketing budgets. Other companies may put marketing employee expenses into general and administrative costs, sales, or other areas.
As you create your marketing budget, it is essential to identify what needs to be included and, more importantly, keep it consistent. Generally, I suggest the following is included in your marketing budget:
- Content Creation
- Public Relations
- Creative Services
- Market Research
- Current employees
- Future employees
DUES & SUBSCRIPTIONS
- Marketing Automation
- Marketing and website analytics
- Project management tools
- Social media management
- Website hosting & monitoring