When we meet with business owners and C-level employees to discuss their marketing needs, we often hear one of three things: 

• We don’t have a marketing budget and never have.
• We have a marketing budget, but I don’t know how much it is or whether it was used this year.
• We have a budget but need help creating a marketing plan to use it. 

I’m guessing that each of you fits into one of these three categories. It’s very common for businesses not to have a marketing budget. If there’s not one in place, it’s generally because a business owner either hasn’t found the time or they aren’t completely sure how to begin the process. In this article we will answer four common questions about a marketing budget and a marketing plan: 

1. Do I need a formal, dedicated marketing budget? 
2. How do I determine my marketing budget? 
3. When is the best time to start working on my marketing budget? 
4. Once I have a budget, what should I do with it?

So, let’s dig in…

Do I Need a Formal, Dedicated Marketing Budget?

The quick answer is yes, every business needs a marketing budget. Every business spends money on their marketing, but many don’t know how much they spent or what it was spent on until the end of the year. As you may have experienced firsthand, this creates a number of issues. Having a formal, dedicated marketing budget will impact your business in several ways:

Forces you to plan
The only way you can use (and maximize) a budget is to plan how it will be used. We’ll discuss marketing plans later, but this process is always a great exercise for your business as it causes you to:

• evaluate the current year
• set growth goals for next year
• determine which marketing and advertising services will best reach your target market

Produces a higher Return on Investment (ROI)
Preparation will never fail you and that is especially true in your marketing efforts. A plan creates a greater focus and helps you be intentional about effectively allocating your marketing dollars, both of which will create a higher ROI. The common alternative is writing a check here and there as vendors and sales reps pop in throughout the year. This approach is an ineffective use of your budget because it’s hard to track what you spend and isn’t part of a larger, prearranged plan.

Keeps everyone on the same page
Having public marketing goals that everyone agrees with is important for all businesses, but it’s especially important if your business has more than one decision maker. The process of creating a budget will allow the necessary time for everyone to be in agreement and also ensures that everyone stays on the same page throughout the year, despite the ebb and flow of the business cycle.

Involves people who may typically be on the sideline
Setting a marketing budget and executing the plan can involve more than just your leadership team. It’s a great opportunity to delegate and stretch your staff members to try new things and take on new responsibilities. They’ll feel valued and your business will be better for it.

How Do I Determine My Marketing Budget?

So, now that you see the value in having a marketing budget, the next question is how to create one. Determining your marketing budget will take some time and it will vary based on your industry, your competition’s efforts, and your goals. It’s also something that increases over time. But, here are a few tips to get you started if you’ve never utilized a marketing budget.

Evaluate last year’s numbers – your gross sales, net profit, and the amount of money spent on marketing
Taking a close look at your numbers is the best place to start. It’s always good to get your CPA involved in the process as well. When studying your numbers, here are four things to look at:

1. Evaluate how you did this year over last year
2. Determine your net profit and whether the percentage of profit went up, down, or stayed the same
3. Analyze what you spent your marketing dollars on this year
4. Be on the lookout for trends, especially if you have multiple services  

Set your goals and expectations for growth in the upcoming year
With a good grasp on your numbers, you’ll have the necessary information to start forecasting for next year’s growth. By necessity, your growth goals will dictate the amount of money you spend on marketing. If you know what you spend on average to acquire a new client, you’ll be in an excellent position for setting your budget.  As you look at your numbers, keep in mind that it only takes a 15% growth year over year to double the size of your business in five years. This is a great place to start with your growth goals.

Look at the full landscape for the coming year
Each year presents new challenges and opportunities, so be sure to map it out and try your best to forecast what’s ahead. Are there any big ticket items you need to devote resources to, such as hiring or project management software? Or are you adding a new service or entering a new market? The former may dictate a more conservative marketing budget, while the latter may dictate a more aggressive budget to help promote the new service.

Start by using percentages of gross revenue
The best and easiest place to start when determining a budget is with a percentage of your gross revenue. This is also where you will find the most variance by industry, market, and tenure of business, but you have to start somewhere.  

The CMO Council is a great resource for what others are spending on their marketing. In their 2014 State of Marketing Report, they showed that 39% of businesses will spend 3-6% of their gross revenue on marketing, while 40% will spend less than 2% of their gross revenue on marketing. So, the majority of businesses are spending between 0-6% of their gross revenue on marketing each year.

When Is The Best Time to Start Working On My Marketing Budget?

As I’m sure you’ve noticed, creating a marketing budget is not a quick process and all of us business owners are incredibly busy. To determine a budget and utilize it properly, you’ll need to take the time to evaluate the current year, forecast for the upcoming year, and meet with your team. Then, once your budget is set, you’ll also need time to plan your marketing efforts and implement them in time for the upcoming year.

Suggested timeline

• October, Week 1: Begin to evaluate the current year, set your goals, and look at what next year holds. Waiting until October allows you to examine your numbers from the first three quarters of the year. If you’ve been in business for 3-5 years or more, you should be able to easily forecast how Q4 will go.
• October, Week 2: Meet with your full team, which will include your staff, CPA, and marketing agency, in order to discuss the goals and priorities you just set and begin discussing ideas for your marketing. 
• October, Weeks 3 and 4: Develop a comprehensive marketing plan for the coming year. This is where we work alongside of many of our clients to establish these plans.
• November and December: Begin implementing the plan by making contact with vendors, scheduling ad buys, working on the creative aspects, and putting in place any new advertising channels that require setup.

So, Now What?

If you’re at this step, you’ve realized the importance of having a dedicated marketing budget and are scheduling a time to set your budget and determine your goals for the coming year. Good news – you’re also on track with your timeline. The next step is to establish a comprehensive marketing plan. It’s not very useful to have a budget without a plan – this gets into the issue of ROI that we discussed earlier. Without a dedicated plan you will not be able to optimize your campaign budget or goals. Some statistics show that as much as 85% of small and medium sized businesses work from a budget only, without a marketing plan to accompany it.

This is where we become a valued part of the team for a lot of our clients. Around October each year, we begin meeting with clients to help them evaluate the current year and discuss next year in order to prepare a comprehensive marketing plan. We are very involved in each of the steps laid out above. Our marketing plan will 

• Analyze your past efforts
• Evaluate your branding
• Clearly define your target market
• Create a comprehensive marketing plan for the coming year

We will setup your entire campaign and one our account managers will oversee every aspect of it. If you’d like more information on this service you may contact us at [email protected].

About Matthew Michael