One of the most important aspects for your marketing campaigns is to know your budget constraints.

Creating a marketing budget allows you to develop leads and implement campaigns without spending too much that will reduce your Return On Investment (ROI).

Learn more about creating a marketing budget in this blog post now.

 

Why Do You Need To Create A Marketing Budget?

Just as with any other aspect of your business, there are costs associated with marketing. Each of these costs will eat into your profits, whether they are visible or not. For instance, every hour you spend on marketing activities is technically a cost to your business. This needs to be included in your budget.

By creating a budget you can ensure your Return On Investment (ROI) provides you with a good income to provide a living for yourself and allow you to grow your business.

Marketing is one of the toughest areas to create a budget for, because there is often very little direct correspondence between activity and return. For instance, a customer might follow you on a social media channel for several months or receive dozens of emails from you before buying a product. Each social media update and email is received by hundreds if not thousands. It can therefore be difficult to attribute a cost per transaction.

Another problem is many customers touch more than one marketing activity. For instance one customer could first find you through a PPC campaign, then follow you on Twitter, sign up for your email before buying a product after talking with a peer.

Monitoring the process is very important, yet it can be difficult. Therefore, unlike with manufacturing when you know how much a product will cost to make and sell for, there needs to be a different formula.

 

The Basic Methods Of Creating A Marketing Budget

The first thing you need to consider is the minimum amount of revenue your business makes. If for instance your business makes between $4000 and $8000 per month; the minimum amount of revenue is $4000.

This should become the set value for your marketing. Generally the maximum amount you should be placing into your marketing is a third of your minimum revenue. This should allow you to create a marketing campaign that can give you returns without overspending. There are two times this ratio is not applicable:

  • When you have a product which has a low margin (requires lower commitment).
  • When you are moving into a new market with significant competition (requires higher commitment to gain market audience awareness).

From this marketing budget you need to consider the different elements of your business and how to split up your available funds to create campaigns to yield the best returns.

 

Knowing Your Revenue History

To help you set a specific marketing activity budget you first need to know where your customers are interacting with you.

Then you need to consider your ROI. While the majority of your clients may find you through pay-per-click (PPC) campaigns, if that PPC campaign is forcing you to make losses on products sold, you may need to reconsider your strategy and budget.

With a list of where customers are finding you and what returns those activities are providing, you can create the perfect budget.

 

Things To Consider With Your Budget Before Assigning Amounts

There are many hidden costs when it comes to budgeting. For instance, many small business owners forget to include standard charges when they are creating a budget. Your website, email marketing service provider and other regular services may have a standard monthly charge. This should be included in your budget.

Another common error is not including staff time. When a staff member, even if it is you, is conducting marketing activities they are not producing goods or services. Therefore they are a cost to the company. You should be including this time within your business’ marketing budget. If you are doing the marketing yourself, set a value for your time.

It is also important to consider overspend within your budget. Although certain marketing services like Google Adwords allow you to set a daily limit, Google will allow those limits to go over by 20%. Therefore, if you were unlucky, you had set a budget for $50 per day and every day the budget was exceeded by 20%, the cost could be an extra $3,650 (an equivalent to two month’s PPC budget). It is best policy to keep at least 10% of your budget aside for unexpected costs.

Another area which could give you unexpected charges is foreign exchange costs. This is particularly a problem if you are using a foreign service which only charges in their local currency.

Always consider extra manoeuvre when creating your marketing budget.

 

How To Define What To Spend On What

The next step is to decide what to spend on all your marketing activities. To do this, create a list of all the marketing activities you undertake. For each activity rank them twice. Once for how many customers they bring to your business and another for their return. To make it easier, give each rank a number starting with one being the best.

Combine the two ranks by adding the numbers together and then order them so you can see which has the highest effectiveness. Then you have two options to create a marketing budget.

1. Using Pareto’s 80-20 rule, assign 80% of your budget (after regular dedications) to the top 20% of your activities. This should be between one and four activities. This rule assumes that 80% of your revenue will be generated by 20% of your marketing activities.

2. Create a step budgeting system. This is where a proportion of the budget is given to the marketing activity dependent on how it performs. The number of proportions is set by the number of activities you have, so if you had 4 marketing activities you would calculate the number of proportions as being 10 (4+3+2+1 = 10), The best performing marketing avenue will then receive 4 proportions of your marketing budget, the second 3 proportions and so on.

The first method allows you to adjust your budget for each activity depending on their needs. An example would be PPC which would naturally require a higher budget than social media or email marketing. The second method does create a very definite amount for every single marketing activity.

 

Conclusion

A marketing budget is important for your business. Ensuring you have set your budget right allows you to make the best returns without exceeding the financial resource available. From there you can grow your business while making a good profit.

 

Action Steps:

  • Conduct an audit of your recent marketing spending.
  • Analyse what returns they made for your business.
  • Create a new marketing budget for the next 12 months, remembering to include regular payments, staff time and giving some flexibility.
  • Stick to your budget.

Jake Burdess

Director at Aflua
This post is by Jake Burdess, the founder of Aflua and HEROIC. Jake is an English designer who lives in New Zealand with his wife and three kids.

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