Session 9: What should I budget for marketing | A Marketing Podcast

Session 9: What should I budget for marketing

In session 9 of A Marketing Podcast I discuss how to develop a budget for marketing using one of three different calculations/methods. At the end of this session you’ll have developed a budget that suites your business and delivers on what we’ve worked to achieve in our marketing strategy.

Session 9: Show Notes

Recap of Previous Sessions (related to strategy development):

Some stats on SMB marketing spending

Some amazing numbers around small business marketing budgets of SMB’s in North America.

  • 70% are spending less than $500 on marketing per month (vs. 73% in 2013) total of less than $6,000 a year – making the average marketing budget for small business less than $6,000 a year. WOW – that’s not much.
  • 83% are spending less than $1,000 on marketing per month (vs. 85% in 2013)
  • Just 16% are spending more than $1,000 on marketing per month (vs. 16% in 2013)
  • The highest percentage of smb’s spending between 0-100 per month.
  • As the smb company size grows so to does the budget – makes sense.
  •  31% of smbs saw phone calls as the major metric measuring success (collection of emails was no-where to be seen)

Some notes on the stats presented:

  • In this survey we had a wide-range of small & medium businesses take part; from plumbers, event planners and private investigators, to locksmiths, mechanics and party entertainers. It’s fair to say that the participants don’t come from any one industry alone, and so the results should be treated as such.
  • The study was conducted in October / November 2014
  • 736 SMBs completed the survey with 95% located in North America

These numbers are according to Bright Local – you can see the report here:

Different methods for establishing a budget for marketing

There’s essentially three methods of developing your marketing budget. They are:

  1. Percentage of previous years sales
  2. Percentage of previous years overall budget
  3. Tactic by tactic, prioritized, and scaled approach

1. Percentage of sales approach

As a general rule look to spend around 5-10% of your sales number on marketing.  In my research as to the percentage other marketers recommend, it ranged from 5 – 15%.

This approach requires that we divide the established number towards our marketing mix in the prioritized order we created when developing our marketing mix.

2. Percentage of Budget

This is the more traditional, and simplified calculation used to figure out your marketing budget.

If you’re just starting your business, it’s likely that you’ll be looking to grow at an increased rate compared to a business that is already established. With that in mind I’d recommend applying around 20-25% of your overall budget to put towards your marketing.

Once you have a couple years, and customers, you can pull your marketing budget back to be anywhere from 5% – 20%. Because you have customers to market to, and recurring revenue from those customers (in a sense – not strictly recurring), you aren’t required to do as much marketing to achieve as much new revenue.

Again, like the previous approach, the number you come to with this method requires that you divide it among the marketing mix’s tactics.

3. Tactic by Tactic Approach

This is my favourite approach to develop your marketing budget.

It does require a marketing strategy to build the budget in this case, but the result is a tighter budget than the previous two methods. Plus we can delegate budget on a tactic/campaign basis vs dividing a large number into the tactics at the end.

Because we’ve done the work and have a well defined marketing mix, we can literally work through each tactic and put a number range to each tactic. It’s virtually estimating your marketing. Resulting in your budget.

If possible get some help from a marketing professional, a contractor or freelancer, they would happily get paid on a consulting basis to help you build your budget. If they’re asking for a couple hundred bucks it’s money well spent. As it will save you hours of research into what range to put towards a tactic.

If you’re going to try yourself, and haven’t performed any of the tactics in the past, there’s plenty of blog posts and marketers out there suggesting budgets for particular tactics.

That aside I’ve created a basic low/high, monthly/year estimating matrix in the strategy template for you to fill out.

Then all you need to do is some simple math on your overall budget, required operating costs (rent, employee salaries, etc), and any output of cash within the strategies period, then spend the rest on your marketing. Says the marketer. Ha. But there’s only one way to get customers and that’s marketing. Over time your customers will help you out and a snowball effect will occur, but that takes time.

Links & Resources:

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  • Cheryl

    Hi Matt,
    On this budget module, have you got any ideas for securing incremental spend for experimentation/innovation? Also for finding benchmarks?