Have you got a solid marketing budget in place for the coming financial year, or are you just going to wing it? There are so many marketing solutions on offer in a constantly evolving space, so it’s hard to get a consistent picture of how to allocate your marketing spend.
Consistent marketing messaging is what every business needs to stay ahead of the competition and to remain front of mind. Businesses thrive when they grow, and normally growth is dependent on two things:
- a powerful marketing strategy, and
- a well-allocated marketing budget to fuel that strategy.
Putting together a decent marketing budget can be a struggle; many businesses find it hard to prioritise their channels amid increasingly diverse options.
The good news is, you can create a solid marketing budget. You just need the right approach, a strong sense of your business goals and a clear view on how your marketing strategy will achieve your objectives.
Some questions to consider:
- What are your goals?
- What are your target market’s wants and needs?
- How do your product/services meet their needs?
- Where are your clients going to find your products/services?
Answering these questions will help you get the ‘setting your strategy’ part of the formula underway.
Factors that impact your budget
There are many factors that will affect how much you should allocate to your marketing activities. These include:
The stage of your business
If you’re a new kid on the block, you will need to invest some money into building your brand equity and telling people you exist. You will need to build some assets upfront, such as your website, brand mark and marketing collateral.
Startups, in particular, will need to invest more initially than an already established business. Global marketing software company, Wordstream, suggests new companies spend around 12- 20 percent of their gross revenues whereas established companies need to allocate around 6-12 percent.
If your business is well established, it’s still necessary to engage in ongoing marketing to maintain your brand presence, fend off competition and grow your market share. Your investments in marketing are more likely to be a mix of short returns assets like digital and traditional advertising, and longer tail tactics, like lead nurturing campaigns with marketing automation.
These investments will act to remind, inform and shape the attitude of your audience, helping you either maintain or grow your market share.
Establish your goals first and then develop a clear strategy to achieve them. One of the biggest reasons businesses fail to achieve their goals is because they don’t allocate adequate funds to make an impact in the channels they choose. Take the time to set a realistic goal and align your budget. How much do you need to spend to get where you want to be?
Your current business resources
The ultimate goal is to set a budget that gets the most out of your available spend. It’s important to review your finances and determine your current level of revenue. How much can you realistically allocate to your marketing activities?
Make sure you’re allocating this spend in the right place to make a sustainable return on your money spent.
If you’re low on resources, don’t be disheartened. You may need to break down your strategy into shorter, cost effective phases to make it more actionable and realistic instead of trying to do every tactic at once. Look for some easy wins, like communicating additional services to existing clients and re-engaging with past clients, rather than chasing new leads.
Your current tactics
Review and evaluate your current tactics and ask:
- Which channels are generating the most sales leads?
- Which channels have the highest cost per customer?
- Which technologies are costly to maintain? Are they generating enough ROI?
Focus on the data and determine which channels have earnt budget allocation for the coming year.
Look at your competitors. Are there a lot of them? If there’s more of them, you will need to spend more to be heard and keep your customers coming back. Keep track of what channels they are using, are you remaining competitive?
Reverse engineering your budget
When it comes crunching the numbers and setting your budget, there is the option to reverse engineer the process by breaking it down based on an acceptable return on a recent successful marketing campaign.
As a very basic example, you spend $1,000 on a retargeting campaign which drove 800 people to your website, of which 10 percent made a direct enquiry, which then led to 20 new customers making a purchase with an average spend of $200 each.
Your cost per lead is $12.50 (1,000/80)
Your cost per conversion is $50 (1,000/20)
Total revenue = $4,000
ROI % = ((revenue – cost) / cost) x 100
So your ROI is ((4,000 – 1,000) / 1,000) x 100 = 300%
Now work out your business’s capacity. Can you handle 20 new customers per month? Or in a week? Look at your existing campaigns and work out what the conversion rates are and attach an end value to those conversions. That’s how you set your initial monthly budget.
But, what about the 60 who made an enquiry and didn’t make a purchase? Are you willing to invest in some lead nurturing activities to encourage these people to become customers?
Small businesses starting from scratch should work out a budget for generating new leads and nurturing existing customers by reverse engineering their budget in this way and then testing it for 3 months. Allow for exploring new channels and A/B testing different messages. Then assess and adjust for the next quarter. Keep at it until you find a mix that delivers the volume and ROI that suits your business.
If you’re in an industry that requires a lot of advertising to remain competitive, the object-task method is another avenue you can explore. This method determines your marketing budget based on your marketing objective.
The first stage is setting a clear SMART (Specific, Measurable, Achievable, Realistic, Time-based) objective.
For example, to increase brand awareness from 10 percent to 20 percent by July 2018. Break this down into smaller actionable activities – what tactics will you use, and what will your messages be? Once you have done this you need to determine how much investment each activity will require and allocate your budget accordingly.
It’s important to be results focused and look at how much capital you need to get an impact and have an adequate reach. This is especially true with digital advertising, how much reach will you need to see the results you want? Do some research to get some figures that will aid in your budget decision.
How to use your budget
Keep in mind that budgets are an estimate and internal and external factors may change throughout the year. Your budget may need to adjust. A well thought out budget is something to work from, monitor and optimise. It is a powerful tool to help you make decisions and measure your performance.
Review your budget often. If there’s a gap between the estimates and what actually happened then work out the reason for this gap. By doing this you will continue to improve your budget accuracy and overall business performance.
Ready for more?
If you’re looking to set an effective strategy that gets the most out of your marketing dollar, the Thirst Creative strategists are here to help. We understand each business is unique and can tailor solutions that will help you to achieve more with your available marketing spend.