How to set a marketing budget – a guide for business owners

How much should you spend on marketing your business? It sounds like a simple question, but setting a marketing budget involves complex decision-making and it can leave many people stumped. There are several ways of setting a budget and this guide is aimed at helping business owners set the right marketing budget.

Define your marketing objectives 

Are you looking for growth? Over what period, and what sort of growth? Incremental growth, or significant growth? Or, are you looking to retain existing customers and protect your market share?

If you don’t have a marketing strategy, now is the time to write one.

Detail what you want to achieve and when.  Think about what market position you occupy, who your customers are and whether there is a big enough market for you to achieve your goals. Consider what action (marketing tactics) you need to take to get there.

Each element of the marketing plan will have a cost associated with it. You need to decide how much budget to set aside and how you’re going to measure success.

Once you’re clear on your objectives and the tactics you plan to use, you need to get estimates.

At this stage, you don’t need to commit to each element or a supplier, but you need to know how much you might spend. If it’s attending an event, investigate the cost of booking a stand /speaker slot and creating exhibition collateral. If you’re going to use Google Adwords, sign up for an Adwords account and look at keyword volumes and costs.

You need to be realistic. If you have a big gutsy objective like doubling turnover in 12 months, but only have a budget that covers a few Facebook ads, you’re going to be disappointed.

Choose your marketing tactics wisely

Likewise, you’re unlikely to have the resources (people and budget) to do everything. Choose your marketing tactics carefully. Think about who your target customers are and how you will reach them. Don’t overstretch yourself, it’s better to do a few things exceptionally well and invest more in these areas, than stretch yourself too thinly.

A good example of this is the premium mixer brand Fever-Tree. They identified a gap in the premium mixers market. As a start-up, they didn’t have the financial resources of their competitors who were marketing to consumers. Instead, they focused their marketing effort on educating bar owners on the need for a premium mixer to go with premium gins. This was then extended with a co-marketing approach with premium gin brands.

Making sure you see a return on investment

The most important part of any marketing plan and budget is to document how you’re going to measure marketing performance.

You need to consider what’s an acceptable ROI for your business. What action will you take if your marketing isn’t delivering this ROI? Marketing won’t deliver instant results so be clear about how long you’re going to give your marketing efforts before you see a return. Again, think carefully about your metrics. There’s no point measuring an increase in web traffic to your website if that traffic isn’t turning into customers.

Setting the budget

Now that you’ve got a clear strategy and budget in mind, there are several methods to set a budget:

  1. Task and objective – this is an effective way of setting a marketing budget as you will be measuring spend on each objective to ensure you see a return on investment.
  2. Same as competitors – I would advise against this as it’s hard to find out exactly what they are spending, but also, they are likely to have different objectives to you and occupy different market positions. Take the Fever-Tree example, as a start-up, there is just no way they could set a similar marketing budget to Schweppes.
  3. Same as last year (plus a %age extra for inflation) – this is fine if your marketing objectives are the same and there have been no significant changes in your market. However, if there has been change, for example, a new market entrant disrupting the market, or a major shift in customer behaviour then you will need to increase spending to protect your market position.
  4. A percentage of sales/profit/turnover – this is a common budgeting technique for established businesses and can vary anywhere from 1% up to 25%. Again, whatever you decide needs to be based on what you want to achieve. This is an interesting article about percentage spend by industry, the research us US based but it gives you a good idea.
  5. What you can afford –you must temper this approach with what you want to achieve. If you want fast growth, you will need to invest accordingly.
  6. Zero based budgeting – this has been adopted by some of the large FMCG (fast moving consumer goods) companies. It’s based on the premise that the Marketing Director doesn’t get a budget (other than operating costs) unless they can prove why they need it. This is then reviewed by senior management and a budget given (or not) accordingly. The premise behind zero-based budgeting is to make the marketing team more accountable and to eliminate waste.


Getting the most out of your marketing budget

Remember, you can get more out of your budget if you spend wisely. Don’t accept rate card prices or the first quote you’re given. It’s OK to negotiate (as long as you do it respectfully). If you’re using a marketing agency or consultant, be direct about the return you’re looking for. They need to be just as accountable as you.

Take steps to ensure your budget delivers ROI. For example, test creative before launching a campaign, A/B test new landing pages. You’re unlikely to get your marketing right first time, so testing is a crucial way of avoiding budget waste. And if you’re going to test, do it with existing customers or potential customers, rather than colleagues.

It might sound obvious, but I’ve spent so much time in my career having creative reviewed by department managers who often have a very different view when the creative is tested with customers.

Finally, enjoy the ride. I know this might sound like a strange thing to say, but it’s your business. It’s your money. You’re using it to grow your business and reap the rewards. And believe me, there is nothing more exciting than seeing your marketing efforts deliver a big fat ROI.  And that’s when you realise that marketing isn’t a cost, it’s an investment.

If you need any help in defining a marketing strategy and setting a marketing budget then please do get in touch.

If you’re interested in ensuring your marketing agency or consultant is accountable then you might like this article.




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