When you’re a small business, marketing is an essential communication tactic for building your business. However, many small businesses also have to stick to tight budgets, either because of initial low revenues, or high outlay for equipment, office space, and other expenses. 

Drafting your marketing budget can be a challenge. Most companies spend around 9.5% of their revenue on marketing, and it’s vital to get your budget right. It’s easy to underspend in some areas, or overspend trying to get the attention of a target demographic that doesn’t deliver the best return of interest. If you’re unsure how to create your marketing budget, this article should give you all the basics, as well as some tips and tricks for what to focus on and what to avoid. Read on to find out more.

What is a marketing budget?

A marketing budget is an outline of how much you’re planning to spend on promotion. It doesn’t have to be completely specific, but it needs to include all the major parts of your marketing plan. The more detail you can put into it, the more accurate it will be. An effective marketing budget will cover a set amount of time. It’s most common to create a budget for the year or for the quarter. 

How to create a marketing budget

It’s important to set a budget before you start a marketing campaign. Here’s our step-by-step guide on developing marketing budgets.

1. Set marketing goals and objectives

We know that marketing is vital to drive more sales or boost revenue, but setting measurable goals will help you know how your efforts are performing. The goals should always be easy to track, and it’s helpful to have both short-term and long-term goals. For example, perhaps you want to increase your conversion rate by 5%, or maybe you want to track social media follower numbers.

2. Conduct market research

Market research will help you know where to direct your marketing efforts for the best returns. You can use feedback, surveys, Google Analytics and more to determine details of your consumer buyer profiles and how best to attract them.

3. Develop your marketing campaign

Once you know who you’re advertising to, you can work out how and what you’re going to advertise. You can decide which products or services you’re going to emphasize in marketing, as well as any significant marketing pushes.

4. Choose marketing channels

Your target audience will also help you determine which marketing channels you want to use. The main marketing channels you should consider include the following.

• Brand awareness campaigns: Making sure people are aware of your brand through public relations, social media, video marketing and advertising.

• Digital marketing: There are many digital channels that you can use for marketing including email, websites, web advertisements, and more. Online channels are important, with 62% of US consumers saying they shop online more now than before the COVID-19 pandemic.

• Inbound marketing: This means making valuable content to inspire long-term relationships with customers.

• Outbound marketing: Actively reaching out to customers.

You will likely want to blend a combination of different marketing approaches to get the best return on your investments.

5. Estimate marketing costs

Now that you know what your main marketing approach is going to be, you can look at estimating costs. You need to remember to factor in all the different aspects of seeing your marketing plan through. This includes employee overtime, software, consumable materials, promotion costs, and buying advertising. The more accurate your estimate, the better.

6. Develop a marketing budget

With your detailed cost estimate, you’ll be able to draft your marketing budget. Once you’ve set your budget, you’ll need to stick to it. This means that it’s important to be accurate when it comes to estimated costs, but it’s also worth adding some contingency funds into the budget if you can to cover the unexpected.

Marketing budget allocation

If you’re struggling to determine how to allocate your marketing budget, there are two different approaches that you can take. You can generally either allocate based on channel or campaign.

Allocating by channel

Allocating your marketing budget by channel can be beneficial if you want to focus on a channel that you know works well with your target audience. For example, you might want to put a certain percentage of your marketing budget into social media advertising, letting you then decide which posts to boost most as time goes on. This lets you use data from each advertisement to refine your approach even within on marketing budget timeframe.

Allocating by campaign

Alternatively, you could look at allocating funds by campaign. This means that you can focus on the largest and most important campaigns, where you expect to get the biggest return on investment. This gives you more flexibility in how you assign funds within each campaign.

Tracking your marketing budget

It’s important to track your marketing budget. You need to monitor it and evaluate if it’s depleting faster than anticipated in certain areas, or whether some activities cost less than anticipated so you can adjust as needed.

Calculating your return on investment (ROI)

One of the most important things to track is your return on investment, or ROI. The basic idea here is that you look at each dollar spent on marketing, and how much profit that dollar present on marketing generates. Obviously, you want a high ROI. If your ROI is low, you might need to reassess your marketing allocation for the next year, putting more funds into successful marketing strategies that give you a high ROI.

Using technology to track your spending and results

You’ll undoubtedly need some technology to help you track your marketing expenditure and results. One of the best ways to track your outgoings is through using a business credit card that allows you to see all your purchases in one place. 

“Business credit cards provide a convenient way for all employees to pay for marketing expenses using a single account, meaning you can easily tally your costs without any fiddly accounting. Plus there are plenty of benefits you’ll get from a credit card, such as cashback and air miles, allowing you to make the most of your marketing budget and boost your bottom line.”

David Luck, Co-founder and CEO of Capital on Tap

You’ll also want to make use of software that helps you track the results of your marketing. Most social media sites and website hosting platforms offer metrics to quantify results but you might want to compile all your data in one place, so you can get a big picture view of the overall effect of different marketing channels.

Common mistakes in creating a marketing budget

If you make the wrong marketing moves, your marking budget can easily get spent without demonstrating the hoped-for increase in revenue. Some of the most common mistakes that people make with marketing budgets include the following.

• Funding the wrong channels: Once you discover a channel doesn't provide sufficient ROI, you probably need to funnel that funding to more successful channels.

• Not updating your budget: Marketing costs will change, as will the needs of your target audience, so it’s vital to reassess the budget after each quarter or at least every year.

• Not using data to check success: You should always get as much data as possible and use it to finetune your marketing budget.

• Focusing only on new customers: As well as advertising to new customers, you need to make sure that you advertise appropriately to retain your existing customers.

Tips for creating an effective marketing budget

Here are some extra tips for creating an effective marketing budget.

• Social media typically has a low cost and can deliver rewarding results on driving engagement, with 96% of marketers reporting confidence in obtaining a good ROI from social media marketing.

• Employee advocacy can boost results in tandem with traditional marketing methods, and it generally has a low cost.

• Give your marketing techniques time to show their worth. Don’t give up on a method if it’s not successful right away.

• When changing your strategy, change one variable at a time so you can see how it impacts your success.

Getting the most out of your marketing budget

You can make your marketing budget go further by:

• Picking cheaper advertising slots or locations

• Choosing less popular keywords to target

• Getting cashback on your marketing purchases

• Reusing marketing assets such as graphics, signs, and promotional items where possible

• Making advertisements smartphone friendly. Over 90% of internet users today use smartphones to access the web, so only paying for PC-focused advertising may limit your success. 

Why investing in a carefully planned marketing budget is essential for business success

Marketing is vital to help you secure new consumers and retain existing customers. Making a marketing budget will help you control your marketing expenditure throughout the year, making sure that you don’t overspend and end up depriving other parts of your business. Having a properly researched budget will also let you compare your outlay to the revenue you gain, and calculate ROI. This will help you finetune and improve your marking approach to make sure that you maximise new custom for the money spent. There are many channels to consider, including digital platforms, which are more important than ever.