Marketing is one of the most useful, and most mysterious, skills that a businessperson can have. Good marketing can be the direct cause of unprecedented growth, despite the fact that it may seem like magic to others. This is where a dedicated marketing budget comes in handy!

Unlike finance, which deals in relative absolutes, marketing is the science of creating desire within people. Due to the changing nature and complexity of the human mind, this definition may come off as outlandish, but is nonetheless true!

The fact that marketing has the power to influence the way we perceive things is what makes good marketing so effective. For any business striving for growth, it is crucial that proper techniques are used to plan and execute marketing endeavors.

This all begins with setting and sticking to a dedicated marketing budget. This budget will do more than let you know how much you are allowed to spend on marketing techniques, it will also allow you to keep an eye on your goal revenues and how to allocate funds to varying market channels in order to achieve them.

Therefore, today I want to describe the best way that I have found to set a proper marketing budget! We’ll be going over quite a few different factors of business, from C-suite strategic vision to competition and more.

Without further ado, let’s dive into how to properly set a marketing budget!

Step 1: Consider the Big-Picture

Considering the big picture in this sense means analyzing where your organization stands relative to its consumer base. Put simply, has your organization been established for long enough to develop a consumer base that can already recognize your brand?

The question above basically categorizes an organization into one of two different methods of thought. 1) That your organization is a start-up and still in the initial growth phase, or 2) that your organization is in the upkeep phase.

This is important because your marketing efforts will differ based on the current level of consumer recognition and market penetration that your organization has achieved. A lot of times, an organization without the security of scale and consistent income will end up spending relatively more on marketing in the beginning to establish a consumer base.

This is why you must consider the bigger picture within your organization, as well as the goals you hope to achieve by allocating a certain amount of money to marketing. Which brings me to our next point!

Step 2: Keep Track of Your Operational Costs

Operational costs are the backbone of your budget analysis.

What do operational costs have to do with marketing budgets, You may ask? The answer is simple. At the very least, you want your marketing budget to be large enough to ensure that the ROI of those marketing efforts surpasses your operational costs.

Put simply, allocate enough to marketing to ensure that sales surpass your operational costs. Although this may be tricky to do if you don’t know what to look for, some simple sales tracking and market-channel analyses should help you make solid predictions.

At the most basic level, try and think of your operational costs like your marketing revenue goals. This way, if worse comes to worst, you can remain in business through your marketing efforts alone and not simply through WOM or brand loyalty, which often ebb and flow with changing market preferences.

The other large benefit of keeping tabs on your operational costs is that it gives you a better idea as to how much money you can realistically allocate to marketing efforts. The surplus of cash that you may have above and beyond operating costs may help you better grasp the limits of your marketing budget.

Step 3: Define Your Marketing Channels

This point is a bit tricky to explain because there are many ways you can do this. Most often, companies employ some sort of sales funnel. A sales funnel is the theoretical “journey” that a consumer traverses before they get to the buying decision, most often as imagined by the organization itself.

There are multiple ways to create a sales funnel, and the types of marketing channels you utilize will differ based on the product or service you offer and how it relates to the market place.

For example, a product that is considered a self-explanatory basic necessity (one that almost all people use) may benefit from the low-cost, high-outreach model that e-mail marketing produces. However, anything that is specialized and requires niche targeting may not benefit from a costly shotgun approach with little reward.

Defining your marketing channels is a great way to begin crafting your own sales funnel. As you do this, you can keep tabs on the cost of the various points in the funnel and use those costs to make predictions for your marketing budget.

Generally, a sales funnel is going to perform the following actions:
1. Create awareness around your offer.
2. Develop interest and intrigue around your offer.
3. Lead prospects to make a buying decision.
4. Provide a way for prospects to take action on that decision.

Sales funnels can be useful tools for strategizing the placement and timing of your marketing channels in order to make the most impact and earn you the highest conversion rate.

Step 4: Check Out Your Competitors

Competitive analysis are beneficial to the discovery of best practices!

The easiest way to get a grip on some best practices in your marketplace or industry is to scope out your competitors. Generally speaking, the larger and more established a competitor is, the better they are to learn from. This is because they have obviously made effective use of their marketing and budgeting in the past.

As you analyze more of your competitors, you’ll find yourself become more involved and knowledgeable about your niche as well. You’ll begin to see why certain marketing tactics work to attract them, and which ones don’t.

For a full article on developing a proper competitive analysis, please click HERE. Otherwise, I’ll summarize the main points just below!

Create the foundation of your competitive analyses by analyzing the following:
1. Industry: Are you both in the same playing field?
2. Product: Does your product solve the same issue?
3. Promotion: Do you both target the same niche?

After utilizing the points above to narrow down who your true competitors really are, you can move on to the next step!

Next up, you will want to sort these competitors into one of three different categories:
1. Primary: Organizations that target the same niche and solve the same problem.
2. Secondary: Organizations that target a different niche with a similar product.
3. Tertiary: Competitors that may offer complementary products or services that you may be able to partner with and benefit from. (i.e. peanut butter and jelly, different products, but often bought together)

Track the basics of the competing organization. Those basics include:
– Company Name
– Location
– Offerings
– SWOT analysis
– Mission Statement
– Values
– etc.

One other thing you can do is actually experience the competition yourself. Although it may sound counterintuitive to your instincts, experiencing the competition is the best way you can see how that organization provides value to its consumers.

After that, evaluate the way that your competitors frame their offer. Use the “4P” method:
Product: What do they offer?
Price: How much does it cost?
Place: Where do they offer it?
Promotion: How do they create awareness for their offer?

Step 5: Allocate Marketing Budget Based On Achievable Goals

Now that we have considered your organization, the operational costs, the competition, and the best marketing channels for you to use, we can begin to set achievable goals based on the data we have discovered earlier.

Ask yourself some of these questions:
– What is your target revenue?
– How many sales do you need to make to achieve it?

Using these two factors above you can begin to work backward from your predictions in order to determine how many leads (based on your average lead-conversion rate) you will need before you break even and/or make a profit.

For example, let’s say my target revenue is $100,000. And I need 25 sales to make that much money (average: $4,000/sale).

Let’s say my lead-conversion rate is 20%, therefore, out of every five people who are leads, I make one sale. 25 (sales to make $100k) multiplied by 5 leads (per one sale) is equal to 125 leads that are needed to meet my projections.

I can take this number and multiply it by my average cost per lead to give me a starting marketing budget! Let’s say that cost-per-lead is 15$.

My minimum marketing budget in this scenario should be $1,875. The only realistic ways to lower this cost is to 1) increase my conversion rate, or 2) Lower my cost per lead.

I cannot simply charge more for my services unless my price elasticity of demand is extremely low, otherwise, I will lose customers to competition.

Conclusion:

Hopefully, I was able to help you get a better idea as to how to begin forming a marketing budget with the functionality of your organization in mind! The one critical consideration for your budget is going to be your goal as a marketer, and how quickly you wish to build as an organization without sacrificing functionality.

With the steps above, you can begin to allocate appropriate budgets, make good marketing predictions, and waste less money on ineffective outreach methods by keeping track of the effectiveness of your marketing channels along the way.

Thanks for reading!
Work With Austin

-Austin Denison is a management consultant and coach from Southern California and founder/CEO of Denison Success Systems LLC. He is the author of The Essential Change Management Guidebook: Master The Art of Organizational Change as well as The Potential Dichotomy: The Philosophy of a Fulfilling Life.