Setting – and sticking to – a marketing budget is something that will help you keep control of your costs and help reduce the risk of pursuing an unviable business dream.
It will also help you predict profitability, guide you in setting your prices and prevent you from wasting your money.
However, simply grabbing a marketing budget figure out of the air and spending it without tying it into a measurable objective is unlikely to return much reward.
So, in this blog, we will go through the various stages of setting and allocating budgets for your marketing that will help you account for your spend.
Marketing set up costs
In reality, every single investment you make in your business should be just that – an investment. For every pound or dollar you part ways with, you should eventually get more than that pound or dollar back.
However, it’s pretty difficult to tie every single penny you spend on your business to the bottom line – especially when you are setting up from scratch.
The one time purchases and investments you make early on such as branding costs, website design/build and professional fees may still be rewarding you ten years down the line. So it’s best to let your accountant or a business advisor direct you on what can or cannot be assigned as fixed assets, which is important to know when calculating your costs.
And getting your costs right is critical for setting realistic marketing budgets – it’s something we come back to later on in this article.
Budgeting for promotion
So, let’s assume your brand is in place, your website or physical store set up and you’re ready to start selling your stuff.
It’s right at this point that your attention is likely to turn to promotion.
Promotion is an essential part of life for any business and in a world that’s full of distraction you will need to work at earning your target market’s attention.
After all, it’s not just your direct competitors that are competing to get the attention of your desired audience – it’s funny cat videos, news headlines, all kinds of other adverts and Netflix, just to name a few.
So, if you haven’t prepared to invest in promoting your business you’re likely to end up with little interest in what you do.
How to budget for marketing
There is no getting away from the fact that the promotional strategy you choose for your business will make or break your business.
Worryingly, however, companies can go on for years spending money on random acts of advertising, SEO, publicity, personal selling and direct marketing without really knowing what contribution these investments are making to the bottom line.
Setting out a strategy that is based on a planned marketing or promotional budget is the one way to avoid this happening.
For this, a good rule of thumb is to work out your ‘cost per sale’ – something that is surprisingly easy to calculate once you know how.
Establishing your cost per sale
Cost per sale is calculated by working out the total cost you incur when producing and/or delivering a single unit product or service to your market.
Included in your overall cost per sale calculation is your marketing cost per sale – that is the amount you are prepared to spend on promoting and marketing what you do in order to generate the sale.
As mentioned previously up-blog; it’s a good idea to work with an expert to make sure you get these figures right. Underestimating your costs could leave you at a loss and overestimating them could reduce your competitiveness and compromise your prospects of growth. Furthermore, the amount you think you can spend on recruiting a new customer will change significantly depending on the lifetime value of that customer, your profit margins and your sales strategy.
There are a lot of considerations when working out how much you are willing to spend on marketing in order to get a sale; but as the person at the helm of your business, you are in the best place to decide.
Allocating marketing budget
To get that all important annual marketing budget, predict the number of sales you expect to make in the year ahead and multiply it with the marketing cost per sale amount.
Of course, predicting sales volume is in itself is a tricky business that requires a deep understanding of market factors and your competition to be realistic.
However, let’s assume you’ve done your research and are confident you can sell 1000 pairs of trainers at £75 per pair in twelve months. You have worked out your cost per sale as £50 a pair and have allowed a promotional budget per sale of £10 within this amount. Achieving this business objective will see you with a profit of £25,000.
In this case your annual marketing budget is £10 x 1000 or £10,000 in total. To calculate your expected return on marketing investment subtract your marketing budget from your revenue and then divide by your marketing budget – ((£25000 – £10000) / 10000) – which amounts to 1.5 or 150%
Got the budget, what now?
So, now you’ve got a handle on marketing budget and know the amount you have to invest, the real work in the marketing department begins.
Indeed, generating that 150% ROI will require a pretty steadfast and savvy marketing strategy if you are to succeed in achieving it. And; as a start-up with no historical data to revert to or an established business that hasn’t been tracking its past marketing performance; how will you know where to start when it comes to building the right promotional plan?
Navigating the landscape
There is no getting away from the fact that the promotional landscape is a notoriously difficult place to navigate nowadays. With so many channels, tools and tactics to choose from – and with marketing technology evolving at rapid speed – arriving at the right promotional strategy can often end up a business of trial and error.
However, by breaking things down in logical measurable way and setting KPIS according to industry benchmarks, it’s possible to set out a realistic promotional plan that will give you the best chance of meeting your goals.
Marketing strategy experts
Of course, it would also be wise to enlist the help of a marketing expert who is used to thinking and planning in this way.
Having a business without a marketing budget is like having a car without having the money for fuel. It may not ending up going very far.
At Masterplan Marketing we can help you set a realistic promotional budget for your company that will help you drive thing forward.
Ready to talk marketing budgets? Contact us today.