4 steps to calculate your marketing budget

How much do you spend on marketing, how do you decide on the right amount, when do you set your budget and what flexibility do you have?

Spending on marketing should not be an afterthought. It should be a thoughtful investment, planning not only how much to spend, but where to spend it.

First, let’s consider what is at stake when we talk about marketing costs. It is not just advertising, but many other things.

Do you have printed items, such as postcards or banners?
Do you buy promotional items to hand out, such as pens or notepads?
Do you use email marketing?
Do you pay affiliates to market your products?
Do you have a contracted graphic designer?

These are all part of your marketing budget and should not be overlooked.

Keep in mind that your marketing budget, like your marketing plan, should not be fixed. It should be a constantly evolving process. As your needs change, so should your budget. By researching new methods, seeing what works and what doesn’t, you can change your budget to stay within your overall business budget. If you earn more, you can spend more if you want to. However, sometimes you have to cut back.

We’ve all heard the adage that you have to “spend money to make money”. So what are the basic parameters you can set to determine how much you should spend? It’s a delicate balance, especially for new business owners.

Here are some tips I’ve found useful.

1. Think of your marketing budget as an investment.

Ideally, the money you invest here should pay you back and bring you even more revenue. If you are new to the game and are not relying on previous years’ sales, consider it also as a loan to yourself and the success of your business. A marketing budget should always be included when estimating start-up costs and initial investment.

As with any investment, there is no 100% guaranteed return. So invest wisely. Research the methods you intend to use. Compare the results of others if you can. If your investment is not very successful, change your method, try another medium. Constantly monitor your efforts and organise them strategically. Don’t just throw everything at it and wait to see what works. Try several things at once, monitor them and see what seems to work for you.

2. You don’t need to spend a fortune.

Don’t think you have to spend a ton of money to make your budget work. There are many low-cost marketing options that you can, and should, explore. With the continued growth of the internet and social media, don’t overlook these options. Make sure you spend money on an attractive and functional website. It will often be the first line of contact with your customers, and you will want to make a good impression. If you are a local business, there should be plenty of small, affordable advertising options in your area. Be sure to also take advantage of press releases and other media relations efforts that can help build your business with little or no cost.

By planning ahead, you can avoid unexpected costs. If you set a certain amount per month, you will be less likely to purchase special offers or additional promotions outside the parameters you have set. You will constantly be asked for new advertising opportunities and new places to spend your money. But you can’t do everything, and having a budget set in advance will keep you on track.

3. How much did you earn last year?

Consider your income last year. Or, if you are just starting out, consider what you expect to earn this year. Basing your budget on a percentage of last year’s sales is a popular way to determine your baseline. According to the Small Business Association, small businesses (with sales of less than $5 million) should expect to spend 7-8% of their revenue on marketing. Keep in mind that there should be a plan behind this spending. I recommend that you continue to use the proven methods that work well for you. But, at the same time, vary the pleasures and try new things. You never know when a medium that has been very effective for you in the past will dry up for one reason or another.

4. Stay flexible.

Trends and media change, and so should you. If your revenues increase or decrease, you may have to adjust your figures. Always be aware of what your marketing is or is not generating. Responsible business owners are good stewards of their money, and spend it where it is most needed and most beneficial to their bottom line.

Conclusion.

By constantly monitoring your ROI (return on investment), you can better manage your money. If you place ads online, see how many clicks are made. When you get new orders, ask them where they found you. These kinds of things can help you determine where best to spend your money and when to change things.

What are your tips – what works well for you? In addition to the four tips above, I strongly recommend that you use an accounting programme or at least a spreadsheet to keep track of all the money coming in and going out. Keep track of your weekly and monthly expenses and income, and it will be much easier when tax time comes.