To achieve success, you must effectively manage your marketing budget, ensuring you have sufficient funds for everything you must implement from your marketing budget. Running short or not allocating sufficient funds to your marketing budget means hogtying your efforts, causing them to fall short of expectation.
Today, we’ll start by discussing how to create a marketing budget and list elements you must consider adding to the budget if you wish to achieve success. Afterward, we’ll cover 4 elements necessary to manage your marketing budget so you have enough financial resources to complete your plans. Finally, we end up with some tips to help extend your budget and ensure you achieve success.
Achieve success by managing your marketing budget
1. Create a marketing budget
Before you can start managing your marketing budget, you must create a reasonable budget that allows you to achieve success. In general, there are 4 methods for developing a marketing budget.
Match the competition method
Many businesses try to match the marketing spend by competitors. While you can’t just ask your competition how much they spend on marketing, you can get some pretty good estimates. For instance, this post shows one method of estimating how much your competitors spend on marketing. A number of other sites offer strategies for determining how much your competitors spend on various elements of their marketing budgets, such as PPC (pay per click, commonly Google Ads), Facebook ads, etc. Simply enter the search term “determine how much my competition spends on marketing” and you’ll get a bunch of options/
Of course, if you’re new in the industry, you likely need to spend more than your competition as you need to create awareness and, by the same token, if you’re the industry leader, you may get away with spending less than your competition.
Percentage of sales method
Due to its ease of use, many firms use the percentage of sales method to calculate their marketing budget by simply estimating sales then multiplying that number by some percentage. For instance, this post suggests 2% as a lean percentage, 4% as your goal, and 5% as a stretch percentage. Thus, if you expect revenue of $100,000, you would allocate $2000, $4000, or $5000 as your marketing budget.
Another source suggests small businesses allocate up to 25% of sales as their marketing budget, of course, few businesses allocate such a high percentage of sales and those are mainly consumer packaged goods, an industry with intense competition. Most small firms allocate less than 15%, with the sweet spot in the 5-10% range.
As with the match the competition method, there’s no correlation between your calculated budget and your outcomes, which makes this a very suspect means to calculate your marketing budget.
All you can afford method
Of all the budget setting methods, this is the most suspicious and least likely to help you achieve success. In part, the failure of this method lies in the fact that most business owners fail to value marketing and its contribution to their ultimate success. If you asked many small business owners how much they should allocate to marketing you’d find few who allocate sufficient funds for a robust business. Believe me, I worked for the Small Business Administration and evaluated hundreds of small business budgets, finding some allocated nothing to marketing.
Objective-task budget method
I highly recommend this method to determine your marketing budget. The objective-task method starts with your goals, which means this is the only method with an eye toward achieving success. Once you know your goal, such as increasing sales by 10%, you apply metrics to determine how much you must spend to reach that goal.
Coming from direct marketing, where metrics rule the day, this method makes perfect sense and it’s the method used when we courted new clients. Often, we developed 3 budget scenarios: optimistic, likely, and pessimistic based on our experiences with other clients. For instance, let’s say you want to increase sales by 10% and previous clients spent an additional 1% for each 2% increase in revenue. The likely budget needed to reach a 10% sales increase is a 5% budget increase. From that, we back off a little with a pessimistic budget of 6%, say, and an optimistic budget of 4%.
While the objective-task method is much harder to implement, it’s the only one with the explicit goal of spending whatever is necessary to reach your marketing goals.
2. What your marketing budget covers
Often, folks think of marketing as synonymous with advertising, and that’s just not the case. Sure, advertising spend is a big part of your marketing budget, but you also need to spend money on innovating your products to meet future customer needs, building efficient distribution channels to ensure products meet customer desires for the right product and the right place and the right time. For instance, building a centralized warehouse means faster delivery to a widely distributed customer base, while developing a new product means you stay relevant as customer needs change. And, of course, marketing involves administrative costs as well.
Managing your budget to achieve success
Bookkeeping services
Monitoring costs and returns on your investment improves future budgeting efforts, which at the same time controlling costs by highlighting waste and shifting spending toward efforts with higher returns.
Having someone to take care of your cost per month could really help improve returns. Having trained professional help takes a massive weight off your shoulders and helps ensure vendors are paid on time.
Improve efficiency
Audit your processes to ensure you’re running as lean as possible to avoid wasting your budget on redundancies and unnecessary expenditures. You may complete your documents and spreadsheets online, using tools such as Google Docs, to track performance at every level and eliminate waste. For instance, ordering too much raw material or renting a machine before you actually need to use it are expenses that add up over time. Your supply chain is a major source of problems, so ensure you’re shipping products to take advantage of all available discounts rather than having to rush ship something because you didn’t get the product out in time.
Contingency planning
Be prepared for future problems and issues to save you from expensive borrowing or putting off paying vendors, which causes strain in the relationship that can cost money down the line. Setting aside money each month is a good practice as part of other contingency plans. Just be sure to invest your contingency money so it’s working for you by buying short-term investment instruments.
Conclusion
Hopefully, with this guide, you can develop and manage your marketing budget to achieve success.
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