7 Essentials to an Effective Marketing Budget
So perhaps you're new to this - not to setting an annual budget per se, you've likely been doing that since you first set out to run a business - but to thoughtfully thinking through what it's going to take financially to reach your core audience with the right message and effectively drive your business' growth. Or maybe you (or someone on your team) has been doing this for years. Either way - the steps below can act as a checklist to making sure you're setting yourself up for success from the start of the year.
Essential #1 - KNOW YOUR GOALS & KPIs
This may sound elementary, but you'd be surprised at how many business executives and owners can't state their Key Performance Indicators (KPIs) when asked. The best way to determine a budget is to start at the end and work your way back - so what is it you're trying to do for your business this year? Is it to increase your email database? Sell X number of products? Increase web traffic X%? Sign X number of new clients? Knowing what will grow your business and being able to quantify it will set you up to create a marketing strategy to support it.
Essential #2 - KNOW YOUR CUSTOMERS
This is big topic and can get complex the deeper you dive into it, but that's another topic for another day. To create a budget though, at a base level you need to know who you're trying to reach and where you find them. Is your audience homeowners? Is it stay at home moms? What mediums do they consume each day and at what times of day? These are the types of questions you should know the answers to in order to know how to effectively reach your audience.
Essential #3 - CREATE A PRIORITIZED ANNUAL PLAN
It sounds simple when you just name it like that, but we all know that creating a true marketing plan that's both strategic and executable is complex (that's why you hire people like me). The main point here is that you have to have a plan before you can assign any dollar amounts. Furthermore, it's important that this plan is calendarized (think quarters, months, or even weeks). It's not realistic to think you can achieve all your marketing and business goals at once, so making sure you calendar your efforts allows you (or your marketing team) to:
have focus - fewer tasks with greater focus will result in bigger results than spreading time and attention across too many tasks or objectives at once
plan your cash flow - if monitoring cash flow is necessary or you have a max monthly spend limit, calendarizing your plan will allow you to spread high ticket initiatives when cash flow is best or when you know you will see a greater, more immediate return (key for businesses with high seasonality)
find the right resources or allocate time to test initiatives - we'll get into these more in Essentials #4 and Essential #7, but if you have a big initiative (say a complete website redesign or a new product launch) that may require higher than usual budgets, knowing when those will hit will allow you to properly align all necessary resources ahead of time and/or test at smaller budgets before you commit to a larger spend. It allows you to PREPARE before you spend a large amount of money.
Essential #4 - LIST YOUR RESOURCES
So you know what your goals are, who you're trying to reach, and how you're going to reach them (aka the plan). Now it's time to take a hard swallow and ask yourself "Do I have the resources to do this?". This one is hard for most business owners and business execs (myself included). The "can-do-anything" attitude that got them into this position of leadership to begin with tends to make it difficult to answer this question honestly. It's possible you have untapped resources. Perhaps you're a small business or start-up and you have someone on your team that could be great at running social - ie. the recent college grad you just hired to do prospecting. Ask yourself if they have the bandwidth (truthfully) and if so, set a plan of action with them to work this responsibility into their day-to-day.
Identifying resources can also mean looking at your expenses from last year and determining what expenses didn't have a big impact on the business and could be repurposed. It also means thinking about partnerships within your network. Perhaps you know someone in your network who could be of service to you but that could also benefit from your services or product sets you up to potentially strike up some budget-friendly resources.
Once you know what your needs are from your plan, and what your resources are, you can determine where your "gaps" are. You've outgrown you're website and you need a redesign and a new web build. Time to budget for that graphic designer and web developer if you don't already have one! The good news is since you're already calendarized your plan, you're not launching that website until Q3, so you know where to allocate the expense. (See how it's all coming together?)
Essential #5 - CREATE MANY SMALL, MANAGEABLE BUDGETS
This goes hand-in-hand with your marketing plan. Your plan likely has multiple variables and channels. You should break your budget up the same way. Just one large marketing bucket is hard to manage and chances are, even with a calendarized plan, you'll lose track of the spending and run out of budget (or worse, go over budget) without a plan to accommodate it. Line item your marketing budget into smaller buckets that are easier to track and manage.
Essential #6 - KNOW YOUR BASEMENT ROI
At the end of the day, you should be confident that your marketing spend is returning a positive ROI. Knowing your basement ROI (or the lowest return you can tolerate to still be profitable) will help you evaluate your spending throughout the year. If you're consistently at or below your basement ROI, it may be time to reconsider if that is an effective channel or use of your budget, and then reallocate those dollars elsewhere. Again, knowing your KPIs, tracking them against your spend, and then analyzing them allows you to make the most of your budget.
Note that not every dollar in your budget may not always have a trackable ROI and there can be exceptions to setting the basement amount. Sometimes with a new product or line of business you need to make a heavier investment upfront and you may not see the ROI immediately (although it should come eventually and if it doesn't, that's a problem). Or some branding initiatives are hard to track (radio spots are a prime example here; or perhaps it's hiring a graphic designer to update your logo - it's going to help your branding and awareness but it'll be hard to tie an ROI to that). They are still essential to your general marketing success and worth the investment. Investments are just that and it's important to understand where those are in your budget so you set the right expectations. These sorts of initiatives sometimes have softer KPIs to help you gauge the effectiveness and you can generally correlate lifts in your business. Just be mindful that these branding/awareness shouldn't make up the majority of your total marketing budget. The rest of the budget spend should be attached to KPIs you can track and that can provide a financial equation that allows you to see the success.
Essential #7 - TEST BEFORE YOU COMMIT
Last but not least, if you're investing in a new channel of marketing, allocate a smaller portion to test first. Don't go all-in right off the bat. Carve out a portion of the spend and a reasonable amount of time to allow success and gauge if the marketing is effective. If it is, then you can confidently allocate the remaining spend. If not, you saved yourself some money and some heartache, or you can reallocate towards an already proven channel. This even goes for expanding your marketing team. Negotiate a trial period if you can. Hire a graphic designer for a specific project or two first, before you commit to a retainer or more permanent solution.
It's easy to know you need to spend a marketing budget. It's not always easy to be smart about HOW you spend. If it's new to you, do your research and get some help with estimates and benchmarking. With each passing year, the budget builds upon itself and it gets a little easier. The goal is to end the year confident you spent intelligently and effectively and energized to keep growing your business.