If you have a business and need to market your services; the big question is how do you determine your marketing budget?
Often, executives and higher-ups at companies have no idea how much marketing services cost or what they should expect. The onus is on the marketing agency to educate their clients on how it all works.
In this article, we’ll be breaking down the important parts of budgets so that anyone who runs a business can be more informed when they are talking to marketing professionals about creating a marketing budget.
Let’s get started!
The 2 Elements To Consider Before Setting A Marketing Budget
The truth is: pricing marketing services can be very tricky! Every business has totally different goals and requirements that will make the price of a marketing budget vary a lot. But here are the two elements you should consider before setting a budget:
1. How much money do you have to invest?
Every business has its limitations! What are yours? If an agency is quoting your marketing plan at $1,000, but your business can only afford $500, then you’ve hit a wall. You might be flexible and have a range you can spend but ultimately, there is probably a limit on how many resources your business can invest in marketing altogether.
2. What’s your end goal?
What do you want to get out of your marketing budget? There are no expenses in business, only investments. When you are investing in anything, from a piece of hardware to hiring a sales representative, you’ll want to consider your expected return on investment.
Once you’ve considered both of these questions, think about the following: does the amount of money your business has to invest in this endeavor match the expectation for how much ROI your company wants to get back? Let’s consider some examples.
Example #1: When Your Budget Doesn’t Match Your Goals
For example, let’s say that you want to generate 1 million dollars in revenue from your marketing engagement. However, your business only has $10,000 to invest in a marketing budget. That is usually not a reasonable amount of money to invest in anything that would achieve 1 million in revenue.
If you have a B2B marketing campaign that you want to run for a year and your goal is to generate 1 million dollars in business from the campaign, you might have to invest $250,000 to get that result. In some industries, you might have to invest $500,000 or more, depending on the lifetime value of the revenue that your business acquires.
Example #2: Your Marketing Budget Exceeds The Lifetime Value Of Your Average Client
Let’s say a client is worth $180,000 a year for your business, and on average that client will stay with you for 2 years. That means your average client will spend $360,000 with you.
If hypothetically, your net profit is 10%, that means you have $36,000 leftover. If you spend another $100,000 in marketing to acquire a new client, you’ve effectively lost $64,000. Not the best investment.
Once you’ve determined your maximum budget and the lifetime value of your clients, you’ll need to break this budget up into several components. In the next section, we’ll go into more depth about them.
The Key Components Of A Marketing Budget
1. Internal vs External Hiring
Figure out if it makes sense to hire internally or externally. You know you need digital marketing but you are not sure what your budget should be. What would it cost to hire internally? Let’s say you hire three people internally and that it costs you $15,000 monthly. Agencies might offer the same roster of services for about $12,000 monthly; except actually, they might get a lot more done than your internal team because your company doesn’t have to pay for any of the other overhead costs associated with internal hires. When it comes to having a marketing budget, decide how much money you have and the results you hope to achieve. Then compare it to what it would cost to hire an internal team to get it all done.
2. Ad Spend
In addition to the fixed costs that you will need to invest in a team, you also need to have a budget for advertising. Advertising is not optional. You must invest in AdWords, Facebook Ads, retargeting, and beyond if you really want to maximize your digital marketing efforts. The amount you spend is based on your goals, or return on ad spend (ROAS) that you are looking for and based on your available capital to test. Marketing is all about testing. You might be running a branding campaign that will have branding key performance indicators (KPIs) that you measure (views, engagement, etc). You might be running a direct response campaign where you are measuring KPIs like leads, emails, qualified appointments, or proposals. Decide what you are willing to test with for the first few months and make sure you have conversion tracking set up properly.
3. One-Time Investments & Startup Costs
Finally, the third thing you need to consider is one-time investments and startup costs. Every time you are starting a campaign, there are assets that need to be created, accounts that need to be set up, and strategies that need to be defined. You do not need to build a website every month, but building the right website might cost you thousands of dollars upfront, especially if you are doing it right.