Module 10: Creating a Marketing Budget

It’s hard to make a budget for the first time, but once you make your first budget and track expenses and revenues, it gets easier. The marketing budget is an important part of your plan.

As a general guideline, your marketing budget should be 1% to 10% of sales. Of course, when you’re just starting out, your marketing budget should be whatever you can afford. But if you’re a new business, you should expect to spend closer to 10% than 1% on marketing. You may even want to spend more.

Identifying Your Expenses and Resources

To make a budget, make a list of all of your expenses and resources. For expenses, start with fixed costs. These are costs that don’t vary depending on other factors. For example, you might have monthly marketing subscription services you pay for or content creators on a retainer.

Then, approximate the costs that fluctuate – your variable expenses. When it comes to marketing, many of your expenses will fall into this second category. If you’re running an online ad campaign, for example, you will pay per the number of clicks on your ads (although you can set a ceiling for these).

Also, make a list of all of the resources you need to secure in order to carry out your marketing plan. These may be tangible tools you need, such as printing of offline promotional materials or software packages for your online marketing, as well as intangible expenses such as outsourcing.

Allocating Expenses

Decide how much should be allocated to each marketing channel or resource. The advantage of online advertising is that it can be cheap, depending on where you go, and sometimes free. It takes effort on your part to run your online campaign, but there are few upfront charges. Things you might pay for include website design and optimization, pay per click advertising, and advanced tracking software.

Offline, you may need to allocate funds for advertising, listings in Yellow Pages or classifieds, direct mail campaigns, and attending trade shows or other events.

Tracking Your Expenses

The most important part of budgeting is tracking. You need to track expenses very carefully. There’s a good chance that your first budget will be inaccurate, but if you keep track of expenses well, you can correct for the next budget.

Tracking expenses shows you areas where you need to tighten up and be more efficient. You may find that you’re spending a great deal on a particular marketing tactic that is not bringing you much in the way of results. For example, you may be funding a pricey direct mail campaign that’s not achieving your marketing objective of gaining new customers.

One thing to pay particularly close attention to is where your customers find you. These are good areas in which to allocate more financial resources.

The marketing budget you come up with will be your minimum budget. It will be increased when you launch new products or expand your business. With your budget clearly laid out in your marketing plan, you’ll have the ability to grow when the time comes.

Forecasting Future Revenues and Expenses

The budget section of your marketing plan should include a forecast of future revenues and expenses. This should be based on past financial records along with predictions of market trends and other things that could affect your budget (refer to the Threats section of your SWOT analysis). Once you begin tracking expenses, you can make a more realistic forecast.

For your forecast, it’s important to focus on expenses rather than revenues. It’s good to overestimate expenses because it reduces the risk that you’ll come up short. Double or even triple your projected expenses and you’ll protect yourself in case they turn out to be higher. If nothing else, you’ll have some left over. Alternately, estimate revenues conservatively. Imagine that high expenses will stay high in the future.

Base your forecast on trends in the industry and have a backup plan in case your sales drop. For example, designate high cost marketing channels that can be put on hold until sales rise again, or find lower cost alternatives to get you through hard times.

Action Steps

Using the Marketing Budget spreadsheet provided, estimate your future revenue, based on past revenue and anticipated increases (be conservative)
Next, list current fixed expenses and costs
Next, establish a budget for any expenses associated with each part of your marketing mix. Edit the listed marketing tactics to suit your needs.

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