Lisa D'Andrea
Nov 19, 2018
Business

Why you need a marketing budget (and how much to spend)

In May last year, we sat down for a meeting that took a surprising turn.

We were chatting to a business owner over coffee about his website redesign— his site was dated and he was losing new customers to his competitors because he didn’t look trustworthy.

We spoke for a while, and once we had a good grasp of what he was after, Kane gave him a ballpark budget. “Based on what you’re after, you’re looking at somewhere between $7-9000”.

“Does that fit within your budget?” I asked.

Usually our customers have read our website and have a rough idea of what to expect, but we like to have open conversations about budgets, because it’s always a balancing act— sometimes you have to sacrifice some of the cool stuff you want now to fit the budget, and you can add more bells and whistles over time.

As many customers understandably are, I could tell he was reluctant to share— “Yes, I suppose so,” he said.

“Ok”, I said, “if you’d like, we can work out a more accurate estimate and send it through?” He agreed, and a week later and I gave him a call to see if he had any questions about the proposal. 

He replied “Oh, no we won’t go ahead, it’s way too much, our budget is only $2000.”

I wished him all the best and I got off the phone. I was shocked. A $5000 discrepancy is a mighty big jump. I didn’t mind that his budget was only $2K. I wasn’t upset that he didn’t want to work with us either (hey, we’re not the right fit for everyone). 

What I was really disappointed about was that he wasn’t upfront with us about his budget and it wasted everyone’s time (including his own). 

We are not in the business of selling people things they don’t need and can’t afford. Most of our clients don’t know what they should spend on a website, let alone their marketing. That is completely normal. 

But, while I can scale our scope of work up and down to suit your budget, only YOU know how much you can afford. This is why I think everyone should have a ballpark marketing budget based on their business goals.

So what’s the deal with marketing budgets? How do you know how much to spend? And why should you invest in marketing? Here’s my take on these questions—

Why should you invest in marketing?

We started our business from scratch with a tiny budget. When we dropped our first $100 on facebook ads it was scary for me (don't laugh!). One thing I learned very quickly is that setting money aside to spend on marketing is an essential part of getting new customers (and keeping the lights on).

We consume SO much information every single day. You know that ad campaign you ran last month? The post you did last week? Or the email you sent 2 weeks ago? People have probably forgotten about it. Eek!

That’s why consistent, regular marketing is so important. If you can stay top of mind, the odds of you reaching the right person at the right time with the right message are significantly higher. You can stay top of mind by showing up on social media (paid or organic), in email inboxes, at live events and more.

The truth is you can’t afford NOT to invest in marketing your business, or soon you won’t have one.

So why is a marketing budget important?

It forces you to prioritise marketing efforts

Money can be spent very quickly in business— between software subscriptions and wages, it doesn’t take much for expenses to add up. Even if your budget is small, the act of allocating an amount to marketing every month means it is a priority in your business and will ensure it doesn’t get eaten up by another, ‘more important’ expenditure.

Armed with a set amount, you’ll also be inclined to focus on the most important marketing tasks in your business. Or, in other words, where you will get the most bang for your buck.

It dictates who you can hire

Your budget might determine whether you can afford to hire someone, who you can hire, and/or if your marketing efforts will be a DIY venture. Knowing how much you’re willing to spend upfront will help you to have an honest, upfront conversation with potential suppliers. Most good business people will gladly put their hand up and say, ‘you’re not the right fit for me, but maybe check out this other supplier.’

It will motivate you to track your return on investment

Marketing is like educated gambling. You hedge your bets on a strategy and see if it works. You optimise it and measure the results as you go.

I’m not really a gambler. I hesitate at dropping $10 on the fruit wheel at the casino, so I completely understand if this sounds scary to you, but in the words of Seth Godin “the cost of being wrong is less than the cost of doing nothing.” You have to give a marketing tactic a good go to see results.

When it’s done well, your marketing should have a positive return on investment (ROI). This means that for every $1 you spend on attracting new clients to your business, you should be earning $2 (or more) in sales revenue. This is the equivalent of me saying to you ‘hey, if you give me $1, I’ll give you $2 back.’

And, if you have the tendency to spend up big, your marketing budget is in place to ensure you aren’t spending more than your business can afford.

What costs should come out of your marketing budget?

This will depend on your marketing strategy, but marketing costs generally include —

  • Branding costs (creating, managing your brand look, feel, sound and experience)
  • Website costs (creating, managing a website and or landing page)
  • Social media costs (managing and posting on social media)
  • Advertising costs (social media ads, print ads, search engine marketing (SEM))
  • SEO costs (managing search engine optimisation strategies)
  • Content creation costs (blog posts, email marketing, podcasts, lead magnets)
  • Events costs (attending events or running promotional events)

This isn’t an exhaustive list, but you can see that there are a few items on the list that might pull at your budget. People often ask us where they should spend their money when they're just getting started, and my opinion is, there is no hard and fast rule. You'll need to work out what the priorities are for your business.

Selling a luxury product? Or selling to a design conscious audience? You’ll need to look professional with beautiful branding and/or packaging. Selling products online? Your website is your storefront so you might want to invest in your online experience. Need to drive lots of ready to buy traffic to your site really quickly? Maybe your budget will be heavily allocated to search engine marketing like Google AdWords.

How to work out your budget

A scout around the web suggests that most business' marketing budgets fall between the range of 6-20% of business revenue (Gartner, CMO Survey, Wordstream, Vital Design). So, if your annual revenue is $200 000, your annual marketing budget might be $12 000 - $40 000 ($1000- $3000 per month). This is probably the simplest way to arrive at a budget.

Or, you could work backwards and say ‘how much do I want to earn this year?’ If you’re doing it this way, you might set a goal to earn $200 000. If, for example you earn $200 per sale in revenue for your products/services then you'll need to make 1000 sales to hit that goal.

If you think you can convert 2% of people coming to your website or landing page into sales then you’ll need 50 000 people to visit your landing page to reach your goal of 1000 sales. That’s just over 4000 people visiting your website every month. Or, if your landing page is converting a little better, let’s say at 5%, then you only need 1700 people visiting each month. Side note: This is why a high converting website is so important!

So, once you know how much traffic you need, you can work out what your marketing strategies are and allocate a rough amount to each one.

Example monthly budget—

  • SEO brings in 300 people (Cost: $200)
  • Organic social media brings in 300 people (Cost: $500)
  • Pinterest ads cost us 15c per click. Spend $10 per day, that’s 2000 people (Cost: $300)
  • Facebook ads cost $1 per click. Spend $10 per day, that’s 300 people (Cost: $300)
  • Instagram ads cost $1 per click. Spend $10 per day, that’s 300 people. (Cost $300)
  • Email marketing and blogging brings in 300 people (Cost $300)
  • PR activities, networking events and collaborations bring in 500 people (Cost: $400)

This is just a made up example, and is by no means indicative of any real costing, but you could work out your own costs by looking at past spending, researching online and/or obtaining quotes.

Once we have our figures, we can work out a budget. In the example, your marketing efforts cost around $2300 per month and bring in 4000 people to your landing page every month. This means that your budget is $27 600 per year (around 14% of revenue), and it's going to cost you about $27.60 to acquire 1 new customer.

If you’re just getting started, you might want to start off testing the waters with a marketing budget that is a small percentage of your projected revenue e.g. 5-10%. Then, as you get a better feel for your numbers and conversion rates, you can optimise, invest more and earn more. If you've been in business for a while, you can look at your existing expenditure to gauge how much it costs you to acquire a new customer and which marketing strategies are worthwhile.

Remember: It's all relative

If I told you your marketing budget should be $10000 a month, you might laugh in my face. But if I then told you that $10000 would earn you $50000 in revenue, it's a no brainer! Your marketing budget might be $1000, $10 000 or $1 million a year, it doesn't really matter, as long as you are getting a return on your investment.

So, where to next?

Don’t let your marketing numbers be a stab in the dark—get smart about your budget and set aside money to ensure you can capitalise on opportunities as they arise. Often you won’t be able to afford everything at once, so you’ll need to prioritise and allocate money accordingly. Invest, test, optimise and repeat.

I hope you found this helpful. If you know someone else who needs help planning their marketing budget, use the links below to share it with them. Now— I’d love to know, do you have a marketing budget? If not, have I inspired you to create one? Let me know in the comments!

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