For your marketing strategy to be successful, you need to spend money on the right things. Strategically allocating your marketing budget is a crucial marketing task and one that can get overwhelming if you’re not sure how to go about it. That’s why, in this post (and the video below!), we’ll lay out five essential steps for allocating your marketing budget to the ideal channels and strategies for meeting your goals.
Bonus: Unlock more info about allocating your marketing budget by downloading our free budgeting guide!
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Setting your overall marketing budget
Before you start working out how to allocate your market budget, it’s helpful to know how much you have to spend overall.
The size of your marketing budget depends on your goals and how much you have to spend. Companies often spend 7-10% of their overall revenue on marketing. If you’re a new company or want to put a lot of focus on quick growth, you might spend a larger percentage — up to around 20%.
These, of course, are just typical ranges, so you might want to spend more or less, depending on your needs. A good rule to keep in mind when creating your marketing budget plan is not to spend money you can’t afford to lose. Following this rule will keep you from overspending.
How to allocate your marketing budget
Once you’ve determined your overall marketing budget, you can start working on allocating it.
Here are five steps to follow when allocating your marketing budget, along with some marketing budget allocation best practices.
1. Set marketing goals
Setting your marketing goals is a crucial part of creating a marketing budget plan. Your goals will help determine which channels and strategies you use and how you allocate money to them. Make your marketing goals SMART goals, which are:
- Specific: Include details in your goals and avoid vagueness.
- Measurable: Ensure you can measure your progress toward your goals.
- Attainable: Your goals can be ambitious, but they should also be realistically achievable.
- Relevant: Your marketing goals should be relevant to your overall business objectives.
- Time-bound: Set a time limit for achieving your goals to help keep you on track.
Examples of SMART goals include “increase revenue by 30% by the end of the year” or “generate 25 new leads by the end of the quarter.”
2. Create a plan for the year
To further guide your marketing budget allocation, create a rough plan for your marketing for the year. Remember to keep your marketing goals at the forefront of your mind as you create your plan. Also, consider your buyer’s journey — how your customers interact with your marketing and go from discovering your business to becoming a loyal customer.
To create your plan, you’ll need to decide which channels and strategies to use. Consider channels such as:
- Search engine optimization (SEO)
- Pay-per-click (PPC) advertising
- Web design
- Conversion rate optimization (CRO)
- Email marketing
- Social media marketing
You’ll also need to think about how you’ll use these tactics. Will your internal marketing team do the work, will you hire a marketing agency, or will you work with freelancers?
You might use a combination of these methods. When choosing marketing channels, a good rule of thumb to keep in mind is the 70-20-10 rule. This guideline says that:
- 70% of your budget should go towards strategies you know work well
- 20% should go to new strategies that help your business grow
- 10% of your budget should go towards emerging or experimental strategies to keep you ahead of the competition
3. Calculate expected costs and return on investment (ROI)
Next, calculate your expected costs for each marketing initiative and the potential ROI. While you, of course, don’t know exactly what your ROI will be, an estimate can help you determine how to allocate your marketing budget. When adding up your costs, be careful to account for all of your potential expenses, including the less-obvious ones.
Some costs you might encounter include:
- Hiring an agency, freelancer, or additional team member
- Software and tools
- Potential failed attempts, such as PPC ads that don’t convert
Estimating your marketing ROI can be tricky, but try looking at benchmarks for your industry with the channels you’re using. For example, the average conversion rate for Google Ads on mobile search is 3.48% across all industries, according to research from 2018. The average varies by industry, however. The travel and hospitality sector has an average conversion rate of 2.4%, while hair salons have an average of 5.95%, for instance. It’s helpful to look at the ROI of your past campaigns and the track record of the agency you’re working with as well.
Calculating your expenses helps ensure you allocate enough money to each channel. Estimating your ROI gives you an idea of how worthwhile your investments in each channel are. You may want to invest more in high-ROI strategies.
4. Allocate your spending
Now, based on all the information you’ve gathered, you can split up your spending across the channels you’ll use. Remember to keep your goals, expected costs, and expected ROI, as well as marketing budget allocation best practices, in mind. Let’s look at a simplified example of how a company might divvy up its marketing budget.
Say you have $12,000 for your monthly marketing budget. You have a website that gets a decent amount of traffic through search, and you want to drive more highly qualified leads to your site and increase your conversion rate.
- You might devote $9000 to PPC since you have to account for ad spend and PPC ads are effective for engaging leads who are further along in the marketing funnel.
- You might allocate $2000 to conversion rate optimization (CRO), which involves optimizing your website to increase the percentage of visitors that makes a purchase or otherwise converts.
- You might spend $1000 on SEO to maintain your search engine rankings.
To save money, you could write your own blog posts and manage your own social media. If later in the year, you notice competitors overtaking you in search engine results, you might shift some of your PPC budget to SEO and content marketing.
5. Track your campaigns and refine your strategy
As your campaigns run, carefully track your key performance indicators and measure your campaigns’ success. You can then use these findings to refine how you allocate your marketing budget. If a campaign is performing exceptionally well, you might choose to allocate more funding to it.
If a campaign is underperforming, evaluate whether you should adjust your tactics or reduce the funding you allocate to it. Be careful not to pull funding prematurely from a channel that’s important to achieving your goals. In addition to adjusting your spending as you go, compile your campaign and ROI data and use it when planning your marketing budget for the next year.
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