For most companies, spending money on marketing to drive sales and revenue is a given, but determining “how much” is often a haphazard process rather than based on thoughtful planning and accurate analysis. Some businesses may turn to the oft-cited Small Business Administration’s recommendation for 7%-8% of revenue, or they may have a set amount they spent last year that they just roll over annually. Or they may just spend when an advertising salesman comes in with a “good idea.”
Companies have managed to get by of course with these sorts of marketing spends, but many more have failed. And even those that have survived have likely not grown at the pace they could have if they had given more thought to their own specific needs and capabilities. One of the biggest misunderstandings companies have when it comes to setting a marketing budget, however, is believing their budget should be based on where they are now. In reality, a goal-oriented marketing budget should center spend on that goal number – typically 6-12 months out, using it as the basis for growth.
It may seem scary or unrealistic to invest funds from future goals into your marketing budget, but understanding that growth requires an initial investment is critical. When businesses set realistic, reachable goals based on accurate expectations of return on marketing investments, they tend to see not only steady, reliable growth, but several other positive benefits as well.
THE BENEFITS OF A GOAL-DIRECTED & GOAL-ORIENTED MARKETING BUDGET
Using a goal-directed marketing budget model accomplishes several things:
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It helps set realistic goals. By examining the costs associated with expected return, you can identify when expected returns may be overly optimistic. Of course, optimism by itself isn’t a bad thing, but if the company is making other investments based on a too-rosy outlook, it may find itself overextended and in trouble. Using a goal-directed marketing budget, a business will tend to set realistic revenue goals based on expected ROI, and this can inform other aspects of business planning that might otherwise get overextended.
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It minimizes overspending or underspending. By setting clear goals such as monthly revenue based on what marketing spends should produce, it is easier to monitor the results of those expenditures and adjust them, if necessary, in order to consistently maximize “bang for the buck”
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It helps refine and clarify the overall goals of the business. Management isn’t always focused on marketing and its results. They may hold meetings or discussions about cutting costs or supply chain improvements that don’t directly involve marketing. But having a marketing budget with clear goals and clear expectations of results can directly inform these non-marketing discussions. In this way it’s synergistic – when management has a clear understanding of what marketing outcomes should be, they can refine other aspects of the business based on accurate revenue expectations.
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It encourages long-term planning. When you have a clear idea of what your marketing spend will be per month, and what it should produce, you are more likely to track it as an ongoing process rather than making haphazard decisions based on, for example, what you still have in the budget this year.
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It reinforces a focus on the customer. Goal-oriented marketing budgeting – by definition – has to focus on the customer. How is the customer responding to our advertising or to our product(s)? What are they excited about, what gets them interested, what makes them close the deal? In this way, a goal-directed marketing budget helps to keep the customer at the forefront, which is the aim of any company, but can sometimes get lost among other concerns.
BASIC STEPS FOR A GOAL-ORIENTED MARKETING BUDGET
Here are a few simple steps to get you started with a goal-directed marketing budget:
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Set specific goals. Vague goals like “increase sales” or “increase conversions” sound good, but they don’t really answer the question “how much return on our marketing spend do we need to meet our profit goals or revenue goals or even “we can stay in business” goals. Instead, a goal-directed method will identify those specific numbers and determine the ROI required to meet them.
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You can choose from a variety of specific goals, but the most relevant one is often simply revenue. As mentioned above, a clear revenue goal can inform a lot of other decisions, not just about eventual marketing spend, but what kind of financial resources a business will have going forward.
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Use effective tools to estimate your true marketing costs and returns. Tools for digital marketing give the cleanest examples of how to do this, as public tools such as Google Analytics or more specialized custom software can both analyze the results of your past marketing spends, as well as aggregate average results of similar efforts by other companies. If you are working outside the digital space for some or all of your marketing, the data and feedback may not be as “clean”, but even for other methods like direct mail marketing there are ever-improving methods of analyzing past results and estimating expected ROI for a given marketing spend. Make use of the technology available in your industry to really drill down and make accurate predictions.
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Understand that your budget should be based on where you want to go, not where you are now. The adage is true: you have to spend money to make money. The caveat, of course, is to spend it wisely. Based on the steps above, understanding where you want to go is necessary for determining where to start. With clear, realistic, measurable goals in mind, you can make quick yet logical decisions on where to allocate and adjust your marketing spend.
CONCLUSION
One of the best marketing decisions a business can make is to organize its marketing budget based on clear, defined goals with measurable inputs and results. This method not only helps to maximize ROI over time, but it also helps inform a variety of other aspects of the business and can lead to better decision making overall.
If you’re ready to work on getting the right marketing budget into your business planning, BKE can help. We’ll provide you with a team of bookkeepers with expertise in your industry to make sure you get the most out of all the work you do. Schedule your call today.