Why you need to set a marketing budget

One of the behaviours that can set companies with a growth mindset apart from others is to look at marketing as an important investment, not an expense. And it’s not just semantics.

An investment brings you a return bigger than what you put in, whereas in an expense the money only goes out. A flight or a meal is an expense; buying a piece of machinery to increase production is an investment. For a small business, where money is usually tight, expenses are what you avoid at all costs. So when you decide to look at marketing as an investment, you will plan and budget for it.

I’ve worked for a small business (about 40 employees) that had no defined marketing budget despite having a small team of marketers. Whenever the marketing team wanted to make an investment, we had to go to the owner, who then had to find money for it. Withouth forward planning, the money was usually unavailable and our requests were often declined.

Although there’s a lot that can be done at zero cost, certain marketing campaigns will require investment, especially when it comes to digital marketing such as pay-per-click (PPC) campaigns or targeted social media promotion.

Here are a few reasons why having a defined marketing budget will help your small business grow faster:

Planning ahead leads to better ROI

Having a marketing budget doesn’t mean just spending money without any accountability. Quite the opposite: by defining a budget you and everyone involved will know exactly how much you can spend and you plan ahead your marketing campaigns accoordingly. You can also set up timelines for campaign completion and agree on the return on investment (ROI) that you’d like to see.

In most companies I worked for, you’d expect to see a 10X ROI in pipeline: for every £1 you put in, you’d expect to generate £10 in sales-qualified leads. Then the rest depends on your company’s ability to convert these sales opportunities into actual bookings and revenue.

Avoiding a bottleneck

If you already have a marketing person or a small team of marketing people, not having a marketing budget will become a bottleneck. Can you imagine if all the marketing managers at Coca-Cola had to go to the CEO and ask for money every time they needed to invest in marketing? Sounds absurd, yet that’s the way that lots of small and medium-sized businesses still manage their marketing departments.

Another bottleneck is that without a pre-defined marketing budget you will have to go searching for the funds every time you have a request and you won’t know straight away what you can comfortably afford to invest. You might end up having to take money away from other activities to pay for marketing, spending too much or not investing at all.

Spending with no fear

With a pre-defined marketing budget, you only need to think about how to best invest the money you set aside, instead of crunching numbers every time to see if you can afford it. If you have a marketing professional or a small team of people working for you, their focus will be on bringing the best ROI. Most people hate conflict, especially with their bosses, so if every investment requires an argument, your team may settle for zero-cost activities and dismiss paid tactics that could help you grow your business faster.

Defining your marketing budget

If you haven’t set up a marketing budget before, here are a few tips to get you started:

  • Look at your finances: How much can you afford to invest and how much risk are you willing to tolerate?
  • Consider your fixed costs: Any fixed costs such as agency retainer fees, website maintenance, subscription to marketing tools, contractors and freelancers should be accounted for. Make sure that your fixed costs don’t take up 100% of your budget, as you will need money to invest in campaigns and cover other flexible costs.
  • Return on investment: How much ROI do you expect to see and within what timeframe? Be realistic, as some industries have longer sales cycles and it takes a lot of time to see leads converting into into business.
  • Timeframe for spending: when does the budget need to be spent? Most companies work with a quarterly timeframe, with the budget being released at the beginning of the quarter and work having to be completed before the end of the quarter. Your accountant may be able to advise you on this.
  • Budget owner: Who is responsible for building the marketing plan and allocating the budget? This person will also be accountable for the results.
  • Budget approval: Who is going to approve any budget requests? Most companies have a review process in place and a few people involved to ensure the money is being invested wisely. Typically the approval chain will vary slightly depending on how big the request is: the higher the amount, the more people need to approve it.

Published by Carolina Marino Sargeant

I’m Carolina Marino Sargeant. I am a British/ Brazilian professional with 15 years’ experience in Marketing and Corporate Communications. I have been at both ends of the spectrum, having worked for very small businesses with no marketing budget and for Fortune 100 tech giants with hundreds of marketing professionals. My website howtogrowmybusiness.co.uk offers marketing ideas and tips for small businesses and self-employed professionals who would like to grow their revenue or income with little to no marketing budget.

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