This is the second of a two part series. Make sure you also read Part 1: How to create an annual marketing plan.
Whether you want to generate more leads or increase your revenue from existing clients, marketing is essential to your profitability and growth. It’s the fuel that drives the sales engine that, in turn, power’s every company’s growth and profitability.
That’s why your marketing plan and corresponding marketing budget are indispensable to achieving your revenue goals.
Unfortunately, many businesses don’t allocate enough of their annual budget to marketing - or worse - they neglect to plan their marketing expenditures at all.
Instead, they spend their money haphazardly and inconsistently. These companies add a new element to their marketing mix “on the fly” without considering in advance whether it makes sense for their overall business goals.
If you are ready to take control of your process and create an annual marketing budget to guide you and drive positive results, here are the key components that will help you move forward:
Calculate your marketing budget
Based on the marketing plan and calendar you developed (see part 1 of this series for details), you’ll need to allocate specific dollars to the campaigns and activities that will enable you to achieve your business goals.
Before you can do that, however, you must determine your overall marketing budget for the year. If you haven’t done that before, we’ve included some best practices for you to follow.
Many companies allocate a percentage of actual or projected top-line revenue. This allocation varies based on the industry you are in, the size of your business, and your company’s growth stage. For example, according to the Small Business Administration (SBA), during the early brand-building years retail businesses spend significantly more than other businesses on marketing (especially advertising) - up to 20 percent of sales. This is on the high end, however.
In a survey of marketers by CMO, companies on average spend 7.5 percent of their total revenue on marketing. This aligns well with the SBA recommendation of 7 to 8 percent of gross revenue for marketing and advertising for businesses with less than $5 million a year in sales.
The most important thing for your company to keep in mind is that your marketing budget is comprised of dollars that you should treat as an investment, not an expense.
This means that you should be getting a return on your investment (ROI) and that your marketing dollars are being spent on the activities that bring your company sales, revenue, and profit. That’s why measurement of your efforts is essential.
Allocating and prioritizing your marketing dollars
To get the best ROI from your marketing budget, return to your marketing plan and calendar. Take a look at your major campaigns and your ongoing activities for each month.
Next, organize and allocate your expenditures based on your overall goals for your company and your marketing efforts. High-priority projects and large campaigns that contribute significant growth should receive more money from your budget than activities that don’t contribute to the same amount of revenue and sales. Next, allocate money to ongoing efforts. Finally, look at your smaller campaigns and “nice-to-have-but-not-necessary” items - these should receive the fewest funds and time investment.
Use your marketing calendar to apportion your marketing investments for the entire year — by month. If you are undertaking a major branding effort such as a website redesign, then call a creative agency to get an accurate estimate of how much you should put towards these activities. This will help your budget stay realistic and on track.
Implementation and flexibility ensure success
Of course, a marketing plan, calendar of activities, and budget are not enough. To be successful, you must take action consistently throughout the year and remain committed to following through.
An effective way to ensure implementation is to assign individuals in your company to oversee your ongoing activities and execute your marketing tactics according to your plan. Set up a processes for these individuals to report monthly on the progress of the items they are overseeing.
Keep in mind, your plan shouldn’t be fixed and immutable. Rather, treat it as an evolving document. There may be times throughout the year where you may need to shift costs around to throw in an unplanned campaign or event.
You may also need to move dollars away from something that isn’t working as well as you had hoped and into an activity that is bringing in more revenue. When changes occur, refer to your overall marketing budget to prevent unintentional overspending.
Track and measure marketing throughout the year
In addition, put ongoing systems in places to measure both your spending and the impact each marketing activity is having on your bottom line or other metrics that tie back into brand awareness such as website traffic, lead generation, and social media engagement. Be particularly diligent about tracking how your customers find you.
Specific information that is helpful to measure includes:
- How many website visitors do we get each month?
- How many leads are we generating each month?
- Where did they come from? How did they find us?
- How many leads convert to buyers?
- How many sales do we make each month? For which products/services?
- What’s the cost of generating each lead?
- What is the cost of generating each new customer?
- What is the typical lifetime value of each customer?
- What revenue and profit did each campaign generate?
- What were the actual expenses for each campaign (include staff time)
Certain marketing activities are more difficult to tie into direct ROI - for instance, you may not be able to directly measure the impact of a printed brochure or a word-of-mouth campaign. But these types of branding staples can still be essential to your overarching marketing efforts. They may not have an immediate ROI, but can create significant gains over several years. This article in Forbes has some other soft metrics that you can consider and will pay off in your long-term brand performances.
Marketing is essential to revenue and growth
Successful and highly profitable companies understand that marketing is a fundamental ingredient for profit and growth. As a result, their leadership team commits to allocating enough of their budget to marketing each year.
These growth-driven businesses develop a plan and tie all of their marketing efforts into their overarching business goals. Then they relentlessly strive to implement, test, and measure their activities and adjust tactics to maximize what is working well and minimize what is not.
If you need help with your marketing budget and metrics, Harvest Media can help! Get in touch with us at 847-352-4345.