Marketing is an investment, just like any other type of capital spending. Marketers need to be aware of the return on their marketing investments because that will help them understand how much to invest in it.
I’ve found that marketers generally break into three categories when it comes to determining their budgets for marketing activities. Let’s take a look at each type and how to calculate their budget.
The first group is made up of marketers that use a percentage of their revenue as their marketing budget. This approach is very simple, but it can be inaccurate if your company’s revenue changes frequently.
To calculate your marketing budget using this method, simply multiply your desired marketing spend by your company’s annual revenue. So if you want to spend 10% of your company’s revenue on marketing, then multiply 10% by your company’s annual revenue. This gives you the amount you should set aside each year for marketing expenses.
The second group is made up of those that use a certain dollar amount as their marketing budget. This approach can be more accurate than using a percentage of revenue because it allows you to more precisely calculate the number of marketing dollars that need to be set aside each year.
To determine your target marketing budget, take into account all of your company’s expenses and project what its sales will be in a given year. Add up how much money is going out and subtract that from expected sales results. The difference is how much money you have available for marketing this year.
The third group is made up of marketers that use a percentage of their competitors’ budgets as their benchmark for their budgets. This approach can also be inaccurate simply because there are many other factors involved with calculating a company’s actual marketing spend, such as competition spending rates and lack of data about what companies do spend on certain types of marketing.
To use this approach, find the average percentage of revenue that your top three competitors are spending on marketing and divide it by 3. This will give you a good starting point for how much you should be budgeting for marketing.
While there is no perfect answer when it comes to calculating your marketing budget, these three methods should give you a good place to start. Some CMOs and Marketing Directors will rely on buy datasets to help decide where to allocate a budget. Others will need to collect their own data which get expensive and risky, but is still way cheaper than launching a marketing campaign that won’t have any impact. Whichever method you choose, make sure you track your results so that you can continue to invest in the activities that are providing the best return on investment.
Team Of Monkeys 